-----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, H/nMkHTqruqKvz5LNYu9l6sV9ZcSQWnF5XFFYxZFSJTtrfS/KEbwOpVZDTetWLmS QVq1e2nc5a8vWS58v55hhA== 0000081371-95-000046.txt : 19951002 0000081371-95-000046.hdr.sgml : 19951002 ACCESSION NUMBER: 0000081371-95-000046 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950927 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER OATS CO CENTRAL INDEX KEY: 0000081371 STANDARD INDUSTRIAL CLASSIFICATION: FOOD & KINDRED PRODUCTS [2000] IRS NUMBER: 361655315 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00012 FILM NUMBER: 95576431 BUSINESS ADDRESS: STREET 1: QUAKER TOWER STREET 2: PO BOX 049001 CITY: CHICAGO STATE: IL ZIP: 60604-9001 BUSINESS PHONE: 3122228503 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1995 [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. Commission file number 1-12 THE QUAKER OATS COMPANY (Exact name of registrant as specified in its charter.) NEW JERSEY 36-1655315 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) QUAKER TOWER 60604-9001 P.O. Box 049001 Chicago, Illinois (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 222-7111 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock ($5.00 Par Value) New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange The Stock Exchange, London Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange 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 such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock held by non-affiliates of the Registrant as of the close of business on August 31, 1995 was $4,683,271,226.63. The liquidation value of Series B ESOP Convertible Preferred Stock, all of which is held in The Quaker Employee Stock Ownership Plan, at the close of business on August 31, 1995 totaled $92,725,230 plus related dividends. The number of shares of Common Stock, $5.00 par value, outstanding as of the close of business on August 31, 1995 was 134,287,347. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of The Quaker Oats Company Annual Report to Shareholders for the fiscal year ended June 30, 1995 (Parts I, II and III of Form 10-K) 2. Portions of The Quaker Oats Company Notice of Annual Meeting and Proxy Statement dated October 2, 1995 (Part III of Form 10-K) CROSS-REFERENCE TABLE OF CONTENTS The 1995 Annual Report to Shareholders and the 1995 Proxy Statement include all information required in Parts I, II and III of Form 10-K, except as otherwise indicated in the following Cross-Reference Table. The Cross-Reference Table identifies the source of information for each of the Form 10-K items included in Parts I, II and III. Only those sections of the Annual Report to Shareholders and the Proxy Statement cited in the Cross-Reference Table of Contents are incorporated in the Form 10-K and filed with the Securities and Exchange Commission. 10-K Item No. Source of Information PART I. Item 1. Business (a) General Development of Business Annual Report to Shareholders, pages 46-47, 64 (b) Financial Information About Annual Report to Shareholders, Industry Segments pages 42-44 (c) Narrative Description of Business Annual Report to Shareholders, pages 27-31, 34-35, 53, 57, 59 (d) Financial Information About Foreign and Annual Report to Shareholders, Domestic Operations and Export Sales pages 42-44 (e) Executive Officers of Registrant Annual Report to Shareholders, pages 60-61 Item 2. Properties Annual Report to Shareholders, page 59 Item 3. Legal Proceedings Annual Report to Shareholders, pages 56-57 Item 4. Submission of Matters to a Vote (Not Applicable) of Security-Holders PART II. Item 5. Market for the Registrant's Common Annual Report to Shareholders, Equity and Related Stockholder Matters pages 34-35, 57, 64-65 Item 6. Selected Financial Data Annual Report to Shareholders, pages 32-35 Item 7. Management's Discussion and Analysis of Annual Report to Shareholders, Financial Condition and pages 27-31 Results of Operations Item 8. Financial Statements and Annual Report to Shareholders, Supplementary Data pages 36-58 Item 9. Disagreements with Accountants on (Not Applicable) Accounting and Financial Disclosure PART III. Item 10. Directors and Executive Officers Notice of Annual Meeting and of the Registrant and Proxy Statement, pages 5-8; Annual Report to Shareholders, pages 60-61 Item 11. Executive Compensation Notice of Annual Meeting and Proxy Statement, pages 13-21 Item 12. Security Ownership of Certain Notice of Annual Meeting and Beneficial Owners and Management Proxy Statement, pages 11-12 Item 13. Certain Relationships and (Not Applicable) Related Transactions PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) Financial Statements Consolidated financial statements of The Quaker Oats Company and its subsidiaries are incorporated under Item 8 of this Form 10-K. (a)(2)& (d) Financial Statement Schedules All required financial statement schedules are included in the consolidated financial statements or notes thereto as incorporated under Item 8 of this Form 10-K. (a)(3)& (c) Exhibits 3(a) Restated Certificate of Incorporation (as of November 9, 1994) 3(b) Bylaws of The Quaker Oats Company (as amended January 11, 1995) 4 Registrant undertakes to furnish to the Commission, upon request, a copy of any instrument defining the rights of holders of long-term debt of the Registrant and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 10(a)(1) 1984 Long-Term Incentive Plan (incorporated by reference to Exhibit B of the Company's 1983 Proxy Statement, file number 1-12) 10(a)(2) First Amendment to 1984 Long-Term Incentive Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(b)(1) Deferred Compensation Plan for Directors of The Quaker Oats Company as restated effective January 1, 1989 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(b)(2) First Amendment to the Deferred Compensation Plan for Directors of The Quaker Oats Company (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(c) Deferred Compensation Plan for Executives of The Quaker Oats Company as restated effective January 1, 1989 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(d) Management Incentive Bonus Plan of The Quaker Oats Company as amended September 8, 1993 (incorporated by reference to the Company's Form 10- K for the fiscal year ended June 30, 1994, file number 1-12) 10(e)(1) Directors' Stock Retirement Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-12) 10(e)(2) First Amendment to Directors' Stock Retirement Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(e)(3) Second Amendment to Directors' Stock Retirement Plan 10(f)(1) Termination Benefits Agreement with William D. Smithburg, first effective in the fiscal year ended June 30, 1995 10(f)(2) Termination Benefits Agreement with Philip A. Marineau, first effective in the fiscal year ended June 30, 1995 10(f)(3) Termination Benefits Agreements with certain Executive Officers, first effective in the fiscal year ended June 30, 1995 or first effective by filing date 10(g)(1) The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(g)(2) First Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(3) Second Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(4) Third Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(5) Fourth Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(6) Fifth Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(g)(7) Sixth Amendment to The Quaker Supplemental Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(g)(8) Seventh Amendment to The Quaker Supplemental Executive Retirement Program 10(g)(9) Eighth Amendment to The Quaker Supplemental Executive Retirement Program 10(g)(10) Ninth Amendment to The Quaker Supplemental Executive Retirement Program 10(h)(1) The Quaker Oats Company Benefits Protection Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(h)(2) First Amendment to The Quaker Oats Company Benefits Protection Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(h)(3) Second Amendment to The Quaker Oats Company Benefits Protection Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(i) The Quaker Eligible Earnings Adjustment Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(j) The Quaker Officers Severance Program, effective March 8, 1995 10(k)(1) The Quaker Long Term Incentive Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 10(k)(2) First Amendment to The Quaker Long Term Incentive Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(k)(3) Second Amendment to The Quaker Long Term Incentive Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(k)(4) Third Amendment to The Quaker Long Term Incentive Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994, file number 1-12) 10(k)(5) Fourth Amendment to The Quaker Long Term Incentive Plan of 1990 10(k)(6) Fifth Amendment to The Quaker Long Term Incentive Plan of 1990 10(l) The Quaker 415 Excess Benefit Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 10(m) Quaker Salaried Employees Compensation and Benefits Protection Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 11 Statement re Computation of Per Share Earnings 12 Statement re Computation of Ratios 13 Annual Report to Shareholders of The Quaker Oats Company for the fiscal year ended June 30, 1995 21 List of Subsidiaries of the Registrant 23 Consent of Auditors (b) Reports on Form 8-K (b)(1) On April 18, 1995, the Company filed an 8-K (Item 5) dated April 18, 1995 disclosing unaudited pro forma combined financial information related to significant acquisitions and divestitures that had either closed during fiscal 1995 or were pending. (b)(2) On May 4, 1995, the Company filed an 8-K (Item 2 and Item 7) dated April 24, 1995 disclosing unaudited pro forma combined financial information and sale agreements related to the sale of the European pet foods business. (b)(3) On June 30, 1995, the Company filed an 8-K (Item 5) dated June 8, 1995 disclosing unaudited pro forma combined financial information related to significant acquisitions and divestitures that closed during fiscal 1995. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE QUAKER OATS COMPANY By /s/ WILLIAM D. SMITHBURG William D. Smithburg, Chairman and Chief Executive Officer Date: September 13, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 13th day of September 1995, by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title /s/ WILLIAM D. SMITHBURG William D. Smithburg Chairman and Chief Executive Officer and Director /s/ ROBERT S. THOMASON Robert S. Thomason Senior Vice President and Chief Financial Officer /s/ THOMAS L. GETTINGS Thomas L. Gettings Vice President and Corporate Controller /s/ FRANK C. CARLUCCI Frank C. Carlucci Director /s/ SILAS S. CATHCART Silas S. Cathcart Director /s/ KENNETH I. CHENAULT Kenneth I. Chenault Director /s/ JUDY C. LEWENT Judy C. Lewent Director /s/ VERNON R. LOUCKS, JR. Vernon R. Loucks, Jr. Director /s/ THOMAS C. MacAVOY Thomas C. MacAvoy Director /s/ PHILIP A. MARINEAU Philip A. Marineau Director /s/ LUTHER C. McKINNEY Luther C. McKinney Director /s/ GERTRUDE G. MICHELSON Gertrude G. Michelson Director /s/ WALTER J. SALMON Walter J. Salmon Director /s/ WILLIAM L. WEISS William L. Weiss Director EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAPER (P),ELECTRONIC (E) OR INCORPORATED BY REFERENCE (IBRF) 3(a) Restated Certificate of Incorporation E (as of November 9, 1994) 3(b) Bylaws of The Quaker Oats Company (as E amended January 11, 1995) 4 Registrant undertakes to furnish to the Commission, IBRF upon request, a copy of any instrument defining the rights of holders of long-term debt of the Registrant and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 10(a)(1) 1984 Long-Term Incentive Plan (incorporated by IBRF reference to Exhibit B of the Company's 1983 Proxy Statement, file number 1-12) 10(a)(2) First Amendment to 1984 Long-Term Incentive Plan IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(b)(1) Deferred Compensation Plan for Directors of The IBRF Quaker Oats Company as restated effective January 1, 1989 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(b)(2) First Amendment to the Deferred Compensation Plan IBRF for Directors of The Quaker Oats Company (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(c) Deferred Compensation Plan for Executives of The IBRF Quaker Oats Company as restated effective January 1, 1989 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(d) Management Incentive Bonus Plan of The Quaker Oats IBRF Company as amended September 8, 1993 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994, file number 1-12) 10(e)(1) Directors' Stock Retirement Plan (incorporated by IBRF reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-12) 10(e)(2) First Amendment to Directors' Stock Retirement Plan IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(e)(3) Second Amendment to Directors' Stock Retirement Plan E 10(f)(1) Termination Benefits Agreement with William D. E Smithburg, first effective in the fiscal year ended June 30, 1995 10(f)(2) Termination Benefits Agreement with Philip A. Marineau, E first effective in the fiscal year ended June 30, 1995 10(f)(3) Termination Benefits Agreements with certain Executive E Officers, first effective in the fiscal year ended June 30, 1995 or effective by filing date 10(g)(1) The Quaker Supplemental Executive Retirement Program IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(g)(2) First Amendment to The Quaker Supplemental Executive IBRF Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(3) Second Amendment to The Quaker Supplemental IBRF Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(4) Third Amendment to The Quaker Supplemental IBRF Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(5) Fourth Amendment to The Quaker Supplemental IBRF Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(g)(6) Fifth Amendment to The Quaker Supplemental IBRF Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(g)(7) Sixth Amendment to The Quaker Supplemental IBRF Executive Retirement Program (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(g)(8) Seventh Amendment to The Quaker Supplemental E Executive Retirement Program 10(g)(9) Eighth Amendment to The Quaker Supplemental E Executive Retirement Program 10(g)(10) Ninth Amendment to The Quaker Supplemental E Executive Retirement Program 10(h)(1) The Quaker Oats Company Benefits Protection IBRF Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1989, file number 1-12) 10(h)(2) First Amendment to The Quaker Oats Company IBRF Benefits Protection Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(h)(3) Second Amendment to The Quaker Oats Company IBRF Benefits Protection Trust (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(i) The Quaker Eligible Earnings Adjustment Plan IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(j) The Quaker Officers Severance Program, effective E March 8, 1995 10(k)(1) The Quaker Long Term Incentive Plan of 1990 IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 10(k)(2) First Amendment to The Quaker Long Term Incentive IBRF Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992, file number 1-12) 10(k)(3) Second Amendment to The Quaker Long Term IBRF Incentive Plan of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1993, file number 1-12) 10(k)(4) Third Amendment to The Quaker Long Term Incentive Plan IBRF of 1990 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994, file number 1-12) 10(k)(5) Fourth Amendment to The Quaker Long Term Incentive Plan E of 1990 10(k)(6) Fifth Amendment to The Quaker Long Term Incentive Plan E of 1990 10(l) The Quaker 415 Excess Benefit Plan (incorporated by IBRF reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 10(m) Quaker Salaried Employees Compensation and IBRF Benefits Protection Plan (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1990, file number 1-12) 11 Statement re Computation of Per Share Earnings E 12 Statement re Computation of Ratios E 13 Annual Report to Shareholders of The Quaker Oats E Company for the fiscal year ended June 30, 1995 21 List of Subsidiaries of the Registrant E 23 Consent of Auditors E (b) Reports on Form 8-K (b)(1) 8-K filed April 18, 1995 IBRF (b)(2) 8-K filed May 4, 1995 IBRF (b)(3) 8-K filed June 30, 1995 IBRF EX-3.1 2 Exhibit 3(a) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE QUAKER OATS COMPANY NOVEMBER 9, 1994 THE QUAKER OATS COMPANY Certificate of Incorporation Organized Under the Laws of the State of New Jersey Authorized Capital Stock Preference, without par value, 1,000,000 shares Preferred, without par value, 10,000,000 shares Common, $5 par value 200,000,000 shares Original Certificate Filed September 21, 1901 Amendment Filed March 31, 1906 Increasing preferred capital stock from $8,000,000 to $9,000,000 and common capital stock from $4,000,000 to $4,500,000 Amendment Filed April 25, 1910 Increasing common capital stock from $4,500,000 to $5,500,000 Amendment Filed November 25, 1912 Increasing common capital stock from $5,500,000 to $10,000,000 Amendment Filed April 7, 1917 Increasing preferred capital stock from $9,000,000 to $15,000,000 and common capital stock from $10,000,000 to $15,000,000 Amendment Filed July 14, 1919 Increasing preferred capital stock from $15,000,000 to $25,000,000 and common capital stock from $15,000,000 to $25,000,000 Amendment Filed March 14, 1925 No change in preferred capital stock. Changing common capital stock to 600,000 shares without par value. Amendment Filed March 20, 1930 No change in preferred capital stock. Increasing common capital stock to 800,000 shares without par value. Amendment Filed January 19, 1951 No change in preferred capital stock. Changing Common Stock to 4,000,000 shares, $5 par value. Amendment Filed November 14, 1958 No change in preferred capital stock. Changing Common Stock to 6,000,000 shares, $5 par value. Amendment Filed November 3, 1967 No change in preferred capital stock. Changing Common Stock to 12,000,000 shares, $5 par value. Amendment Filed November 1, 1968 Eliminating 6% Preferred Capital Stock, $100 par value. Authorizing 169,022 shares of $3 Cumulative Convertible Preferred Stock, $50 par value. Authorizing 1,500,000 shares Preference Stock without par value. Changing Common Stock to 15,000,000 shares, $5 par value. Amendment Filed November 7, 1969 No change in Preferred or Preference Stock. Changing Common Stock to 22,500,000 shares, $5 par value. Amendment Filed December 10, 1971 No change in Preferred or Preference Stock. Elimination of preemptive rights on Common Stock. Amendment Filed November 16, 1972 No change in Preferred or Preference Stock. Changing Common Stock to 35,000,000 shares, $5 par value. Amendment Filed May 21, 1975 No change in Common or Preferred Stock. Providing for issue of a series of Preference Stock without par value, designated "$9.56 preference stock," consisting of 500,000 shares. Amended and Restated November 28, 1978 No change in Common or Preference Stock. Elimination of $3 Preferred Stock. Amendment Filed November 22, 1983 No change in Common or Preference Stock. Amended Article Sixth of, and added Article Seventh to, the Certificate. Amendments Filed November 15, 1984 No change in Preference Stock. Changing Common Stock to 100,000,000 shares, $5 par value, and authorizing 10,000,000 shares of Preferred Stock without par value. Added Article Eighth to the Certificate. Principal Office in New Jersey: The Corporation Trust Company 28 West State Street Trenton, New Jersey 08608 General Offices: 321 N. Clark Street, Chicago, Illinois 60610 Amendment Filed May 5, 1986 No Change in Common or Preferred Stock. Elimination of $9.56 Preference Stock. Amendment Filed September 18, 1986 No change in Common or Preference Stock. Provided for series of Preferred Stock without par value designated "Series A Junior Participating Preferred Stock." Amendment Filed November 12, 1986 No change in Preference or Preferred Stock. Changing Common Stock to 200,000,000 shares, $5 par value. Amendment Filed November 11, 1987 No change in Common, Preference or Preferred Stock. Amended Certificate to add a new Article Ninth. Amendment Filed November 9, 1988 No change in Common, Preference or Preferred Stock. Amended Certificate to add a new Article Fourth, Paragraph C. Amendment Filed June 19, 1989 No change in Common, Preference or Preferred Stock. Amended Certificate to add a New Series B ESOP Convertible Preferred Stock. Amendment Filed January 13, 1993 No change in Common, Preference or Preferred Stock. Amended Certificate to amend Article Eighth. Amendment Filed November 9, 1994 No change in Preference or Preferred Stock. Changing Common Stock to 400,000,000 shares, $5 par value. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE QUAKER OATS COMPANY NOVEMBER 9, 1994 Pursuant to the provisions of Section 14A:9-5 of the New Jersey Business Corporation Act, The Quaker Oats Company, a corporation organized and existing under the laws of the State of New Jersey, restates and integrates its Certificate of Incorporation, as amended, to read in full as herein set forth: First. The name of the Corporation is: The Quaker Oats Company. Second. The address of the Corporation's current registered office is Mountain View Park, 820 Bear Tavern Road, 3rd. Floor, West Trenton, New Jersey 08628. The name of the Corporation's current registered agent at such address, upon whom process against the Corporation may be served, is The Corporation Trust Company. Third. The purposes for which the Corporation is organized are to engage in any or all activities within the purposes for which corporations now or at any time hereafter may be organized under the New Jersey Business Corporation Act and under all amendments and supplements thereto, or any revision thereof or any statute enacted to take the place thereof. Fourth. The aggregate number of shares which the Corporation shall have authority to issue is 411,000,000 shares divided into 400,000,000 shares of common stock of the par value of $5.00 per share, 1,000,000 shares of preference stock without par value and 10,000,000 shares of preferred stock without par value. The designations, rights, preferences, privileges and limitations of the shares of common stock, shares of preference stock and shares of preferred stock, and the manner of determining the designations, and number of series of preference stock and preferred stock and the relative voting, dividend, liquidation and other rights, preferences and limitations of each such series are as follows: A. Preference Stock (1) The Board of Directors is hereby empowered to cause the preference stock to be issued from time to time for such consideration as it may from time to time fix, and to cause such preference stock to be issued in series with variations as to: (a) the rates of dividends payable thereon, (b) the terms on which the same may be redeemed, (c) the amount which may be paid to the holders thereof in case of dissolution or any distribution of assets, (d) the terms or amount of any sinking fund provided for the purchase or redemption thereof, and (e) the terms upon which the holders thereof may convert the same into stock of any other class or classes or of any one or more series of the same class or of another class or classes. All shares of preference stock shall be identical in all respects except as above provided; and shares of preference stock of any one series shall be identical in all respects. If the stated dividends or the amounts payable in any other distribution of assets on all shares of preference stock are not paid in full, the holders of shares of all series of preference stock shall share ratably in the payment of dividends, including arrearages, if any, and in any amounts payable in any other distribution of assets in accordance with the sums that would be payable on such shares if all dividends and distributions were paid in full. The holders of each series of preference stock shall be entitled to receive, when and as declared by the Board of Directors, dividends, payable quarterly, at the rate designated by the Board of Directors in the resolution providing for the issue of such series, and no more. Such dividends on each series of preference stock shall be cumulative whether or not earned. No dividends (other than dividends payable in common stock) shall be declared or paid or set apart for payment on the common or preferred stock unless and until dividends payable for all past quarterly dividend periods on the outstanding shares of each series of preference stock shall have been paid, or declared and set apart for payment, in full. The holders of each series of preference stock shall be entitled to receive, in case of dissolution or any distribution of assets in liquidation, the amount specified for payment in such case, as fixed by the Board of Directors in the resolution providing for the issue of such series, and no more. No payment or distribution shall be made in respect of the common or preferred stock, in case of dissolution or any distribution of assets in liquidation, unless and until the amount specified for payment in such case to the holder of each series of preference stock shall have been paid in full. (2) The shares of each series of preference stock may be made subject to redemption in whole or in part, at the option of the Corporation, at such time or times and at such price or prices and upon such terms as may be prescribed by the Board of Directors in the resolution providing for the issue of such series. If less that all of the outstanding shares of any series of preference stock are to be redeemed at a particular time, the shares of such series to be so redeemed shall be chosen by lot or pro rata in such manner as the Board of Directors may determine. The Corporation may create a sinking fund for the purchase, redemption or retirement of any series of preference stock of such amount or proportion of net profit and upon such terms as may be prescribed by the Board of Directors in the resolution providing for the issue of such series. Preference shares redeemed by the Corporation shall be retired by resolution of the Board of Directors and shall not be reissued, and the authorized stock and capital represented by such preference shares shall be deemed to be reduced accordingly. (3) The Board of Directors, with respect to each series of preference stock, shall decide whether the stock of such series shall be convertible, and if so shall designate in the resolution providing for the issue of such series the terms upon which such stock may be converted into stock of any other series of preference stock or into stock of any other class or classes. Upon the conversion of shares of preference stock, the preference shares so converted shall be deemed to be retired and shall not be reissued, and the authorized stock and capital represented by such preference shares shall be deemed to be reduced accordingly. (4) Subject to the provisions of law and of this Certificate of Incorporation as in effect from time to time, every holder of preference stock of any series shall be entitled to one vote in person or by proxy for each share of such stock held by him. If at any time the Corporation shall have failed to pay, or declare and set apart for payment, dividends on all outstanding shares of preference stock in an amount equal to six quarterly dividends upon such shares, the number of directors of the Corporation shall be increased by two at the first annual meeting of the shareholders of the Corporation held thereafter; and at such meeting and at each subsequent annual meeting until dividends payable for all past quarterly dividends periods on all outstanding shares of preference stock shall have been paid, or declared and set apart for payment, in full, the holders of the shares of preference stock shall have the right, voting as a class, to elect such two additional members of the Board of Directors to hold office for a term of one year and until their successors are elected and qualified; provided, that the right to vote as a class upon the election of such two additional directors shall not limit the right of holders of preference stock to vote upon other matters when permitted by other provisions of this Certificate. Upon such payment, or such declaration and setting apart for payment, in full, the terms of the two additional directors so elected shall forthwith terminate, and the number of directors of the Corporation shall be reduced by two and such additional voting right of the holders of shares of preference stock shall cease, subject to increase in the number of directors as aforesaid and to revesting of such voting right in the event of each and every additional failure in the payment of dividends in an amount equal to six quarterly dividends as aforesaid. So long as any shares of the preference stock shall be outstanding, the Corporation shall not, without the affirmative vote of the holders of at least two-thirds of the aggregate number of share of preference stock then outstanding, amend this Certificate to: (a) increase the authorized preference stock of the Corporation; (b) authorize any new class of stock ranking equal to or prior to the preference stock, either as to payment of dividends or distribution of assets; (c) adversely change the rights, preferences or powers of the preference stock with respect to dividends, voting, conversion, liquidation or redemption. (5) Shares of preference stock of any series shall not entitle any holder thereof to any preemptive right to purchase or subscribe for any shares of that or any other class. B. Preferred Stock (1) The Board of Directors is hereby empowered to cause the preferred stock to be issued from time to time for such consideration as it may from time to time fix, and to cause such preferred stock to be issued in series with variations as to rights, preferences, privileges and limitations as designated by the Board of Directors in the resolution providing for the issue of such series, except that no series of preferred stock shall rank equal to or prior to any of the preference stock, either as to payment of dividends or distribution of assets. Shares of preferred stock of any one series shall be identical in all respects. (2) Subject to the priority of holders of the preference stock, the holders of each series of preferred stock shall be entitled to receive cumulative, noncumulative or partially cumulative dividends at the rate and on the terms designated by the Board of Directors in the resolution providing for the issue of such series, and no more. No dividends (other than dividends payable in common stock) shall be declared or paid or set apart for payment on the common stock unless and until all dividends payable on the outstanding shares of each series of preferred stock shall have been paid, or declared and set apart for payment, in full. Subject to the priority of holders of the preference stock, the holders of each series of preferred stock shall be entitled to receive, in case of dissolution or any distribution of assets in liquidation, the amount specified for payment in such case, as fixed by the Board of Directors in the resolution providing for the issue of such series, and no more. No payment or distribution shall be made in respect of the common stock, in case of dissolution or any distribution of assets in liquidation, unless and until the amount specified for payment in such case to the holder of each series of preferred stock shall have been paid in full. (3) The shares of each series of preferred stock may be made subject to redemption in whole or in part, at the option of the Corporation, at such time or times and at such price or prices and upon such terms as may be prescribed by the Board of Directors in the resolution providing for the issue of such series. The Corporation may create a sinking fund for the purchase, redemption or retirement of any series of preferred stock of such amount or proportion of net profits and upon such terms as may be prescribed by the Board of Directors in the resolution providing for the issue of such series. Preferred shares redeemed by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock not constituting part of any series thereof, unless the Board of Directors elects to retain such redeemed shares as Treasury shares. (4) The Board of Directors, with respect to each series of preferred stock, shall decide whether the stock of such series shall be convertible, and if so shall designate in the resolution providing for the issue of such series the terms upon which such stock may be converted into stock of any other series of preferred stock or into stock of any other class or classes. Upon the conversion of shares of preferred stock, the preferred share so converted shall be restored to the status of authorized but unissued shares. (5) Subject to the provisions of law and of this Certificate of Incorporation as in effect from time to time, the holders of preferred stock of any series shall be entitled to such voting rights, limited voting rights, or special or multiple voting rights as may be prescribed by the Board of Directors in the resolution providing for the issue of such series. (6) Shares of preferred stock of any series shall not entitle any holder thereof to any preemptive right to purchase or subscribe for any shares of that or any other class. (7) The Board of Directors shall have all other powers and rights with respect to the preferred stock which are not inconsistent with the New Jersey Business Corporation Act or this Certificate of Incorporation as in effect from time to time. (8) The relative voting, dividend, liquidation and other rights, preferences and limitations of the share of the series of preferred stock designated "Series A Junior Participating Preferred Stock" are as set forth in the resolution of the Board of Directors contained in the document filed in the office of the Secretary of State of New Jersey pursuant to which such series was created, which resolution, marked "Exhibit A," is attached to this Certificate of Incorporation and made a part hereof as if set forth in full. (9) The relative voting, dividend liquidation and other rights, preferences and limitations of the shares of the series of preferred stock designated "Series B ESOP Convertible Preferred Stock" are as set forth in this Paragraph Fourth B and in Exhibit B to this Restated Certificate of Incorporation, which document has been filed with the Secretary of State of New Jersey together with the resolution pursuant to which the series was created, and which are both made a part hereof as if set forth in full. C. Common Stock The common stock shall be subject to the prior rights of the holders of the preference stock and preferred stock as above declared. Subject to such prior rights, the Board of Directors may declare and pay dividends out of funds legally available therefor. In the event of the dissolution of the Corporation or of a distribution of the assets or any portion thereof by way of return of capital, the holders of the common stock shall, after the holders of the preference stock and preferred stock have received the preferential amounts to which they are entitled, be entitled to receive the balance of the assets of the Corporation so distributed. Shares of common stock shall not entitle the holder thereof to any preemptive right to purchase or subscribe of the shares of that or any other class. Fifth. The number of Directors constituting the Corporation's current Board of Directors is 12. The names and business addresses of the persons currently serving as said Directors are: The Honorable Frank C. Carlucci Chairman The Carlyle Group 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2505 Mr. Silas S. Cathcart Retired Chairman Illinois Tool Works, Inc. 125 S. Wacker Drive Suite 3000 Chicago, IL 60606 Mr. Kenneth I. Chenault President USA American Express Travel Related Services Company, Inc. American Express Tower, 40th Floor World Financial Center 200 Vesey Street New York, NY 10285-3900 Ms. Judy C. Lewent Senior Vice President & Chief Financial Officer Merck & Co., Inc. One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Mr. Vernon R. Loucks, Jr. Chairman and Chief Executive Officer Baxter International Inc. One Baxter Parkway Deerfield, IL 60015 Dr. Thomas C. Mac Avoy Paul M. Hammaker Professor of Business Administration Colgate Darden Graduate School of Business Administration University of Virginia Charlottesville, VA 22906 Mr. Philip A. Marineau President and Chief Operating Officer The Quaker Oats Company Quaker Tower, 27-9 P.O. Box 049001 Chicago, IL 60604-9001 Mr. Luther C. McKinney Senior Vice President - Law and Corporate Affairs The Quaker Oats Company Quaker Tower, 27-10 P.O. Box 049001 Chicago, IL 60604-9001 Mrs. Gertrude G. Michelson Senior Advisor to R.H. Macy & Co. Inc. 151 West 34th Street New York, NY 10001 Dr. Walter J. Salmon Stanley Roth Sr. Professor of Retailing Harvard Business School Morgan Hall - Room 177 Soldiers Field Road Boston, MA 02163 Mr. William D. Smithburg Chairman and Chief Executive Officer The Quaker Oats Company Quaker Tower, 27-13 P.O. Box 049001 Chicago, IL 60604-9001 Mr. William L. Weiss Chairman Emeritus Ameritech Corporation One First National Plaza 21 S. Clark Street Suite 2530 C Chicago, IL 60603-2006 Sixth. The business and affairs of the Corporation shall be managed by a Board of Directors. The number of directors (exclusive of directors, if any, elected by the holders of one or more classes of preference stock, voting separately as a class pursuant to the provisions of the Certificate of Incorporation applicable thereto) shall be not less than 6 or more than 24 directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1983 Annual Meeting of Shareholders, Class I directors shall be elected for a one-year term, Class II for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1984, successors to directors whose terms expire at that annual meeting shall be of the same class as the directors they succeed, and shall be elected for three-year terms. If the number of directors is changed by resolution of the Board of Directors pursuant to this Article Sixth, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, or removal from office. Any newly created directorship resulting from an increase in the number of directors and any other vacancy on the Board of Directors, however caused, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; provided that if the number of directors is increased, not more than two such newly created directorships may be filled by the directors in any period between annual meetings of shareholders. Any director so elected to fill a vacancy shall, without regard to the class in which such vacancy occurred, hold office until the next succeeding annual meeting of shareholders and until his or her successor shall have been elected and qualified. The term of a director elected by shareholders to fill a newly created directorship or other vacancy shall expire at the same time as the terms of the other directors of the class in which the vacancy occurred. Exclusive of directors, if any, elected by the holders of one or more classes of preference stock, one or more or all the directors of the Corporation may be removed for cause by the shareholders by the affirmative vote of two-thirds of the votes cast by the holders of shares entitled to vote at a meeting of shareholders for which proper notice of such proposed removal has been given. No person shall be eligible for election as a director at any annual or special meeting of shareholders unless a written request that his or her name be placed in nomination is received from a shareholder of record by the Secretary of the Corporation not less than 30 days prior to the date fixed for the meeting, together with the written consent of such person to serve as a director. Where such a request for nomination and such consent have been timely received, but such nominee is unable or declines to serve, the person who placed the individual's name in nomination may request that an alternate name be placed in nomination at the meeting. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preference stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto. Directors so elected shall not be divided into classes unless expressly provided by such terms, and during the prescribed terms of office of such directors, the Board of Directors shall consist of such directors in addition to the number of directors determined as provided in the first paragraph of this Article Sixth. Seventh. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the Bylaws may be amended, altered or repealed, and new Bylaws may be enacted, only by the affirmative vote of the holders of not less that two-thirds of the outstanding shares of capital stock of the Corporation or by a vote of not less than two-thirds of the entire Board of Directors. Eighth. The affirmative vote of the holders of two-thirds of all Voting Shares (as defined herein) of the Corporation considered for the purposes of this Article Eighth as one class, shall be required for the adoption or authorization of any Combination as defined herein with any person if, as of the record date for the determination of shareholders entitled to notice thereof and to vote thereon, such person is an Interested Shareholder or an affiliate of an Interested Shareholder; provided, that such two-thirds voting requirement shall not be applicable if all of the conditions specified in either of the following paragraphs (1) or (2) are met: (1) If the Combination shall have been approved by a majority of the Disinterested Directors (as defined herein) who were directors prior to the time that such person became an Interested Shareholder, but only if the Disinterested Directors were a majority of the Board of Directors before such person became an Interested Shareholder. (2) (a) The cash, or fair market value of other consideration (determined by the experts provided for in Subparagraph (iii) below of this Article Eighth), to be received per share in the Combination by holders of common stock of the Corporation is not less than the greatest of: (i) the highest per-share price (including brokerage commissions, transfer taxes, and soliciting dealer's fees) paid during the preceding twelve months by the Interested Shareholder in acquiring the beneficial ownership, directly or indirectly, of any of its holdings of the common stock of the Corporation. (In making this computation, appropriate adjustments shall be made for any stock splits, stock dividends, stock combinations and other similar events.); (ii) the closing price per share of the common stock of the Corporation as listed on the New York Stock Exchange on the business day immediately preceding the date that the meeting of the shareholders of the Corporation is held for the purpose of voting on the Combination; (iii) a price that is approved as being fair to the holders of outstanding common stock of the Corporation not owned by such Interested Shareholder, as determined by at least two independent experts selected by at least three Disinterested Directors. (This determination shall be based on the value of the total Corporation in an arm's-length sale.) The Corporation shall pay the reasonable fees and expenses associated with the retention of these experts; and (b) A proxy statement which complies with the requirements of the Securities Exchange Act of 1934, as amended, shall be mailed to the holders of common stock for the purpose of soliciting shareholder approval of such Combination. The proxy statement shall contain (as exhibits or otherwise) the entire opinions of the independent experts required by this Article Eighth. The requirements of this Article Eighth are in addition to, and do not supersede, amend, alter, change or eliminate any board approval, shareholder vote or consent or other conditions required by the laws of New Jersey in effect at the time a Combination is proposed. The following definitions shall apply for the purposes of this Article Eighth: A. "Combination" means a merger or consolidation of the Corporation or any subsidiary of the Corporation with any other corporation, or the sale or lease of all or a substantial part of the assets of the Corporation or any subsidiary of the Corporation to any other person, or any other transaction which has achieved substantially the same effect. B. An "Interested Shareholder" is any person who owns ten percent or more of the outstanding Voting Shares of the Corporation. C. A "person" includes a natural person, corporation, partnership, association, joint stock company, trust, unincorporated association or other entity. When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, voting, or disposing of Voting Shares, they shall be deemed a single person for purposes of this Article Eighth. D. "Voting Shares" means the issued and outstanding shares of any class of stock of the Corporation which is entitled to vote generally in the election of directors. E. Ownership of Voting Shares includes beneficial ownership. A beneficial owner of Voting Shares includes any person who, directly or indirectly, through any contract, options, warrants, covertible securities or other contract rights to acquire Voting Shares, arrangement, understanding, relationship or otherwise, has or shares (i) voting power, which includes the power to vote, or to direct the voting of, the Voting Shares, or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, the Voting Shares. F. A "subsidiary" of the Corporation is any company a majority or more of the voting securities of which is owned by the Corporation. G. A "Disinterested Director" is a director of the Corporation who (i) is not and never has been an officer or director of an Interested Shareholder or any affiliate or associate of such Interested Shareholder and is not and has not been for the past five years an employee of an Interested Shareholder or any affiliate or associate of such Interested Shareholder; (ii) does not own more than one percent or 10,000 shares, whichever is the lesser of any class of equity securities of an Interested Shareholder or any affiliate or associate of such Interested Shareholder; (iii) is not the settlor of any trust, and does not serve as the trustee, executor or in a similar capacity for any trust or estate, which owns more than one percent or 10,000 shares, whichever is the lesser, of any class of equity securities of any Interested Shareholder or any affiliate or associate of such Interested Shareholder; (iv) is not the relative of any person or of the spouse of such person who could not be a Disinterested Director because of any of the provisions of the clauses (i), (ii), or (iii) above who has the same home as such person; (v) is not the spouse, brother, sister, son, daughter, father or mother of any person who could not be a Disinterested Director because of any of the provisions of clauses (i), (ii), or (iii) above; and (vi) is not otherwise by reason of past, present or anticipated circumstances unable to act solely in the interest of the Corporation with respect to the Combination, provided that no officer or employee of the Corporation shall be disqualified from being a Disinterested Director solely by reason of being an officer or employee of the Corporation. H. An "affiliate" of a specified person is a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person. I. An "associate" of a specified person is (i) any person of which such specified person is an officer or partner or is the owner of ten percent or more of any class of equity securities, (ii) any trust or other estate in which such specified person owns ten percent or more of the total beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such specified person, or any relative of such spouse, who has the same home as such specified person, (iv) any person who is a director or officer of such specified person or any corporation which controls or is controlled by such specified person, or (v) any other member or partner in a partnership, limited partnership, syndicate or other group, formal or informal, of which such specified person is a member or partner and which is acting together for the purpose of acquiring, holding or disposing of securities of the Corporation. Enforcement. The Board of Directors is specifically authorized to seek equitable relief, including an injunction, to enforce the provisions of this Article Eighth. Amendment. No amendment to this Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of this Article Eighth unless such amendment, in addition to receiving any shareholder vote or consent required by the laws of the State of New Jersey in effect at the time, shall receive the affirmative vote of the holders of two-thirds of all Voting Shares. Ninth. Limitation of Liability. To the full extent from time to time permitted by New Jersey law, no director or officer of the Company shall be personally liable to the Company or its shareholders for damages for breach of any duty owed to the Company or its shareholders. Neither the amendment or repeal of this Article, nor the adoption of any provision of this certificate of incorporation inconsistent with this Article, shall eliminate or reduce the protection afforded by this Article to a director or officer of the Company with respect to any matter which occurred, or any cause of action, suit or claim which, but for this Article, would have accrued or arisen, prior to such amendment, repeal or adoption. Indemnification. (a) The Company shall indemnify any person who is or was a director, officer, employee or agent of the Company or of any constituent corporation absorbed by the Company in a consolidation or merger, and any person who is or was a director, officer, trustee, employee or agent of any other corporation (domestic or foreign) or of any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (whether or not for profit), serving as such at the request of the Company or at the request of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent, against such person's reasonable costs, disbursements and counsel fees and amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties in connection with any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, whether brought in the right of the Company or otherwise, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding, to the fullest extent now or hereafter permitted by New Jersey law. (b) The Company shall pay expenses as they are incurred by any person covered by this Article in connection with any proceeding, as defined above, in advance of the final disposition of the proceeding to the fullest extent now or hereafter permitted by New Jersey law. (c) The foregoing indemnification and advancement of expenses shall not be deemed exclusive of any other rights to which any person indemnified may be entitled. (d) The rights provided to any person under this Article Ninth shall be enforceable against the Company by such person, who shall be presumed to have relied upon it in serving or continuing to serve as a director or in any of the other capacities set forth in this Article Ninth. No elimination of or amendment to this Article Ninth shall deprive any person of rights hereunder arising out of alleged or actual occurrences, acts or failures to act occurring prior to notice to such person of such elimination or amendment. Dated this 9th day of November, 1994 THE QUAKER OATS COMPANY By S/R. Thomas Howell, Jr. Vice President (Name and full title) Exhibit A By resolution of the Board of Directors of The Quaker Oats Company there is created a series of Preferred Stock designated "Series A Junior Participating Preferred Stock" which shall be identical in all respects to the preferred stock described in Paragraph Fourth B of the Corporation's Certificate of Incorporation, with such variations as may be contained in the following description: Section 1. Designation. The series of Preferred Stock created by this Resolution is hereby designated as "Series A Junior Participating Preferred Stock." Section 2. Number of Shares, The number of shares which shall constitute the Series A Junior Participating Preferred Stock shall be initially 1,000,000, which number of shares may be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. Section 3. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of the Corporation's Preference Stock or of any shares of any series of the Corporation's Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock, the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $35 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock by reclassification or otherwise), declared on the Common Stock, par value $5.00 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time after July 9, 1986 (the "Rights Dividend Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $35 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 4. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time after the Rights Dividend Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (c) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C) (iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C) (iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the shareholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 5. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 6. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 7. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Dividend Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. Consolidation Merger. etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Dividend Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 9. Redemption. The shares of Series A Junior Participating Preferred Stock may be called for redemption by the Corporation, at its option, by vote of the Board of Directors, in whole but not in part, at any time, by paying therefor in cash an amount per share equal to the product of (a) the current market price of the Common Stock and (b) the Adjustment Number. Section 10. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock and Preference Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 11. Amendment. The Amended Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. Section 12. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. CERTI-1 EXHIBIT B By unanimous written consent of the Board of Directors of The Quaker Oats Company dated June 16, 1989, there is created a series of Preferred Stock designated "Series B ESOP Convertible Preferred Stock" which shall be identical in all respects to the preferred stock described in Paragraph Fourth 3 of the Corporation's Restated Certificate of Incorporation, with such variations as may be contained in the following description: Section 1. Designation and Amount; Special Purpose Restricted Transfer Issue. (A) The shares of such series shall be designated as "Series B ESOP Convertible Preferred Stock"("Series B Preferred Stock") and the number of shares constituting such series shall be 1,750,000 (B) Shares of Series B Preferred Stock shall be issued only to The Northern Trust Company, as trustee (the "Trustee") of The 1989 Quaker Employee Stock Ownership Trust under the Quaker Employee Stock Ownership Plan, as amended through the fifth amendment thereto, dated June 16, 1989 (the "Plan") All references to the holder of shares of Series B Preferred Stock shall mean the Trustee or any successor trustee under the Plan. In the event of any transfer of record ownership of shares of Series B Preferred Stock to any person other than any successor trustee under the Plan, the shares of Series B Preferred Stock so transferred, upon such transfer and without any further action by the Corporation or the holder thereof, shall be automatically converted into shares of common stock of the Corporation (the "Common Stock") pursuant to Section 5 hereof and no such transferee shall have any of the voting powers, preferences and relative, participating, optional or special rights ascribed to shares of Series B Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of Series B Preferred Stock shall be so converted. In the event of such a conversion, the transferee of the shares of Series B Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of Series B Preferred Stock have been automatically converted as of the date of such transfer. Certificates representing shares of Series B Preferred Stock shall bear a legend to reflect the foregoing provisions. Notwithstanding the foregoing provisions of this paragraph (B) of Section 1, shares of Series B Preferred Stock (i) may be converted into shares of Common Stock as provided by Section 5 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Corporation upon the terms and conditions provided by Sections 6, 7 and 8 hereof. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any stock of the Corporation ranking senior to the Series B Preferred Stock in respect of dividends and subject to the provisions for -2- adjustment hereinafter set forth, the holders of shares of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative cash dividends ("Preferred Dividends") in an amount per share equal to $5.46 per share per annum, and no more, payable quarterly in arrears, one-fourth on each fifteenth day of January, April, July and October of each year (each a "Dividend Payment Date") commencing on July 15, 1989, to holders of record at the start of business on such Dividend Payment Date. In the event that any Dividend Payment Date shall fall on any day other than a "Business Day" (as hereinafter defined), the dividend payment due on such dividend Payment Date shall be paid on the Business Day immediately succeeding such Dividend Payment Date. Preferred Dividends shall begin to accrue on outstanding shares of Series B Preferred Stock from the date of issuance of such shares of Series B Preferred Stock. Preferred Dividends shall accrue on a daily basis, but Preferred Dividends accrued after issuance on the shares of Series B Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. Accrued but unpaid Preferred Dividends shall cumulate as of the Dividend Payment Date on which they first became payable, but no interest shall accrue on accumulated but unpaid Preferred Dividends. -3- (B) So long as any shares of Series B Preferred Stock shall be outstanding, no dividend shall be declared or paid or set apart for payment on any other series of stock ranking on a parity with the Series B Preferred Stock as to dividends, unless there shall also be or have been declared and paid or set apart for payment on the Series B Preferred Stock dividends for all dividend payment periods of the Series B Preferred Stock ending on or before the dividend payment date of such parity stock, ratably in proportion to the respective amounts of dividends accumulated and unpaid through such dividend period on the Series B Preferred Stock and accumulated and unpaid on such parity stock through the dividend payment period on such parity stock next preceding such dividend payment date. In the event that full cumulative dividends on the Series B Preferred Stock have not been declared and paid or set apart for payment when due, the Corporation shall not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of any other class of stock or series thereof of the Corporation ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, junior to the Series B Preferred Stock until full cumulative dividends on the Series B Preferred Stock shall have been paid or declared and set part for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares -4- of any stock ranking, as to dividends and as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, junior to the Series B Preferred Stock or (ii) the acquisition of shares of any stock ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, junior to the Series B Preferred Stock in exchange solely for shares of any other stock ranking, as to dividends and as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation junior to the Series B Preferred Stock. Section 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights: (A) The holders of Series B Preferred Stock shall be entitled to vote on all matters submitted to a vote of the stockholders of the Corporation, voting together with the holders of Common Stock as one class. The holder of each share of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such share of Series B Preferred Stock could be converted on the record date for determining the stockholders entitled to vote, rounded to the nearest one-tenth of a vote; it being understood that whenever the "Conversion Price" (as defined in Section 5 hereof) is adjusted as provided in Section 9 hereof, the voting rights of the Series B Preferred Stock shall also be similarly adjusted. -5- (B) Except as otherwise required by law or set forth herein, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action; provided, however, that the vote of at least 66-2/3% of the outstanding shares of Series B Preferred Stock, voting separately as a series, shall be necessary to adopt any alteration, amendment or repeal of any provision of the Restated Certificate of Incorporation of the Corporation (including any such alteration, amendment or repeal effected by any merger or consolidation in which the Corporation is the surviving or resulting corporation), if such amendment, alteration or repeal would alter or change the powers, preferences, or special rights of the shares of Series B Preferred stock so as to affect them adversely. Section 4. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of Series B Preferred Stock shall be entitled to receive out of assets of the Corporation which remain after satisfaction in full of all valid claims of creditors of the Corporation and which are available for payment to stockholders, and subject to the rights of the holders of any stock of the Corporation ranking senior to or on a parity with the Series B Preferred Stock in respect of -6- distribution upon liquidation, dissolution or winding up of the Corporation, before any amount shall be paid or distributed among the holders of Common Stock or any other shares ranking junior to the Series B Preferred Stock in respect of distributions upon liquidation, dissolution or winding up of the Corporation, liquidating distributions in the amount of $78.00 per share (the "Liquidation Preference"), plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for distribution, and no more. If upon any liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series B Preferred Stock and any other Stock ranking as to any such distribution on a parity with the Series B Preferred Stock are not paid in full, the holders of the Series B Preferred Stock and such other stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 4(A), the holders of shares of Series B Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation. (B) Neither the merger or consolidation of the Corporation with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Corporation, nor the sale, lease, exchange or other transfer of all or any portion of the assets of the Corporation, shall be deemed to be a dissolution, liquidation or winding up of the -7- affairs of the Corporation for purposes of this Section 4, but the holders of Series B Preferred Stock shall nevertheless be entitled in the event of any such merger or consolidation to the rights provided by Section 8 hereof. (c) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Series B Preferred Stock in such circumstances shall be payable, shall be given by first-class mail, postage prepaid, mailed not less than twenty (20) days prior to any payment date stated therein, to the holders Series B Preferred Stock, at the address shown on the books of the Corporation or any transfer agent for the Series B Preferred Stock. Section 5. Conversion into Common Stock. (A) A holder of shares of Series B Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 6, 7 and 8 hereof, to cause any or all of such shares to be converted Into shares of Common Stock, initially at a conversion rate equal to the ratio of: (i) 578.00; to (ii) the amount which initially shall be $78.00, and which shall be adjusted as hereinafter provided (and, as so adjusted, rounded to the nearest ten-thousandth, is hereinafter sometimes referred to as the "Conversion Price") -8- (that is, a conversion rate initially equivalent to one share of Common Stock for each share of Series B Preferred Stock so converted, which is subject to adjustment as the Conversion Price is adjusted as hereinafter provided). (B) Any holder of shares of Series B Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Series B Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series B Preferred stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series B Preferred Stock by the Corporation or the transfer agent for the Series B Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Series B Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for Common Stock and for any shares of Series B Preferred Stock not to be so converted to be issued and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (C) Upon surrender of a certificate representing a share or shares of Series 2 Preferred Stock for conversion, the -9- Corporation shall issue and send by hand delivery (With receipt to be acknowledged) or by first class mail, postage prepaid, to the holder thereof or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered a certificate or certificates representing shares of Series B Preferred Stock, only part of which are to be converted, the Corporation shall issue and deliver to such holder or such holder's designee a new certificate or certificates representing the number of shares of Series B Preferred Stock which shall not have been converted. (D) The issuance by the Corporation of shares of Common Stock upon a conversion of shares of Series B Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective as of the earlier of (i) the delivery to such holder or such holder's designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (ii) the commencement of business on the second business day after the surrender of the certificate or certificates for the shares of Series B Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) as provided by this Resolution. On and after the effective day of conversion, the person or persons entitled to -10- receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date. The Corporation shall not be obligated to pay any dividends which shall have been declared and shall be payable to holders of shares of Series B Preferred Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend is subsequent to the effective date of conversion of such shares. (E) The Corporation shall not be obligated to deliver to holders of Series B Preferred Stock any fractional share of a share of Common Stock issuable upon any conversion of such shares of Series B Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. (F) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Series B Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series B Preferred Stock then outstanding. Nothing contained herein shall preclude the Corporation from issuing shares of Common Stock held in its treasury upon the conversion of shares of Series B Preferred Stock into Common Stock pursuant to the -11- terms hereof. The Corporation shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all requirements as to registration or qualification of the Common Stock, in order to enable the Corporation lawfully to issue and deliver to each holder of record of Series B Preferred Stock such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of Series B Preferred Stock then outstanding and convertible into shares of Common Stock. Section 6. Redemption At the Option of the Corporation. (A) The Series B Preferred Stock shall be redeemable, in whole or in part, at any time after the date of issuance, to the extent permitted by paragraphs 6(D) and 8(C), at the following percentages of the Liquidation Preference: During the Twelve Percentage of Month Period Liquidation Beginning June 15 Preference 1989 107.0% 1990 106.3% 1991 105.6% 1992 104.9% 1993 104.2% 1994 103.5% 1995 102.8% 1996 102.1% 1997 101.4% 1998 100.7% and thereafter at the Liquidation Preference, plus, in each case, an amount equal to all accrued and unpaid dividends thereon to -12- the date fixed for redemption. Payment of the redemption price shall be. made by the Corporation in cash or shares of Common Stocks or a combination thereof, as permitted by paragraph (E) of this Section. 6. From and after the date fixed for redemption, dividends on shares of Series B Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Corporation shall cease, except the right to receive the redemption price. If less than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the Corporation shall either redeem a portion of the shares of each holder determined pro rata based on the number of shares held by each holder or shall select the shares to be redeemed by lot, as may be determined by the Board of Directors of the Corporation. (B) Unless otherwise required by law, notice of any redemption effected pursuant to Sections 6 or 7 hereof will be sent to the holders of Series B Preferred Stock at the address shown on the books of the Corporation or any transfer agent for the Series B Preferred Stock by first class mail, postage prepaid, mailed not less than thirty (30) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the Series B Preferred stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) -13- the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for conversion or payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Price and number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock at the time. Upon surrender of the certificate for any shares so called for redemption and not previously converted (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the date fixed for redemption and at the redemption price set forth in paragraph (A) of this Section 6. (C) In the event of a change in the federal tax law of the United States of America which has the effect of precluding the Corporation from claiming any of the tax deductions for dividends paid on the Series B Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended, as in effect on the date shares of Series B Preferred Stock are initially issued, or if the Plan is determined by the Internal Revenue Service not to be initially qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended, the -14- Corporation may, in its sole discretion, and notwithstanding anything to the contrary in paragraph (A) of this Section 6, within 60 days of such event, elect to redeem any or all of such shares for the greater of (A) the Fair Market Value of the shares of Series B Preferred Stock to be so redeemed or (B) the amount payable in respect of the shares upon liquidation of the Corporation pursuant to Section 4 hereof. (D) In. the event that the Plan is terminated in accordance with its terms, and notwithstanding anything to the contrary in paragraph (A) of this Section 6, the Corporation shall, as soon thereafter as practicable, call for redemption all then outstanding shares of Series B Preferred Stock for an amount equal to the greater of the Fair Market Value or the redemption price, as calculated pursuant to Section 6(A). The Corporation shall give 30 Business Days' notice to all record holders of Preferred Stock prior to any such termination, provided, however, that the failure to give any such notice shall not affect the validity of such corporate action. (E) The Corporation, at its option, may make payment of the redemption price required upon redemption of shares of Series B Preferred Stock in cash or in shares of Common Stock or in a combination of such shares and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (G) of Section 9 hereof). -15- Section 7. Other Redemption Rights. Shares of Series B Preferred Stock shall be redeemed by the Corporation for cash or, if the Corporation so elects, in shares of Common Stock, or a combination of such shares and Cash, any such shares of Common Stock to be valued for such purpose as provided by paragraph (E) of Section 6, at the redemption price as set forth in the following sentence, at the option of the holder at any time and from time to time upon notice to the Corporation given not less than five (5) Business Days prior to the date fixed by the holder in such notice for such redemption, upon certification by such holder to the Corporation of the following events: (i) when and to the extent necessary for such holder to provide for distributions required to be made to participants under, or to satisfy an investment election provided to participants in accordance with, the Plan, or any successor plan; (ii) when and to the extent necessary for such holder to make any payments of principal, interest or premium due and payable (whether as scheduled or upon acceleration) under (a) the Loan Agreement between the Trustee and the lenders, (b) any refinancing of or substitution for either of the foregoing; or (c) any other indebtedness incurred by the holder for the benefit of the Plan; or ( iii ) in the event that the Plan is not initially determined by the Internal Revenue Service to be qualified within the meaning of Sections 401(a) and 4975(e) (7) of the Internal Revenue Code of 1986, as amended. The redemption price for -16- shares of Series B Preferred Stock to be redeemed under this Section 7 shall be equal to: (I) in the case of clause (i) next above, the Fair Market Value of the shares of Series B Preferred Stock to be so redeemed; (II) in the case of clause (ii) next above, the greater of (A) the Fair Market Value of the shares of Series B Preferred Stock to be so redeemed or (B) the redemption price set forth in paragraph (A) of Section 6 hereof; or (III) in the case of clause (iii) next above, the greater of (A) the Fair Market Value of the shares of Series B Preferred Stock to be so redeemed or (B) the amount payable in respect of the shares upon liquidation of the Corporation pursuant to Section 4 hereof. Section 8. Consolidation, Merger, etc. (A) In the event that the Corporation shall consummate any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Corporation) that constitutes "employer securities" with respect to a holder of Series B Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended. and "qualifying employer securities" within the meaning of Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of -17- Series B Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be converted into and exchanged for preferred stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7 and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Series B Preferred Stock had immediately prior to such transaction, except that after such transaction each share of the Series B Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 5 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the Series B Preferred Stock, then the shares of Series B Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property -18- (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election to receive any kind or amount of stock, securities, cash or other property (other than such qualifying employer securities and a cash payment, if applicable, in lieu of fractional shares) receivable upon such transaction (provided that, if the kind or amount of qualifying employer securities receivable upon such transaction is not the same for each nonelecting share, then the kind and amount so receivable upon such transaction for each non- electing share shall be the kind and amount so receivable per share by the plurality of the nonelecting shares). The rights of the Series B Preferred Stock as preferred stock of such successor or resulting corporation shall successively be subject to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent as practicable to the adjustment provided for by such section prior to such transaction. The Corporation shall not consummate any such merger, consolidation or similar transaction unless the successor or resulting corporation shall have agreed to recognize and honor the rights of the holders of shares of Series B Preferred Stock as set forth in this paragraph (A). (B) In the event that the Corporation shall consummate any consolidation or merger or similar business combination, -19- pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Series B Preferred Stock shall, without any action on the part of the Corporation or any holder thereof (but subject to paragraph (C) of this Section 8), be deemed to have been automatically converted immediately prior to the consummation of such merger, consolidation or similar transaction into the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted at such time so that each share of Series B Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which -20- election cannot practicably be made by the holders of the Series B Preferred Stock, then the shares of Series B Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction (provided that, if the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non- electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non- electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares). (C) In the event the Corporation shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (3) of this Section 8, then the Corporation shall as soon as practicable thereafter (and in any event at least 10 Business Days before the closing of such transaction) give notice of such agreement and the material terms thereof to each holder of Series B Preferred Stock and each -21- such holder shall have the right to elect, by written notice to the Corporation, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Corporation or the successor of the Corporation, in redemption and retirement of such Series B Preferred Stock, a cash payment equal to the higher of the redemption price as determined in accordance with paragraph 6(A) or the Fair Market Value of shares of Series R Preferred Stock. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business on the second business Day prior to the closing of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the second Business Day prior to the closing of such transaction. Section 9. Anti-dilution Adjustments. (A) In the event the Corporation shall, at any time or from time to time while any of the shares of the Series B Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation -22- (including a recapitalization effected by a merger or consolidation to which Section B hereof does not apply) or otherwise, the Conversion Price in effect immediately prior to such action shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event, and the denominator of which is the number of shares of Common Stock outstanding immediately after such event. An adjustment made pursuant to this paragraph 9(A) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof (B) In the event that the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, issue to holders of shares of Common Stock as a dividend or distribution, including by way of a reclassification of shares or a recapitalization of the Corporation, any right or warrant to purchase shares of Common Stock (but not including as such a right or warrant (i) any security convertible into or exchangeable for shares of Common Stock and (ii) any rights issued pursuant to the Rights Agreement dated as of July 9, 198S between the Corporation and Harris Trust & Savings Bank, as the same may be amended from time to time) at -23- a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants, and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants. (C) In the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, issue, sell or exchange shares of Common Stock (other than pursuant to (i) any right or warrant to purchase or acquire shares of Common Stock for which adjustment has been made pursuant to paragraph (B) of this Section 9 (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock) and (ii) any employee or director incentive or benefit plan or arrangement, -24- including any employment, severance or consulting agreement, of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted) for a consideration having a Fair Market Value, on the date of such issuance, sale or exchange, less than the Fair Market Value of such shares on the date of issuance, sale or exchange, then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (i) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange plus (ii) the Fair Market Value of the consideration received by the Corporation in respect of such issuance, sale or exchange of shares of Common Stock, and the denominator of which shall be the product of (a) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange multiplied by (b) the sum of the number of shares of Common Stock outstanding on such day plus the number of shares of Common Stock so issued, sold or exchanged by the Corporation. In the event the Corporation shall, at any time or from time to time while any shares of Series 8 Preferred Stock are outstanding, issue, sell or exchange any right or warrant to purchase or acquire shares of Common Stock (including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock), -25- other than any such issuance to holders of shares of Common Stock as a dividend or distribution (including by way of a reclassification of shares or a recapitalization of the corporation) and other than pursuant to any employee or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted, for a consideration having a Fair Market Value, on the date of such issuance, sale or exchange, less than the Non-Dilutive Amount (as hereinafter defined), then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction the numerator of which shall be the sum of (I) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange plus (II) the Fair Market Value of the consideration received by the Corporation in respect of such issuance, sale or exchange of such right or warrant plus (III) the Fair Market Value at the time of such issuance of the consideration which the Corporation would receive upon exercise in full of all such rights or warrants, and the denominator of which shall be the product of (i) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange multiplied by (ii) the sum of the number of shares of Common Stock -26- outstanding on such day plus the maximum number of shares of Common Stock which could be acquired pursuant to such right or warrant at the time of the issuance, sale or exchange of such right or warrant (assuming shares of Common Stock could be acquired pursuant. to such right or warrant at such time) (D) In the event the Corporation shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation (including a recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, the Conversion Price in effect immediately prior to such Extraordinary Distribution or Pro Rata Repurchase shall, subject to paragraphs (E) and (F) of this Section 9, be adjusted by multiplying such Conversion Price by the fraction the numerator of which is (i) the Fair Market Value of all the shares of Common Stock outstanding on the day before the ex-dividend date with respect to an Extraordinary Distribution which is paid in cash and on the distribution date with respect to an Extraordinary Distribution which is paid other than in cash, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date -27- of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be, and the denominator of which shall be the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Corporation multiplied by (b) the Fair Market Value of a share of Common Stock on the day before the ex-dividend date with respect to an Extraordinary Distribution which is paid in cash and on the distribution date with respect to an Extraordinary Distribution which is paid other than in cash, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be. The Corporation shall send each holder of Series B Preferred Stock (i) notice of its intent to make any dividend or distribution and (ii) notice of any offer by the Corporation to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended -28- record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Corporation pursuant to such offer, as well as the Conversion Price and the number of shares of Common Stock into which a share of Series B Preferred Stock may be converted at such time. (E) Notwithstanding any other provisions of this Section 9, the Corporation shall not be required to make any adjustment to the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) in the Conversion Price. (F) If the Corporation shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Corporation or any rights or warrants to purchase or acquire any such security, which transaction does not result in an adjustment to the Conversion Price pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Corporation shall consider whether such action is of such a nature that an adjustment to the Conversion Price should equitably be made in respect of such transaction. -29- If in such case the Board of Directors of the Corporation determines that an adjustment to the Conversion Price should be made, an adjustment shall be made effective as of such date, as determined by the Board of Directors of the Corporation (which adjustment shall in no event adversely affect the powers, preferences, or special rights of this Series B Preferred Stock as set forth herein). The determination of the Board of Directors of the Corporation as to whether an adjustment to the Conversion Price should be made pursuant to the foregoing provisions of this paragraph 9(F), and, if so, as to what adjustment should be made and when, shall be final and binding on the Corporation and all stockholders of the Corporation. The Corporation shall be entitled to make such additional adjustments in the Conversion Price, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Corporation, subdivision, reclassification or combination of shares of stock of the Corporation or any recapitalization of the Corporation shall not be taxable to the holders of the Common Stock. (G) For purposes of this Resolution, the following definitions shall apply: "Business Day" shall mean each day that is not a Saturday, Sunday or a day on which state or federally chartered banking institutions in Chicago, Illinois or New York, New York are not required to be open. -30- "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any day shall mean the last reported sales price, regular way, or, in the event that no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such. day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Corporation or a committee thereof, in each case, on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period of five (5) consecutive trading days preceding, and including, the date as of which the Fair Market Value of-a security is to be determined. -31- "Extraordinary Distribution" shall mean any dividend or other distribution to holders of Common Stock (effected while any of the shares of Series B Preferred Stock are outstanding) (i) of cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding period of 12 months, when combined with the aggregate amount of all Pro Rata Repurchases (for this purpose, including only that portion of the aggregate purchase price of such Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined on the applicable expiration date (including all extensions thereof) of any tender offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase with respect to any other Pro Rata Repurchase which is not a tender offer or exchange offer made during such period), exceeds 12 1/2% of the aggregate Fair Market Value of all shares of Common Stock outstanding on the day before the ex-dividend date with respect to such Extraordinary Distribution which is paid in cash and on the distribution date with respect to an Extraordinary Distribution which is paid other than in cash, and/or (ii) of any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation (other than the securities of the type referred to in paragraph (B) or (C) of this Section 9), evidences of indebtedness of the Corporation or any other person or any other property (including shares of any -32- subsidiary of the Corporation) or any combination thereof. The Fair Market Value of an Extraordinary Distribution for purposes of paragraph (D) of this Section 9 shall be equal to the sum of the Fair Market Value of such Extraordinary Distribution plus the amount of any cash dividends which are not Extraordinary Distributions made during such 12-month period and not previously included in the calculation of an adjustment pursuant to paragraph (D) of this Section 9. "Fair Market Value" shall mean the amount of cash received or, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined by an independent commercial or investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors of the Corporation or a committee thereof, or, if no such commercial} or investment banking or appraisal firm is in the good faith judgment of the Board of Directors or such committee available to make such determination, as determined in good faith by the Board of Directors of the Corporation or such committee. "Non-Dilutive Amount" in respect of an issuance, sale or exchange by the Corporation of any right or warrant to -33- purchase or acquire shares of Common Stock (including any security convertible into or exchangeable for shares of Common Stock) shall mean the remainder of (i) the product of the Fair Market Value of a share of Common Stock on the day preceding the first public announcement of such issuance, sale or exchange multiplied by the maximum number of shares of Common Stock which could be acquired on such date upon the exercise in full of such rights and warrants (including upon the conversion or exchange of all such convertible or exchangeable securities), whether or not exercisable (or convertible or exchangeable) at such date, minus (ii) the aggregate amount payable pursuant to such right or warrant to purchase or acquire such maximum number of shares of Common Stock; provided, however, that in no event shall the Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence, in the case of a security convertible into or exchangeable for shares of Common Stock, the amount payable pursuant to a right or warrant to purchase or acquire shares of Common Stock shall be the Fair Market Value of such security on the date of the issuance, sale or exchange of such security by the Corporation. "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Corporation or any subsidiary thereof, whether for cash, shares of capital stock of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property -34- (including shares of a subsidiary of the Corporation), or any combination thereof, effected while any of the shares of Series B Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares by the Corporation, or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this paragraph 9(G), shares shall be deemed to have been purchased by the Corporation or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with the requirements of Rule lOb-18 as such rule is in effect under the Exchange Act on the date shares of Series B Preferred Stock are initially issued by the Corporation, or on such other terms and conditions as the Board of Directors of the Corporation or a committee thereof shall have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. (E) Whenever an adjustment to the Conversion Price and the related voting rights of the Series B Preferred Stock is required, the Corporation shall forthwith place on file with the transfer agent(s) for the Common Stock and for the Series B Preferred Stock, if any, and with the Secretary of the -35- Corporation, a statement signed by two officers of the Corporation stating the adjusted Conversion Price determined as provided herein, and the resulting conversion ratio, and the voting rights (as appropriately adjusted), of the Series B Preferred Stock. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the Conversion Price and the related voting rights of the Series B Preferred Stock, the Corporation shall mail a notice thereof and of the then prevailing conversion rate to each holder of shares of the Series B Preferred Stock. Section 10. Ranking; Retirement of Shares. (A) The Series B Preferred Stock shall rank senior to the Series A Junior Participating Preferred Stock and the Common Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up of the Corporation, and, unless otherwise provided in the Restated Certificate of Incorporation of the Corporation, as the same may be amended, the Series B Preferred Stock shall rank pari passu with all future series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up. -36- (B) Any shares of Series B Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares, or otherwise so acquired, shall be restored to the status of authorized but unissued shares of Preferred Stock, with no par value per share, of the Corporation, undesignated as to series, and may thereafter be reissued as part of a new or existing series of such Preferred Stock as permitted by law. Section 11. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice elsewhere herein) with postage prepaid, addressed: (i) if to the Corporation, to its office at P.O. Box 9001, Chicago, Illinois 60604-9001 (Attention: Secretary), or to the transfer agent for the Series B Preferred Stock, or other agent of the Corporation designated as permitted herein or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series B Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Corporation or any such holder, as the case may be, shall have designated by notice similarly given. -37- (B) The Corporation shall give 15 Business Days' notice to all record holders of Series B ESOP Convertible Preferred Stock prior to the record date to be established with respect to any Extraordinary Event, setting forth the material provisions relating to such Extraordinary Event, Provided, however, that the failure to give any such notice shall not affect the validity of any such corporate action. "Extraordinary Event" as used in herein means (i) any non- cash dividend payable with respect to the Common Stock, (ii; any cash dividend in an amount exceeding 10% of the Conversion Price on the date the dividend is declared, ((iii)) any recapitalization, reclassification, consolidation, merger or similar event as a result of which shares of Common Stock are converted into or exchanged for any other securities or property, (iv) any sale of all or substantially all of the assets of the Corporation, or (v) the adoption of any repurchase program under which the Corporation may purchase more than 15% of the Corporation's then outstanding Common Stock. (C) The term "Common Stock" as used in this Resolution means the Corporation's Common Stock, par value $5.00 per share (as the same exists at the date of amendment of the Restated Certificate of Incorporation of the Corporation in respect of the Series B Preferred Stock), or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to -38- no par value, or from no par value to par value. In the event that, at any time as a result of an adjustment made pursuant to Section 9 hereof, the holder of any share of the Series B Preferred Stock upon thereafter surrendering such shares for conversion, shall become entitled to receive any shares or other securities of the Corporation other than shares of Common Stock, the Conversion Prize in respect of such other shares or securities so receivable upon conversion of shares of Series B Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Section 9 hereof, and the provisions of Sections 1 through 8, 10 and 11 hereof with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (D) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series B Preferred Stock or shares of Common Stock or other securities issued on account of Series B Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series B Preferred Stock or Common Stock or other securities in a name other than that in -39- which the shares of Series B Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (E) In the event that a holder of shares of Series B Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series B Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series B Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (F) Unless otherwise provided in the Restated Certificate of Incorporation, as the same may be amended, of the Corporation, all payments in the form of dividends, distributions -40- on voluntary or involuntary dissolution, liquidation or winding up or otherwise made upon the shares of Series B Preferred Stock and any other stock ranking on a parity with the Series B Preferred Stock with respect to such dividend or distribution shall be pro rata, so that amounts paid per share on the Series B Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Series B Preferred Stock and such other stock bear to each other. (G) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series B Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series B Preferred Stock. -41- EX-3.2 3 Exhibit 3(b) B Y L A W S OF THE QUAKER OATS COMPANY AS AMENDED - JANUARY 11, 1995 B Y L A W S OF THE QUAKER OATS COMPANY CORPORATE OFFICES AND SEAL Bylaw 1 - The principal and registered office of this Corporation shall be at 820 Bear Tavern Road, West Trenton, Mercer County, New Jersey. Bylaw 2 - The Corporation shall also have and maintain a general office and place of business at the City of Chicago in the State of Illinois, where it may keep all books, records, documents, and papers; it may also establish offices in such other states and foreign countries as the board shall from time to time determine. Bylaw 3 - The Corporate Seal shall have inscribed thereon the name of the Corporation, the state of its organization, and the words "Corporate Seal." CAPITAL STOCK AND TRANSFERS THEREOF Bylaw 4 - Certificates of stock in the Corporation shall be in the form adopted by the board, and be consecutively numbered; they shall be signed by the Chairman of the Board of Directors, the President or a Vice President and either the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, whose signatures may be facsimiles. The names of the owners of such shares, the dates of issue, and the certificate numbers thereof shall be entered upon the Corporation's books. The board shall appoint one or more transfer agents, and also one or more registrars of transfers, outside of the State of New Jersey, and shall require all valid certificates of stock in the Corporation to bear the countersignatures of one such agent, which may be a facsimile, and one such registrar. The same bank or trust company may act as both transfer agent and registrar. Bylaw 5 - Transfers of shares of stock in the Corporation upon the books of the Corporation shall be made only by the holders thereof in person or by attorney thereunto duly authorized in writing. Outstanding certificates for a like number of shares shall be surrendered and cancelled at the time of such transfers, except as provided in Bylaw 8. -2- Bylaw 6 - For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the board may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. Bylaw 7 - The Corporation shall be entitled to treat the record holder of any share or shares of stock, as shown by its books, as the sole legal and equitable owner and holder thereof, and shall not be bound to recognize any interest or claim on the part of others, whether it shall have notice thereof or not, save as expressly provided otherwise by the laws of New Jersey. Bylaw 8 - The board may issue or cause to be issued new certificates of stock to replace certificates of stock alleged to have been lost or destroyed, upon such reasonable terms and conditions as may be prescribed by the board to protect the interests of the Corporation. SHAREHOLDERS Bylaw 9 - Meetings of the shareholders of the Corporation shall be held at such place, within or without the State of New Jersey, as may be fixed by the board from time to time. Bylaw 10 - The annual meeting of the shareholders for election of directors and transaction of other business shall be held on the second Wednesday of November in each year at the hour of nine-thirty o'clock in the forenoon, or at such other time as may be fixed by the board. Directors shall be elected by ballot and a plurality vote. Written notice of the time, place, and purpose or purposes of every regular meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at the meeting. Bylaw 11 - Special meetings of the shareholders for purposes allowed by law may be held at any time when called by the Chairman of the Board or President, or upon resolution or written request of a majority of the board or of a majority of the executive committee. Written notice of the time, place, and purposes of every special meeting of shareholders shall be -3- given not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at the meeting. Bylaw 12 - Unless otherwise provided in the certificate of incorporation or the laws of New Jersey, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute quorum at such meeting. The shareholders present in person or by proxy at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less than a quorum may adjourn the meeting. Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the provisions of this section shall apply in determining the presence of a quorum of such class or series for the transaction of such specified item of business. Bylaw 13 - The Chairman of the Board shall act as chairman of each shareholders' meeting. If he is absent, the President or a Vice President shall so act. If all of the foregoing are absent, then the meeting itself by a majority vote in interest may select some shareholder present to preside, which vote shall be recorded in the minutes. The Secretary of the Corporation, if present, shall act as secretary of each shareholders' meeting. If the Secretary of the Corporation is absent, an Assistant Secretary shall so act. If all of the foregoing are absent, then the chairman of the meeting shall designate a person to act as secretary. A declaration by the chairman that any resolution has been duly carried, and an entry to that effect in the minutes of the meeting, shall, in all cases where a poll in not demanded, be competent and sufficient evidence of the fact and legality of adoption of such resolution. Bylaw 14 - (a) At all elections of directors by the shareholders, two independent inspectors of election shall be chosen by the presiding officer of the meeting; they need not be shareholders, but in no case shall they be either employees of the Corporation or candidates for the office of director. Each inspector shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability, and shall perform such duties as are provided by the laws of New Jersey. (b) At all elections of directors by the shareholders, all proxies, ballots, and voting tabulations that identify how shareholders voted will be kept confidential and not be disclosed to any of the directors, officers or employees of the Corporation except when disclosure is mandated by law, expressly requested by a shareholder, or during a contested election for the board. -4- (c) The same voting procedure shall be followed with regard to other matters submitted to shareholders for their vote. Bylaw 15 - The officer or agent having charge of the stock transfer books for shares of the Corporation shall make and certify a complete list of the shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. Such list shall (a) be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each shareholder; (b) be produced at the time and place of the meeting; (c) be subject to the inspection of any shareholder during the whole time of the meeting; and (d) be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting. BOARD OF DIRECTORS Bylaw 16 - The property, affairs, and business of the Corporation shall be managed and controlled by a board of directors. The number of directors shall be determined in accordance with the provisions of the certificate of incorporation. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors. At each annual meeting of shareholders beginning in 1984, successors to directors whose terms expire at that annual meeting shall be of the same class as the directors they succeed, and shall be elected for three-year terms. Bylaw 17 - A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, or removal from office. Any newly created directorship resulting from an increase in the number of directors and any other vacancy on the board of directors, however caused, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; provided that if the number of directors is increased, not more than two such newly created directorships may be filled by the directors in any period -5- between annual meetings of shareholders. Any director so elected to fill a vacancy shall, without regard to the class in which such vacancy occurred, hold office until the next succeeding annual meeting of shareholders and until his or her successor shall have been elected and qualified. The term of a director elected by shareholders to fill a newly created directorship or other vacancy shall expire at the same time as the terms of the other directors of the class in which the vacancy occurred. Bylaw 18 - Regular meetings of the board shall be held six times each year at such time and place as the board may determine, subject to the right of the Chairman of the Board, the President, or the executive committee, by notice required for a special meeting of the board, to change the time or place of a regular meeting. Except as aforesaid, no notice of a regular meeting is required. Bylaw 19 - Special meetings of the board may be held at any time and place whenever called by the Chairman of the Board, the President, or any three of the directors. Notice to each director of the time and place of the meeting shall be mailed not less than three calendar days before the meeting, or telegraphed or telephoned or delivered to his office not less than 24 hours before the meeting. Bylaw 20 - A majority of the board shall constitute a quorum for the transaction of business, but any less number present may adjourn the meeting from time to time. Bylaw 21 - In addition to the powers specifically enumerated in these Bylaws, the board shall also have, and may exercise, all other and further powers, privileges, and authority expressly or impliedly conferred upon them by the Statues of New Jersey and the articles of incorporation of the Corporation. EXECUTIVE COMMITTEE Bylaw 22 - The board shall appoint from among its members an executive committee of not less than four and not more than 10 regular members. The board may also designate one or more of its members as alternates to serve as members of the executive committee in the absence of a quorum of that committee at any regular or special meeting. (a) The executive committee shall have the powers of the board in the management of the business, affairs, and property of the Corporation during the intervals between the meetings of the board, except that the executive committee shall not: -6- (i) make, alter or repeal any Bylaw of the Corporation; (ii) elect or appoint any director, or remove any officer or director; (iii) submit to shareholders any action that requires shareholders' approval; or (iv) amend or repeal any resolution theretofore adopted by the board which by its terms is amendable or repealable only by the board. (b) Regular meetings of the executive committee may be held without notice at such time and place as shall from time to time be determined by the executive committee or by the board. (c) Special meetings of the executive committee may be called by the President, or the Chairman of the Board, or by any two regular members of the committee by causing 24 hours' notice of the time and place thereof to be given to each regular member by mail or by telegram or by telephone, or by delivery to his office, but any regular member may waive such notice. The purpose of the meeting need not be stated in the notice or waiver of notice. (d) Whenever it appears that a quorum of regular members will not present at a meeting, the Secretary may request the attendance of an alternate member, who, if he attends, and if his attendance is necessary to obtain quorum, shall be deemed a regular member of the executive committee for the purposes of such meeting. (e) Any regular or special meeting of the executive committee may be adjourned and no notice need be given of the adjourned meeting whether or not a quorum shall be present. (f) A majority of members of the executive committee shall constitute a quorum. Actions taken at a meeting of the executive committee shall be reported to the board at its next meeting following such executive committee meeting; except that, when the meeting of the board is held within two days after the executive committee meeting,such report shall, if not made at the first meeting, be made to the board at its second meeting following such executive committee meeting. -7- OTHER COMMITTEES Bylaw 23 - The board by resolution adopted by a majority of the entire board may appoint from among its members one or more other committees, each of which shall have one or more members. MEETINGS AND ACTION OF DIRECTORS WITHOUT A MEETING Bylaw 24 - Any or all directors may participate in a meeting of the board or executive committee by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other. Any action required or permitted to be taken pursuant to authorization voted at a meeting of the board or executive committee may be taken without a meeting if, prior or subsequent to such action, all members of the board or of the executive committee, as the case may be, consent thereto in writing and such written consents are filed with the minutes of the proceedings of the board or executive committee. OFFICERS Bylaw 25 - The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, and a Secretary, and such additional officers and such assistant officers as may be deemed necessary from time to time by the board or the executive committee. One or more Vice Presidents may be designated as Executive Vice Presidents or as Senior Vice Presidents or as other types of Vice Presidents. The Chairman of the Board, President, Treasurer, Secretary and any Vice President designated as a Senior or Executive Vice President shall be elected by the board. Any other officers shall be elected by the board or the executive committee. Each officer shall hold office for a term expiring at the first board meeting following the annual meeting of the shareholders and until his successor is elected, but subject to removal by the board at any time. Salaries of officers elected by the board or who are directors shall be fixed by the board. Salaries of other officers and assistant officers shall be fixed by the board or the executive committee. -8- Bylaw 26 - The Chairman of the Board shall be the Chief Executive Officer of the Corporation and shall have general supervision of its business and affairs, subject, however, to control of the board and the executive committee. He shall be a regular member of the executive committee and shall preside at all meetings of the shareholders, the board, and the executive committee. Bylaw 27 - The President shall serve as a regular member of the executive committee and shall have such other powers and duties as shall be assigned to him by the board or the executive committee or the Chairman of the Board. In the absence of the Chairman of the Board, he shall preside at meetings of the board and of the executive committee. Bylaw 28 - The Vice Presidents shall have such powers and duties as shall be assigned to them by the board, the executive committee, or the Chairman of the Board. The President or the Senior or Executive Vice President with the longest service with the Corporation who is a member of the executive committee and who is present and able to act shall have the powers and duties of the Chairman of the Board during his absence or inability to act. Bylaw 29 - The Treasurer shall have custody of the corporate funds and securities. He shall keep full and accurate accounts of all receipts and disbursements and generally shall perform all the duties usually incident to the office of Treasurer and shall have such other powers and duties as shall be assigned to him by the board, the executive committee or the Chairman of the Board. Each Assistant Treasurer shall have power to act in the place and stead of the Treasurer in case of his absence or inability to act, and shall have such other powers and duties as shall be assigned to him by the board, the executive committee or the Chairman of the Board. Bylaw 30 - The Secretary shall have custody of the corporate seal and shall be present at and make a true record of the votes and proceedings of all meetings of the shareholders, the board, and the executive committee. He shall supervise the giving and mailing of all notices of shareholders' and directors' meetings; shall have charge of the certificate books, transfer books, and capital stock ledgers; and generally shall perform all the duties and have charge of all other books and papers usually incident to the office of Secretary. He shall have such other powers and duties as shall be assigned to him by the board, the executive committee or the Chairman of the Board. -9- Each Assistant Secretary shall have power to act in the place and stead of the Secretary in case of his absence or inability to act, and shall have such other powers and duties as shall be assigned to him by the board, the executive committee or the Chairman of the Board. Bylaw 31 - Unless otherwise ordered by the board or the executive committee, the Secretary, and in case of his absence or inability to act an Assistant Secretary, shall have the power, and it shall be his duty, to vote in the name and behalf of the Corporation all stock held by it in other companies; and the Chairman of the Board, President, or a Vice President, and the Secretary or an Assistant Secretary, shall have the power to execute an deliver proxies for the purpose of voting such stock; but the board or the executive committee may by resolution confer such power to vote and to execute proxies upon any other person or persons, and in all cases may instruct how such stock shall be voted at any meeting or election. Bylaw 32 - The board or the executive committee shall by resolution designate one or more banks as authorized principal depositories of the funds and securities of the Corporation and appoint and authorize officers of other persons to sign checks thereon and otherwise control and dispose of such funds and securities. The Treasurer or any two other elected officers of the Corporation may designate other banks as secondary depositories in connection with the business of the Corporation, and appoint and authorize officers or other persons to sign checks thereon or otherwise control and dispose of funds therein. All notes payable issued by the Corporation shall be signed in its behalf by such officer or officers of the Corporation authorized for that purpose by the board or the executive committee. FISCAL YEAR AND DIVIDENDS Bylaw 33 - The fiscal year of the Corporation shall begin on the first day of July in each year. Bylaw 34 - Dividends may be declared by the board, from the profits, at any regular or special meeting of the board, whenever in their judgment it shall be consistent with the best interests of the Corporation. The executive committee shall also have power, between sessions of the board, to declare the usual quarterly dividends on all classes of stock. -10- AMENDMENTS Bylaw 35 - These Bylaws may be amended, altered or repealed, and new Bylaws may be enacted, only by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of capital stock of the Corporation or by a vote of not less than two-thirds of the entire board of directors. INDEMNIFICATION Bylaw 36 - The Corporation shall indemnify any person who is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger, and any person who is or was a director, officer, trustee, employee or agent of any other domestic or foreign corporation and any partnership, joint venture, sole proprietorship, trust or other enterprise, whether or not for profit, served by a person covered by this Bylaw, serving at the request of the Corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent, against his reasonable costs, disbursements and counsel fees and amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties in connection with any pending, threatened or completed civil, criminal administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry, or investigation which could lead to such action, suit or proceeding, to the fullest extent now or hereafter permitted by New Jersey law. The Corporation shall pay expenses as they are incurred by any person covered by this Bylaw in connection with any proceeding covered by this Bylaw in advance of the final disposition of the proceeding to the fullest extent now or hereafter permitted by New Jersey law. Any determination required to be made pursuant to Section 14A3-5(5) of the New Jersey Business Corporation Act shall be made only by either (a) the Board or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding, or (b) if such a quorum is not obtainable, or even if obtainable and such quorum of the Board or committee by a majority vote of the disinterested directors so directs, by independent legal counsel in a written opinion, such counsel to be designated by the Board and reasonably satisfactory to the person who is being indemnified. -11- MANAGEMENT COMMITTEE Bylaw 37 - The Chairman of the Board shall appoint such officers of the Corporation who, together with the Chairman of the Board, shall constitute the Management Committee of the Corporation. Members of the Management Committee shall serve at the discretion of the Chairman of the Board and shall advise regarding management of the Corporation and otherwise assist the Chairman as requested. The Management Committee shall meet at such places and times as are designated by the Chairman of the Board. EX-10.1 4 Exhibit 10(e)(3) SECOND AMENDMENT TO THE QUAKER OATS COMPANY STOCK RETIREMENT PLAN FOR OUTSIDE DIRECTORS WHEREAS, The Quaker Oats Company Stock Retirement Plan for Outside Directors (the "Plan") was previously adopted, effective September 12, 1984 by The Quaker Oats Company (the "Company"); and WHEREAS, the Plan provides that the Board of Directors of the Company (the "Board") has the power to amend the Plan; and WHEREAS, it is desirable to amend the Plan, and the Board has authorized adoption of this Second Amendment to the Plan and authorized the officers of the Company to execute any documents in connection herewith; NOW, THEREFORE, the Plan is hereby amended by substituting the following for Section 2 of the Plan, effective January 1, 1996: "2. Common Stock Units. In addition to the cash compensation otherwise payable to its outside directors, the Company shall establish and maintain a Deferred Stock Account in the name of each outside director. Subject to the provisions of Section 9, as of the first day of each fiscal year or period, the Company shall credit 800 Common Stock Units to the Deferred Stock Account of each person who was an outside director of the Company on the last day of the immediately preceding fiscal year or period or who ceased to be a director during such preceding fiscal year or period by reason of his retirement, disability or death. In the event such immediately preceding fiscal period is less than twelve months, the number of Common Stock Units to be credited as stated above shall be pro rated based upon the number of months in such fiscal period." IN WITNESS WHEREOF, this Amendment is executed by a duly authorized officer of the Company. THE QUAKER OATS COMPANY September 14, 1995 By: S/DOUGLAS J. RALSTON Its: SENIOR VICE PRESIDENT EX-10.2 5 Exhibit 10(f)(1) EXECUTIVE SEPARATION AGREEMENT THIS AGREEMENT is made between The Quaker Oats Company, a New Jersey corporation (the "Company"), and William D. Smithburg (the "Executive"), dated this 1st day of May, 1995. WITNESSETH THAT: WHEREAS, the Company wishes to attract and retain well- qualified executive and key personnel and to assure both itself and the Executive of continuity of management in the event of any actual or threatened change in control of the Company; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Operation of Agreement. The "effective date of this Agreement" shall be the date on which the Executive declares it effective, by notice to the Company in writing, but only if a change in control of the Company (as defined in Section 2) has occurred on or before the date of the notice. 2. Change in Control. A "change in control of the Company" shall be deemed to have occurred if: a. any "Person," which shall mean a "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; provided, however, that this paragraph a. shall not apply to any Person who becomes such a beneficial owner of such Company securities pursuant to an agreement with the Company approved by the Company's Board of Directors (the "Board"), entered into before such Person has become such a beneficial owner of Company securities representing 5% or more of the combined voting power of the Company's then outstanding voting securities; b. during any period of 24 consecutive months (not including any period prior to the execution of this Agreement), individuals, who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2) or d. of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of the period cease for any reason to constitute at least a majority thereof; c. the stockholders of the Company approve (1) a plan of complete liquidation of the Company or (2) the sale or disposition by the Company of all or substantially all of the Company's assets unless the acquirer of the assets or its directors shall meet the conditions for a merger or consolidation in subparagraphs d.(1) or d.(2); or d. the stockholders of the Company approve a merger or consolidation of the Company with any other company other than: (1) such a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of the Company's or such surviving entity's outstanding voting securities immediately after such merger or consolidation; or (2) such a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least 50% of the directors of the surviving entity immediately after such merger or consolidation. In this paragraph d., "surviving entity" shall mean only an entity in which all of the Company's stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2), d.(1) or d.(2) of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of such period. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the effective date of this Agreement and ending on the earlier to occur of the third anniversary of such effective date or the 65th birthday of the Executive (the "employment period"), to exercise such authorities and powers, and perform such duties and functions, as are commensurate with the authorities and powers being exercised, and duties and functions being performed, by the Executive immediately prior to the effective date of this Agreement, which services shall be performed at the current location where the Executive was employed immediately prior to the effective date of this Agreement or at such other location within a 30-mile radius of such current location. The Executive shall not be required to accept any other location. The Executive agrees that during the employment period he shall devote his full business time exclusively to his executive duties as described herein and perform such duties faithfully and efficiently. 2 4. Compensation, Compensation Plans, Benefit Plans, Perquisites. During the employment period and prior to termination (as defined in Section 5) of the Executive, the Executive shall be compensated as follows: a. He shall receive an annual salary which is not less than his annual salary immediately prior to the effective date of this Agreement, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular practices. b. He shall be eligible to participate on a reasonable basis in bonus, stock option, restricted stock and other incentive compensation plans, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. c. He shall be eligible to participate on a reasonable basis in tax-qualified employee benefit plans (including but not limited to pension, profit sharing and employee stock ownership plans), and supplemental nonqualified employee benefit plans relating thereto, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. d. He shall be entitled to receive employee benefits (including, but not limited to, medical and life insurance benefits) and perquisites which are comparable to those to which he was provided immediately prior to the effective date of this Agreement. 5. Termination. "Termination" shall mean either (a) termination by the Company of the employment of the Executive with the Company for any reason other than death, physical or mental incapacity, or cause (as defined below); (b) resignation of the Executive, which, notwithstanding anything else herein to the contrary, may be declared by the executive during the 30-day period following the first anniversary of the effective date of this Agreement; or (c) resignation of the Executive upon the occurrence of any of the following events: (1) a significant change in the nature or scope of the Executive's authorities, powers, functions, or duties from those described in Section 3; (2) a reduction in total compensation from that provided in Section 4; (3) the breach by the Company of any other provision of this Agreement; or (4) a reasonable determination by the Executive that, as a result of a change in control of the Company his position is significantly affected so that he is unable to exercise the authorities, powers, functions or duties attached to his position as described in Section 3. 3 "Cause" means gross misconduct or willful and material breach of this Agreement by the Executive. No act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. 6. Confidentiality. The Executive agrees that during and after the employment period, he will not divulge or appropriate to his own use or the use of others any secret or confidential information or knowledge pertaining to the business of the Company, or any of its subsidiaries, obtained during his employment by the Company or any of its subsidiaries. 7. Severance and Benefit Payments. a. In the event of termination of the Executive during the employment period, the Company shall pay the Executive a lump-sum severance allowance equal to salary and bonus payments for the following 24 calendar months at the rate which he would have been entitled to receive in accordance with Section 4. Such a severance allowance shall be adjusted to include expected increases to the Executive's salary and bonus for such period, but shall not be adjusted on a present value basis. b. In the event of termination of the Executive during the employment period, the Company shall also pay the Executive a lump-sum benefit payment in an amount equivalent to (1) the benefits he would have accrued or been allocated under any tax-qualified employee benefit plan (including but not limited to pension, profit sharing and employee stock ownership plans) and any nonqualified supplemental benefit plan relating thereto, maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination, which benefits will be paid in addition to the benefits provided under such plans, and (2) any other employee benefits (including, but not limited to, coverage under any medical and life insurance arrangements or programs) to which he would have been entitled under all such employee benefit plans, programs or arrangements maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination. Such a benefit payment shall be adjusted to include expected increases to the Executive's salary, bonus and other compensation having an effect on such benefits for such period, but shall not be adjusted on a present value basis. c. The amount of the severance allowance and benefit payment described in this Section shall be determined and such payment shall be made as soon as it is reasonably possible. 4 d. The severance allowance and benefit payment to be provided pursuant to this Section 7 shall be in addition to, and shall not be reduced by, any other amounts or benefits provided by separate agreement with the Executive, or plan or arrangement of the Company or its subsidiaries, unless specifically stipulated in an agreement which constitutes an amendment to this Agreement as provided in Section 14. 8. Tax Reimbursement. If any payment to the Executive under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries is subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code"), the Company shall pay the Executive an additional amount which is equal to the amount of such excise tax. The Company will provide complete compensation and tax data on a timely basis to the Executive and to an accounting firm or law firm designated by the Executive in order to enable the Executive to determine the extent to which any payments under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries constitute "parachute payments" or "excess parachute payments" under section 280G of the Code. Any additional amount payable under this Section 8 shall be due and paid no later than ten business days after the other payment to which such additional payment relates; provided, however, that if suchadditional amount cannot be determined on or before such due date, the Company shall pay an amount on the due date which it in good faith estimates to be payable and shall pay the remainder of such additional amount (together with interest at a rate equal to 120% of the applicable Federal rate determined under Section 1274(d) of the Code) as soon as such amount can be determined, but no later than 30 days after the date on which Executive becomes subject to the payment of the excise tax. 9. Mitigation and Set Off. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall not be entitled to set off against the amounts payable to the Executive under this Agreement any amounts owed to the Company by the Executive, any amounts earned by the Executive in other employment after termination of his employment with the Company, or any amounts which might have been earned by the Executive in other employment had he sought such other employment. 10. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, except with respect to Section 8, shall be settled by arbitration in the City of Chicago in accordance with the laws of the State of Illinois by three arbitrators appointed by the parties. If the parties cannot agree on the appointment, one arbitrator shall be appointed by the Company and one by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States Court of Appeals for the Seventh Circuit. The arbitration 5 shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 10. Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable for the Executive to retain legal counsel or incur other costs and expenses in connection with enforcement of his rights under this Agreement, Executive shall be entitled to recover from the Company his reasonable attorneys' fees and costs and expenses in connection with enforcement of his rights (including the enforcement of any arbitration award in court). Payment shall be made to the Executive by the Company at the time these attorneys' fees and costs and expenses are incurred by the Executive. If, however, the arbitrators should later determine that under the circumstances the Executive could have had no reasonable expectation of prevailing on the merits at the time he initiated the arbitration based on the information then available to him, he shall repay any such payments to the Company in accordance with the order of the arbitrators. Any award of the arbitrators shall include interest at a rate or rates considered just under the circumstances by the arbitrators. 11. Notices. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal executive offices. 12. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. Nothing in this paragraph shall limit the Executive's rights or powers which his executor or administrator would otherwise have. 13. Governing Law. The Agreement shall be construed and enforced according to the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre- empted by ERISA. 14. Amendment. This Agreement may be amended or cancelled by mutual agreement of the parties in writing without the consent of any other person and, so long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. 15. Term. Unless the Executive has theretofore declared this Agreement effective, pursuant to Section 1 of this Agreement, this Agreement shall terminate (a) March 31, 1998 or (b) when the Executive has been placed on inactive service by the Company prior to a change in control of the Company. 6 16. Successors to the Company. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. 17. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 18. Prior Agreement. Any prior Executive Separation Agreement between the Executive and the Company which has not yet terminated pursuant to its terms, is cancelled by mutual consent of the Executive and the Company pursuant to execution of this Agreement, effective as of the day and year first above written. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, all as of the day and year first above written. S/WILLIAM D. SMITHBURG WILLIAM D. SMITHBURG THE QUAKER OATS COMPANY By S/Douglas J. Ralston ATTEST: S/Marcia S. Laz Assistant Secretary 7 EX-10.3 6 Exhibit 10(f)(2) EXECUTIVE SEPARATION AGREEMENT THIS AGREEMENT is made between The Quaker Oats Company, a New Jersey corporation (the "Company"), and Philip A. Marineau (the "Executive"), dated this 5th day of May, 1995. WITNESSETH THAT: WHEREAS, the Company wishes to attract and retain well- qualified executive and key personnel and to assure both itself and the Executive of continuity of management in the event of any actual or threatened change in control of the Company; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Operation of Agreement. The "effective date of this Agreement" shall be the date on which the Executive declares it effective, by notice to the Company in writing, but only if a change in control of the Company (as defined in Section 2) has occurred on or before the date of the notice. 2. Change in Control. A "change in control of the Company" shall be deemed to have occurred if: a. any "Person," which shall mean a "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; provided, however, that this paragraph a. shall not apply to any Person who becomes such a beneficial owner of such Company securities pursuant to an agreement with the Company approved by the Company's Board of Directors (the "Board"), entered into before such Person has become such a beneficial owner of Company securities representing 5% or more of the combined voting power of the Company's then outstanding voting securities; b. during any period of 24 consecutive months (not including any period prior to the execution of this Agreement), individuals, who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2) or d. of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of the period cease for any reason to constitute at least a majority thereof; c. the stockholders of the Company approve (1) a plan of complete liquidation of the Company or (2) the sale or disposition by the Company of all or substantially all of the Company's assets unless the acquirer of the assets or its directors shall meet the conditions for a merger or consolidation in subparagraphs d.(1) or d.(2); or d. the stockholders of the Company approve a merger or consolidation of the Company with any other company other than: (1) such a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of the Company's or such surviving entity's outstanding voting securities immediately after such merger or consolidation; or (2) such a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least 50% of the directors of the surviving entity immediately after such merger or consolidation. In this paragraph d., "surviving entity" shall mean only an entity in which all of the Company's stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2), d.(1) or d.(2) of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of such period. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the effective date of this Agreement and ending on the earlier to occur of the third anniversary of such effective date or the 65th birthday of the Executive (the "employment period"), to exercise such authorities and powers, and perform such duties and functions, as are commensurate with the authorities and powers being exercised, and duties and functions being performed, by the Executive immediately prior to the effective date of this Agreement, which services shall be performed at the current location where the Executive was employed immediately prior to the effective date of this Agreement or at such other location within a 30-mile radius of such current location. The Executive shall not be required to accept any other location. The Executive agrees that during the employment period he shall devote his full business time exclusively to his executive duties as described herein and perform such duties faithfully and efficiently. 2 4. Compensation, Compensation Plans, Benefit Plans, Perquisites. During the employment period and prior to termination (as defined in Section 5) of the Executive, the Executive shall be compensated as follows: a. He shall receive an annual salary which is not less than his annual salary immediately prior to the effective date of this Agreement, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular practices. b. He shall be eligible to participate on a reasonable basis in bonus, stock option, restricted stock and other incentive compensation plans, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. c. He shall be eligible to participate on a reasonable basis in tax-qualified employee benefit plans (including but not limited to pension, profit sharing and employee stock ownership plans), and supplemental nonqualified employee benefit plans relating thereto, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. d. He shall be entitled to receive employee benefits (including, but not limited to, medical and life insurance benefits) and perquisites which are comparable to those to which he was provided immediately prior to the effective date of this Agreement. 5. Termination. "Termination" shall mean either (a) termination by the Company of the employment of the Executive with the Company for any reason other than death, physical or mental incapacity, or cause (as defined below); (b) resignation of the Executive, which, notwithstanding anything else herein to the contrary, may be declared by the executive during the 30-day period following the first anniversary of the effective date of this Agreement; or (c) resignation of the Executive upon the occurrence of any of the following events: (1) a significant change in the nature or scope of the Executive's authorities, powers, functions, or duties from those described in Section 3; (2) a reduction in total compensation from that provided in Section 4; (3) the breach by the Company of any other provision of this Agreement; or (4) a reasonable determination by the Executive that, as a result of a change in control of the Company his position is significantly affected so that he is unable to exercise the authorities, powers, functions or duties attached to his position as described in Section 3. 3 "Cause" means gross misconduct or willful and material breach of this Agreement by the Executive. No act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. 6. Confidentiality. The Executive agrees that during and after the employment period, he will not divulge or appropriate to his own use or the use of others any secret or confidential information or knowledge pertaining to the business of the Company, or any of its subsidiaries, obtained during his employment by the Company or any of its subsidiaries. 7. Severance and Benefit Payments. a. In the event of termination of the Executive during the employment period, the Company shall pay the Executive a lump-sum severance allowance equal to salary and bonus payments for the following 24 calendar months at the rate which he would have been entitled to receive in accordance with Section 4. Such a severance allowance shall be adjusted to include expected increases to the Executive's salary and bonus for such period, but shall not be adjusted on a present value basis. b. In the event of termination of the Executive during the employment period, the Company shall also pay the Executive a lump-sum benefit payment in an amount equivalent to (1) the benefits he would have accrued or been allocated under any tax-qualified employee benefit plan (including but not limited to pension, profit sharing and employee stock ownership plans) and any nonqualified supplemental benefit plan relating thereto, maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination, which benefits will be paid in addition to the benefits provided under such plans, and (2) any other employee benefits (including, but not limited to, coverage under any medical and life insurance arrangements or programs) to which he would have been entitled under all such employee benefit plans, programs or arrangements maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination. Such a benefit payment shall be adjusted to include expected increases to the Executive's salary, bonus and other compensation having an effect on such benefits for such period, but shall not be adjusted on a present value basis. c. The amount of the severance allowance and benefit payment described in this Section shall be determined and such payment shall be made as soon as it is reasonably possible. 4 d. The severance allowance and benefit payment to be provided pursuant to this Section 7 shall be in addition to, and shall not be reduced by, any other amounts or benefits provided by separate agreement with the Executive, or plan or arrangement of the Company or its subsidiaries, unless specifically stipulated in an agreement which constitutes an amendment to this Agreement as provided in Section 14. 8. Tax Reimbursement. If any payment to the Executive under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries is subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code"), the Company shall pay the Executive an additional amount which is equal to the amount of such excise tax. The Company will provide complete compensation and tax data on a timely basis to the Executive and to an accounting firm or law firm designated by the Executive in order to enable the Executive to determine the extent to which any payments under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries constitute "parachute payments" or "excess parachute payments" under section 280G of the Code. Any additional amount payable under this Section 8 shall be due and paid no later than ten business days after the other payment to which such additional payment relates; provided, however, that if suchadditional amount cannot be determined on or before such due date, the Company shall pay an amount on the due date which it in good faith estimates to be payable and shall pay the remainder of such additional amount (together with interest at a rate equal to 120% of the applicable Federal rate determined under Section 1274(d) of the Code) as soon as such amount can be determined, but no later than 30 days after the date on which Executive becomes subject to the payment of the excise tax. 9. Mitigation and Set Off. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall not be entitled to set off against the amounts payable to the Executive under this Agreement any amounts owed to the Company by the Executive, any amounts earned by the Executive in other employment after termination of his employment with the Company, or any amounts which might have been earned by the Executive in other employment had he sought such other employment. 10. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, except with respect to Section 8, shall be settled by arbitration in the City of Chicago in accordance with the laws of the State of Illinois by three arbitrators appointed by the parties. If the parties cannot agree on the appointment, one arbitrator shall be appointed by the Company and one by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States Court of Appeals for the Seventh Circuit. The arbitration 5 shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 10. Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable for the Executive to retain legal counsel or incur other costs and expenses in connection with enforcement of his rights under this Agreement, Executive shall be entitled to recover from the Company his reasonable attorneys' fees and costs and expenses in connection with enforcement of his rights (including the enforcement of any arbitration award in court). Payment shall be made to the Executive by the Company at the time these attorneys' fees and costs and expenses are incurred by the Executive. If, however, the arbitrators should later determine that under the circumstances the Executive could have had no reasonable expectation of prevailing on the merits at the time he initiated the arbitration based on the information then available to him, he shall repay any such payments to the Company in accordance with the order of the arbitrators. Any award of the arbitrators shall include interest at a rate or rates considered just under the circumstances by the arbitrators. 11. Notices. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal executive offices. 12. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. Nothing in this paragraph shall limit the Executive's rights or powers which his executor or administrator would otherwise have. 13. Governing Law. The Agreement shall be construed and enforced according to the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre- empted by ERISA. 14. Amendment. This Agreement may be amended or cancelled by mutual agreement of the parties in writing without the consent of any other person and, so long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. 15. Term. Unless the Executive has theretofore declared this Agreement effective, pursuant to Section 1 of this Agreement, this Agreement shall terminate (a) March 31, 1998 or (b) when the Executive has been placed on inactive service by the Company prior to a change in control of the Company. 6 16. Successors to the Company. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. 17. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 18. Prior Agreement. Any prior Executive Separation Agreement between the Executive and the Company which has not yet terminated pursuant to its terms, is cancelled by mutual consent of the Executive and the Company pursuant to execution of this Agreement, effective as of the day and year first above written. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, all as of the day and year first above written. S/PHILIP A. MARINEAU PHILIP A. MARINEAU THE QUAKER OATS COMPANY By S/Douglas J. Ralston ATTEST: S/Marcia S. Laz Assistant Secretary 7 EX-10.4 7 Exhibit 10 (f)(3) Schedule of Termination Benefit Agreements with Certain Executive Officers The attached Termination Benefit Agreement is identical in all material respects to the executive Termination Benefit Agreements for those executive employees listed below and which have been omitted from this filing: Name Execution Date John A. Boynton May 5, 1995 John H. Calhoun May 1, 1995 Penelope C. Cate April 27, 1995 Michael L. Cohen September 20, 1995 Janet K. Cooper April 27, 1995 James F. Doyle May 5, 1995 Margaret M. Eichman April 28, 1995 Thomas L. Gettings April 28, 1995 R. Thomas Howell, Jr. May 1, 1995 John G. Jartz April 28, 1995 Mart C. Matthews May 1, 1995 Luther C. McKinney May 5, 1995 Douglas W. Mills May 5, 1995 Kenneth W. Murray May 8, 1995 W. Stephan Perry April 28, 1995 Douglas J. Ralston May 1, 1995 Arthur R. Skantz April 27, 1995 Robert S. Thomason April 27, 1995 Russell A. Young May 5, 1995 EX-10.5 8 Exhibit 10(f)(3) EXECUTIVE SEPARATION AGREEMENT THIS AGREEMENT is made between The Quaker Oats Company, a New Jersey corporation (the "Company"), and Barbara R. Allen (the "Executive"), dated this 1st day of May, 1995. WITNESSETH THAT: WHEREAS, the Company wishes to attract and retain well- qualified executive and key personnel and to assure both itself and the Executive of continuity of management in the event of any actual or threatened change in control of the Company; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Operation of Agreement. The "effective date of this Agreement" shall be the date on which the Executive declares it effective, by notice to the Company in writing, but only if a change in control of the Company (as defined in Section 2) has occurred on or before the date of the notice. 2. Change in Control. A "change in control of the Company" shall be deemed to have occurred if: a. any "Person," which shall mean a "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; provided, however, that this paragraph a. shall not apply to any Person who becomes such a beneficial owner of such Company securities pursuant to an agreement with the Company approved by the Company's Board of Directors (the "Board"), entered into before such Person has become such a beneficial owner of Company securities representing 5% or more of the combined voting power of the Company's then outstanding voting securities; b. during any period of 24 consecutive months (not including any period prior to the execution of this Agreement), individuals, who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2) or d. of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of the period cease for any reason to constitute at least a majority thereof; c. the stockholders of the Company approve (1) a plan of complete liquidation of the Company or (2) the sale or disposition by the Company of all or substantially all of the Company's assets unless the acquirer of the assets or its directors shall meet the conditions for a merger or consolidation in subparagraphs d.(1) or d.(2); or d. the stockholders of the Company approve a merger or consolidation of the Company with any other company other than: (1) such a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of the Company's or such surviving entity's outstanding voting securities immediately after such merger or consolidation; or (2) such a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least 50% of the directors of the surviving entity immediately after such merger or consolidation. In this paragraph d., "surviving entity" shall mean only an entity in which all of the Company's stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph a., c.(2), d.(1) or d.(2) of this Section) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of such period. 2 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the effective date of this Agreement and ending on the earlier to occur of the third anniversary of such effective date or the 65th birthday of the Executive (the "employment period"), to exercise such authorities and powers, and perform such duties and functions, as are commensurate with the authorities and powers being exercised, and duties and functions being performed, by the Executive immediately prior to the effective date of this Agreement, which services shall be performed at the current location where the Executive was employed immediately prior to the effective date of this Agreement or at such other location within a 30-mile radius of such current location. The Executive shall not be required to accept any other location. The Executive agrees that during the employment period he shall devote his full business time exclusively to his executive duties as described herein and perform such duties faithfully and efficiently. 4. Compensation, Compensation Plans, Benefit Plans, Perquisites. During the employment period and prior to termination (as defined in Section 5) of the Executive, the Executive shall be compensated as follows: a. He shall receive an annual salary which is not less than his annual salary immediately prior to the effective date of this Agreement, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular practices. b. He shall be eligible to participate on a reasonable basis in bonus, stock option, restricted stock and other incentive compensation plans, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. c. He shall be eligible to participate on a reasonable basis in tax-qualified employee benefit plans (including but not limited to pension, profit sharing and employee stock ownership plans), and supplemental nonqualified employee benefit plans relating thereto, which shall provide benefits comparable to those to which he was provided immediately prior to the effective date of this Agreement. d. He shall be entitled to receive employee benefits (including, but not limited to, medical and life insurance benefits) and perquisites which are comparable to those to which he was provided immediately prior to the effective date of this Agreement. 5. Termination. "Termination" shall mean either (a) termination by the Company of the employment of the Executive with the Company for any reason other than death, physical or mental incapacity, or cause (as defined below), or (b) resignation of the Executive upon the occurrence of any of the following events: 3 (1) a significant change in the nature or scope of the Executive's authorities, powers, functions, or duties from those described in Section 3; (2) a reduction in total compensation from that provided in Section 4; (3) the breach by the Company of any other provision of this Agreement; or (4) a reasonable determination by the Executive that, as a result of a change in control of the Company his position is significantly affected so that he is unable to exercise the authorities, powers, functions or duties attached to his position as described in Section 3. "Cause" means gross misconduct or willful and material breach of this Agreement by the Executive. No act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. 6. Confidentiality. The Executive agrees that during and after the employment period, he will not divulge or appropriate to his own use or the use of others any secret or confidential information or knowledge pertaining to the business of the Company, or any of its subsidiaries, obtained during his employment by the Company or any of its subsidiaries. 7. Severance and Benefit Payments. a. In the event of termination of the Executive during the employment period, the Company shall pay the Executive a lump-sum severance allowance equal to salary and bonus payments for the following 24 calendar months at the rate which he would have been entitled to receive in accordance with Section 4. Such a severance allowance shall be adjusted to include expected increases to the Executive's salary and bonus for such period, but shall not be adjusted on a present value basis. b. In the event of termination of the Executive during the employment period, the Company shall also pay the Executive a lump-sum benefit payment in an amount equivalent to (1) the benefits he would have accrued or been allocated under any tax-qualified employee benefit plan (including but not limited to pension, profit sharing and employee stock ownership plans) and any nonqualified supplemental benefit plan relating thereto, maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination, which benefits will be paid in addition to the benefits provided under such plans, and (2) any other employee benefits (including, but not limited to, coverage under any medical and life insurance arrangements or programs) 4 to which he would have been entitled under all such employee benefit plans, programs or arrangements maintained by the Company if he had remained in the employ of the Company for 24 calendar months after his termination. Such a benefit payment shall be adjusted to include expected increases to the Executive's salary, bonus and other compensation having an effect on such benefits for such period, but shall not be adjusted on a present value basis. c. The amount of the severance allowance and benefit payment described in this Section shall be determined and such payment shall be made as soon as it is reasonably possible. d. The severance allowance and benefit payment to be provided pursuant to this Section 7 shall be in addition to, and shall not be reduced by, any other amounts or benefits provided by separate agreement with the Executive, or plan or arrangement of the Company or its subsidiaries, unless specifically stipulated in an agreement which constitutes an amendment to this Agreement as provided in Section 14. 8. Tax Reimbursement. If any payment to the Executive under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries is subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code"), the Company shall pay the Executive an additional amount which is equal to the amount of such excise tax. The Company will provide complete compensation and tax data on a timely basis to the Executive and to an accounting firm or law firm designated by the Executive in order to enable the Executive to determine the extent to which any payments under this Agreement or under any other compensation agreement, plan or arrangement of the Company or its subsidiaries constitute "parachute payments" or "excess parachute payments" under section 280G of the Code. Any additional amount payable under this Section 8 shall be due and paid no later than ten business days after the other payment to which such additional payment relates; provided, however, that if such additional amount cannot be determined on or before such due date, the Company shall pay an amount on the due date which it in good faith estimates to be payable and shall pay the remainder of such additional amount (together with interest at a rate equal to 120% of the applicable Federal rate determined under Section 1274(d) of the Code) as soon as such amount can be determined, but no later than 30 days after the date on which Executive becomes subject to the payment of the excise tax. 9. Mitigation and Set Off. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall not be entitled to set off against the amounts payable to the Executive under this Agreement any amounts owed to the Company by the Executive, any amounts earned by the Executive in other employment after termination of his employment with the Company, or any amounts which might have been earned by the Executive in other employment had he sought such other employment. 5 10. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, except with respect to Section 8, shall be settled by arbitration in the City of Chicago in accordance with the laws of the State of Illinois by three arbitrators appointed by the parties. If the parties cannot agree on the appointment, one arbitrator shall be appointed by the Company and one by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States Court of Appeals for the Seventh Circuit. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 10. Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable for the Executive to retain legal counsel or incur other costs and expenses in connection with enforcement of his rights under this Agreement, Executive shall be entitled to recover from the Company his reasonable attorneys' fees and costs and expenses in connection with enforcement of his rights (including the enforcement of any arbitration award in court). Payment shall be made to the Executive by the Company at the time these attorneys' fees and costs and expenses are incurred by the Executive. If, however, the arbitrators should later determine that under the circumstances the Executive could have had no reasonable expectation of prevailing on the merits at the time he initiated the arbitration based on the information then available to him, he shall repay any such payments to the Company in accordance with the order of the arbitrators. Any award of the arbitrators shall include interest at a rate or rates considered just under the circumstances by the arbitrators. 11. Notices. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal executive offices. 12. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. Nothing in this paragraph shall limit the Executive's rights or powers which his executor or administrator would otherwise have. 13. Governing Law. The Agreement shall be construed and enforced according to the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre- empted by ERISA. 6 14. Amendment. This Agreement may be amended or cancelled by mutual agreement of the parties in writing without the consent of any other person and, so long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. 15. Term. Unless the Executive has theretofore declared this Agreement effective, pursuant to Section 1 of this Agreement, this Agreement shall terminate (a) March 31, 1998 or (b) when the Executive has been placed on inactive service by the Company prior to a change in control of the Company. 16. Successors to the Company. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. 17. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 18. Prior Agreement. Any prior Executive Separation Agreement between the Executive and the Company which has not yet terminated pursuant to its terms, is cancelled by mutual consent of the Executive and the Company pursuant to execution of this Agreement, effective as of the day and year first above written. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, all as of the day and year first above written. S/BARBARA R. ALLEN BARBARA R. ALLEN THE QUAKER OATS COMPANY By S/DOUGLAS J. RALSTON ATTEST: S/MARCIA S. LAZ Assistant Secretary 7 EX-10.6 9 Exhibit 10(g)(8) SEVENTH AMENDMENT TO THE QUAKER SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM WHEREAS, The Quaker Supplemental Executive Retirement Program (the "Program") was previously adopted, effective August 1, 1989 by The Quaker Oats Company (the "Company"); and WHEREAS, the Program provides that the Compensation Committee of the Board of Directors of the Company (the "Committee") has the power to amend the Program; and WHEREAS, it is desirable to amend the Program, and the Committee has authorized adoption of this Seventh Amendment to the Program and authorized the officers of the Company to execute any documents in connection herewith; NOW, THEREFORE, the Program is hereby amended as follows, effective as of January 11, 1995, by substituting "-2-" for "-0-" in the Additional Years of Service column for Terry G. Westbrook where it appears in Schedule A of the Program. IN WITNESS WHEREOF, this Amendment is executed by a duly authorized officer of the Company. THE QUAKER OATS COMPANY July 21, 1995 By: S/Douglas J. Ralston Its: Senior Vice President EX-10.7 10 Exhibit 10(g)(9) 1 EIGHTH AMENDMENT TO THE QUAKER SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM WHEREAS, The Quaker Supplemental Executive Retirement Program (the "Program") was adopted effective as of August 1, 1989 by The Quaker Oats Company (the "Company") for the benefit of its eligible senior executives; and WHEREAS, the Program already states that it is an unfunded plan maintained primarily to provide deferred compensation for a select group of highly compensated employees within the meaning of Sections 201(2), 301(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"); i.e., it is an ERISA "top hat" plan; and WHEREAS, amendment of the Program is desirable to clarify and reflect the intent of the Program since its inception, and the Compensation Committee has authorized adoption of the Eighth Amendment to the Program and authorized the officers of the Company to execute any documents in connection herewith; NOW, THEREFORE, the Program is amended effective as of July 21, 1995, by substituting the following for Section 6.8 of the Program: "6.8 Applicable Law. The Program is established under ERISA and will be construed according to the federal law that governs ERISA `top hat' plans." THE QUAKER OATS COMPANY July 21, 1995 By: S/Douglas J. Ralston Its: Senior Vice President EX-10.8 11 Exhibit 10(g)(10) 1 NINTH AMENDMENT TO THE QUAKER SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM WHEREAS, The Quaker Supplemental Executive Retirement Program (the "Program") was previously adopted, effective August 1, 1989 by The Quaker Oats Company (the "Company"); and WHEREAS, the Program provides that the Compensation Committee of the Board of Directors of the Company (the "Committee") has the power to amend the Program; and WHEREAS, it is desirable to amend the Program, and the Committee has authorized adoption of this Ninth Amendment to the Program, subject to the discretion of the Senior Vice President - Human Resources, and authorized the officers of the Company to execute any documents in connection herewith; NOW, THEREFORE, the Program is hereby amended as follows, effective as of September 18, 1995, by substituting "-1- " for "-0-" in the Additional Years of Service column for Walter G. VanBenthuysen where it appears in Schedule A of the Program. IN WITNESS WHEREOF, this Amendment is executed by a duly authorized officer of the Company. THE QUAKER OATS COMPANY September 18, 1995 By: Douglas J. Ralston Its: Senior Vice President EX-10.9 12 Exhibit 10(j) QUAKER OFFICERS SEVERANCE PROGRAM 1. EFFECTIVE DATE AND PURPOSE. The Quaker Officers Severance Program (the "Program") is established and maintained by The Quaker Oats Company ("Quaker"), effective as of March 8, 1995, and is a renewal of the Program as adopted by Quaker's Board of Directors (the "Board") on March 8, 1989. The purpose of the Program is to promote the interests of Quaker, its divisions and subsidiaries (the "Company"), and its shareholders, by attracting and retaining officers of the Company through assurances of continued compensation and benefits when their employment with the Company is terminated due to certain circumstances beyond their control. 2. ADMINISTRATION. (a) The Program shall be administered by the Severance Program Committee (the "Committee"), which shall initially consist of Quaker's Senior Vice President Human Resources, and Vice President Human Resources Worldwide Beverages. The Chief Executive Officer of Quaker shall have the authority to expand or reduce the number of Committee members, and to designate, remove or replace the Committee members. (b) The Committee shall have the sole responsibility for the administration of the Program, and may adopt such rules and procedures as it deems necessary, desirable, or appropriate. (c) The Committee shall have such powers as may be necessary to discharge its responsibility to administer the Program, including but not limited to the following: (1) To construe and interpret the Program, decide all questions of eligibility, and determine the amount, manner and time of any severance benefit hereunder. (2) To prescribe procedures for employees to apply for Program benefits, including written applications and forms, if any, and other requests for information. If no procedures are prescribed, then the Company or the Committee may initiate consideration of a claim for severance benefits, or any employee may initiate a claim by providing notice, in writing, to either designated Committee member. The Committee may reasonably rely upon all information furnished to it in such applications, forms or notices. (3) To receive from the Company such information as shall be necessary for the proper administration of the Program. The Committee may reasonably rely upon all such information so furnished. (4) To appoint individuals to assist in the administration of the Program as the Committee deems necessary, including but not limited to, Company employees, agents, attorneys, and accountants. The Committee may reasonably rely upon all information and advice furnished by such individuals. (5) To receive, review, and maintain, as it deems appropriate, benefit payment and administrative expense reports. (6) To issue directions to the Company concerning all benefits which are to be paid from the Company's general assets pursuant to the Program provisions. (7) To prepare and distribute to Company employees, information describing the Program, in such manner as the Committee determines to be required or appropriate. (d) The Committee shall make all determinations as to the right of any person to a benefit under the Program. Any denial by the Committee of the claim for benefits under the Program by an employee shall be stated in writing by the Committee and delivered or mailed to the employee; and such notice shall set forth the specific reasons for the denial. In addition, the Committee shall afford a reasonable opportunity to any employee whose claim for benefits has been denied for a review of the decision denying the claim. (e) The Committee shall be indemnified by Quaker to the full extent allowed by law. This indemnity shall extend to all individuals appointed to assist in the administration of the Program, as described in subparagraph (c) (4) above. 3. ELIGIBILITY. (a) An officer (as defined below) is eligible for severance benefits under the Program (determined in accordance with paragraph 4) if his employment with the Company is terminated under any of the following conditions: (1) At any time, termination of employment with the Company, other than death, physical or mental incapacity, voluntary resignation, retirement, gross misconduct, or due to the sale, spin-off or other disposition of a plant, profit center, division or subsidiary of Quaker as an ongoing entity if the affected employee is hired by, or is offered continued employment by, the successor or purchasing entity. 2 (2) Notwithstanding anything in subparagraph (a) above to the contrary, within two years following a Change in Control of Quaker (as defined below), any termination of employment with the Company, in lieu of the officer accepting continued employment with the Company which involves a significant change in the officer's terms and conditions of employment (as defined below). A "significant change in the officer's terms and conditions of employment" shall be deemed to have occurred when during such two year period: (i) the total of the officer's salary and incentive bonus is to be reduced, based upon the amounts equal to the officer's salary immediately prior to the Change in Control of Quaker, and the most recent incentive bonus paid, or fully accrued and payable, to the employee immediately prior to the Change in Control of Quaker; (ii) the location of continued employment is beyond a 30-mile radius of the officer's location of employment immediately prior to the Change in Control of Quaker; (iii) the officer is to be paid on an hourly basis; (iv) there is a significant change in the nature or scope of any of the authorities and powers, which the officer may exercise or is exercising, and duties and functions which the officer may perform or is performing, immediately prior to the Change in Control of Quaker; or (v) a reasonable determination by the officer that, as a result of the Change in Control of Quaker, his position is significantly affected so that he is unable to exercise any authorities and powers, or perform any duties and functions described in subparagraph (iv) above. 3 (3) "Change in Control of Quaker" shall be deemed to have occurred if: (i) any "Person," which shall mean a "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than Quaker, any trustee or other fiduciary holding securities under an employee benefit plan of Quaker, or any company owned, directly or indirectly, by the stockholders of Quaker in substantially the same proportions as their ownership of stock of Quaker), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Quaker representing 30% or more of the combined voting power of Quaker's then outstanding voting securities; provided, however, that this subparagraph (i) shall not apply to any Person who becomes such a beneficial owner of such Quaker securities pursuant to an agreement with Quaker approved by Quaker's Board of Directors (the "Board"), entered into before such Person has become such a beneficial owner of Quaker securities representing 5% or more of the combined voting power of Quaker's then outstanding voting securities; (ii) during any period of 24 consecutive months (not including any period prior to March 8, 1995), individuals, who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with Quaker to effect a transaction described in subparagraph (i), (iii)(B) or (iv)) whose election by the Board, or whose nomination for election by Quaker's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of the period cease for any reason to constitute at least a majority thereof; 4 (iii) the stockholders of Quaker approve (A) a plan of complete liquidation of Quaker or (B) the sale or disposition by Quaker of all or substantially all of Quaker's assets unless the acquirer of the assets or its directors shall meet the conditions for a merger or consolidation in subparagraphs (iv)(A) or (iv)(B); or (iv) the stockholders of Quaker approve a merger or consolidation of Quaker with any other company other than: (A) such a merger or consolidation which would result in the voting securities of Quaker outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of Quaker's or such surviving entity's outstanding voting securities immediately after such merger or consolidation; or (B) such a merger or consolidation which would result in the directors of Quaker who were directors immediately prior thereto continuing to constitute at least 50% of the directors of the surviving entity immediately after such merger or consolidation. In this subparagraph (iv), "surviving entity" shall mean only an entity in which all of Quaker's stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase "directors of Quaker who were directors immediately prior thereto" shall include only individuals who were directors of Quaker at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director designated by a Person who has entered into an agreement with Quaker to effect a transaction described in subparagraph (i), (iii)(B), (iv)(A) or (iv)(B)) whose election by the Board, or whose nomination for election by Quaker's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of such period. 5 (b) An "officer" shall mean any employee of the Company who is a Chief Executive Officer, President or Vice President (including Senior and Executive Vice Presidents) of Quaker, and any other Company employees designated by the Committee as an officer for purposes of the Program. Prior to a Change in Control of Quaker an officer shall be considered eligible under the Program for so long as he holds such office while the Program is in effect. After a Change in Control of Quaker, an officer shall always be considered eligible under the Program. 4. SEVERANCE BENEFITS. (a) An eligible officer pursuant to paragraph 3 will be provided the following severance benefits: (1) Compensation - Payment to an officer shall be made in the form of a single lump sum, or equal monthly installments over the Severance Period (as defined below), at the Committee's sole discretion. With respect to an officer with less than 10 years of service with the Company (as defined below), the total amount payable in either form shall equal: (i) 75% of the officer's current annualized salary at the time of termination (or, if greater, the officer's annualized salary in effect immediately prior to a Change in Control of Quaker), plus (ii) the average of the officer's two most recently fully paid incentive bonuses (on an annualized basis, if necessary) at the time of termination (or, if greater, such bonuses paid prior to a Change in Control of Quaker); and the Officer's severance period shall be the nine month period commencing with the date following termination of employment (the "Severance Period"). With respect to an officer with ten or more years of service with the Company (as defined below) the total amount payable in either form shall equal: (A) 100% of the officer's current annualized salary at the time of termination (or, if greater, the officer's annualized salary in effect immediately prior to a Change in Control of Quaker, plus (B) the average of the officer's two most recent years' fully paid incentive bonus at the time of termination (or, if greater, such bonuses paid prior to a Change in Control of Quaker); and the officer's severance period shall be the one year period commencing with the date following termination of employment (the "Severance Period"). The single sum payment shall be made, or the monthly installments shall commence, at the officer's usual payroll date next following his date of termination. 6 "Years of service with the Company" shall mean the employee's number of completed years of service with the Company; including service as a full time hourly employee, and service rendered to an entity or organization that was acquired by the Company. (2) Welfare Benefits - During the officer's Severance Period the officer shall be entitled to continued eligibility for health, medical, dental, life insurance, and accidental death and dismemberment benefits equivalent to those to which he was entitled prior to his termination of employment (regardless of the form of compensation benefit to be provided under subparagraph (1)). The officer shall not be required to contribute more than the normal cost (including those attributable to changes in levels of benefits) for such benefits as existed immediately prior to his termination of employment. The Severance Period for purposes of this subparagraph (2) shall not be applied to reduce the benefit extension period required by the Consolidated Omnibus Budget Reconciliation Act of 1985 or any amendment thereto. (b) All benefits to be paid or provided pursuant to subparagraph 4(a) shall be in addition to, and shall not be reduced by, any other benefits payable or provided by separate agreement with the officer, or plan or arrangement of the Company, except as follows. If an officer is also eligible for severance benefits to be paid and provided pursuant to the Quaker Salaried Employees Compensation and Benefits Protection Plan, (the "Plan"), the greater amount or longer severance period with respect to compensation and welfare benefits, respectively, shall be provided in accordance with and pursuant to the terms of the Plan or Program as the case may be. In no event will an officer be entitled to duplicative benefits under the Plan and the Program. (c) Any severance benefits payable under the Plan to an officer who dies prior to full payment of such benefits shall be paid to the officer's estate. 7 (d) Notwithstanding any other provision of the Plan, severance benefits furnished hereunder shall be subject to the following terms and conditions: (1) If the making of severance benefit payments pursuant to subparagraph 4(a) would subject the officer to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, 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 herein as a "Tax Penalty"), then such severance benefit payments shall be reduced to the extent necessary to avoid the imposition of such Tax Penalty. The preceding sentence shall not apply if such officer: (i) is entitled to a tax reimbursement for such Tax Penalty under any other agreement, plan or program of the Company, or (ii) may disclaim any portion of or all benefits payable under this or any other agreement, plan or program of the Company in order to avoid such Tax Penalty. (2) If the officer and the Company shall disagree as to whether the furnishing of a benefit under the Plan would result in the imposition of a Tax Penalty, the matter shall be resolved by an opinion of counsel chosen by the employee and reasonably satisfactory to the Company. The Company shall pay the fees and expenses of such counsel, and shall make available to counsel such information as may be reasonably necessary to prepare the opinion. 5. NONASSIGNMENT. No benefits payable under the Plan shall be subject in any manner to assignment, anticipation, alienation, sale, transfer, pledge, encumbrance, or charge, and any such attempted action shall be void and no such benefit shall be in any manner liable for or subject to debts, contracts, liabilities, engagements, or torts of any officer. If any officer shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any amount or benefit payable under the plan, then the Committee in its discretion may hold or apply such benefit or any part thereof to or for the benefit of such officer or his beneficiary, his spouse, children, blood relatives, or other dependents, in such manner and in such proportions as the administrator may consider proper. 8 6. AMENDMENT AND TERMINATION. Quaker, by action of its Board, or the Compensation Committee thereof, shall have the right to amend or terminate this Plan; provided, however, that no such amendment shall alter, modify, or rescind coverage or benefits under the Program; and in no event shall the Plan be amended or terminated during the five-year period following a Change in Control of Quaker in a manner which would reduce payments or benefit extension periods. 7. CONTINUED EMPLOYMENT. Neither the Program nor any of its provisions shall be construed as giving any officer of the Company a right to continue in the employ of the Company, or as a limitation of the Company's right to discharge any of its employees, with or without cause. 8. SUCCESSORS. The Program shall be binding upon any successor of the Company whether by merger, consolidation, or sale of all or substantially all of the Company's assets. 9. GOVERNING LAW. The Program shall be construed and enforced according to the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre- empted by ERISA. IN WITNESS WHEREOF, this Program is executed by a duly authorized officer of Quaker. THE QUAKER OATS COMPANY August 18, 1995 By: S/Douglas J. Ralston Its: Senior Vice President 9 EX-10.10 13 Exhibit 10(k)(5) FOURTH AMENDMENT TO THE QUAKER LONG TERM INCENTIVE PLAN OF 1990 WHEREAS, on November 8, 1989, the shareholders of The Quaker Oats Company (the "Company") approved the adoption of The Quaker Long Term Incentive Plan of 1990 (the "Plan"); and WHEREAS, the Plan has previously been amended and it is desirable to amend the Plan to provide additional flexibility for Plan Participants in the timing of Option exercise during the period following death or retirement; and WHEREAS, the Board has authorized adoption of this Fourth Amendment to the Plan, the shareholders of the Company have approved this Amendment to the Plan and authorized the officers of the Company to execute any documents in connection therewith; NOW THEREFORE, the Plan is hereby amended effective as of November 9, 1994 by substituting the following sentence for the first sentence of Section 13.4(b) thereof: "If a Participant dies while an employee or his employment is terminated because of retirement, his Option shall terminate within a period not exceeding five years following his death or retirement, but not later than the date the Option expires pursuant to its terms." IN WITNESS WHEREOF, this Amendment is executed by a duly authorized officer of the Company. THE QUAKER OATS COMPANY November 14, 1994 By: S/DOUGLAS J. RALSTON Its Senior Vice President EX-10.11 14 Exhibit 10(k)(6) FIFTH AMENDMENT TO THE QUAKER LONG TERM INCENTIVE PLAN OF 1990 WHEREAS, on November 9, 1994, the shareholders of The Quaker Oats Company (the "Company") approved the adoption of The Quaker Long Term Incentive Plan of 1990 (the "Plan"); and WHEREAS, the Plan has been previously amended and it is desirable to further amend the Plan to provide for additional shares of the Company's common stock which may be issued or sold, or for which options, stock appreciation rights or performance shares may be granted under the Plan; and WHEREAS, the Board has authorized adoption of this Amendment to the Plan, the shareholders of the Company have approved this Amendment to the Plan, and the Board has authorized the officers of the Company to execute any documents in connection therewith upon such approval; NOW THEREFORE, the Plan is hereby amended effective as of November 9, 1994 by substituting "13,000,000" for "9,000,000" where it appears in amended Section 3.1 thereof. IN WITNESS WHEREOF, this Amendment is executed by a duly authorized officer of the Company. THE QUAKER OATS COMPANY By: S/DOUGLAS J. RALSTON Its Senior Vice President January 24, 1995 EX-11 15 EXHIBIT 11 THE QUAKER OATS COMPANY AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Calculation of Fully Diluted Earnings Per Share June 30, June 30, June 30, Dollars in Millions (Except Per Share Data) 1995 1994 1993 Income Before Cumulative Effect of Accounting Changes $ 806.1 $ 231.5 $ 286.8 Less: Adjustments attributable to conversion of ESOP Convertible Preferred Stock (1.1) (1.5) (1.9) Income Before Cumulative Effect of Accounting Changes Used for Fully Diluted Calculation 805.0 230.0 284.9 Cumulative Effect of Accounting Changes-net of tax (4.1) --- (115.5) Net Income Used for Fully Diluted Calculation $ 800.9 $ 230.0 $ 169.4 Shares in Thousands Average Number of Common Shares Outstanding 133,763 135,236 143,948 Plus Dilutive Securities: Stock Options 1,575 1,716 2,138 ESOP Convertible Preferred Stock 2,631 2,676 2,708 Average Shares Outstanding Used for Fully Diluted Calculation 137,969 139,628 148,794 Fully Diluted Earnings Per Share Before Cumulative Effect Accounting Changes $ 5.83 $ 1.65 $ 1.91 Fully Diluted Cumulative Effect of Accounting Changes (0.03) --- (0.77) Fully Diluted Earnings Per Share $ 5.80 $ 1.65 $ 1.14 EX-12 16 Exhibit 12 THE QUAKER OATS COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions) Year Ended June 30 1995 1994 1993 Earnings: Income Before Income Taxes and Cumulative Effect of Accounting Changes $ 1,359.9 $ 378.7 $ 467.6 Add Fixed Charges, excluding amount capitalized 132.4 109.9 80.3 Earnings $ 1,492.3 $ 488.6 $ 547.9 Fixed Charges (including amount capitalized): Interest on Indebtedness $ 122.7 $ 100.2 $ 68.9 Portion of rents representative of the interest factor 11.7 11.0 11.4 Fixed Charges $ 134.4 $ 111.2 $ 80.3 Ratio of Earnings to Fixed Charges (a) 11.10 4.39 6.82 (a) For purposes of computing the ratio of earnings to fixed charges, earnings represent income from continuing operations before income taxes and cumulative effect of accounting changes plus fixed charges (net of capitalized interest). Fixed charges represent interest (whether expensed or capitalized) and one- third (the portion deemed representative of the interest factor) of rents. EX-13.1 17 Exhibit 13.1 Management's Discussion and Analysis Fiscal 1995 Highlights Fiscal 1995 was a year when the Company significantly changed its portfolio of businesses through acquisitions and divestitures, a process which is substantially complete. Significant portfolio changes in fiscal 1995 included: Acquisitions Effective Dates Arnie's bagels 8/94 Adria pasta 11/94 Snapple beverages 12/94 Australian oat mill 12/94 Nile Spice variety meals-in-a-cup 1/95 Divestitures Dutch honey 2/95 North American pet food 3/95 European pet food 4/95 Mexican chocolate 5/95 U.S. bean and chili 6/95 See Note 2 for further discussion of businesses acquired and divested during fiscal 1995. The portfolio changes increase the seasonality of the Company's earnings, putting a higher proportion of earnings in the April through September period when the consumption of beverage products is greatest. To capture the results of a full beverage season in a single fiscal-year period, the Company will change its fiscal year to align with the calendar year, beginning January 1, 1996. While sales growth was strong across many of the ongoing U.S. businesses in fiscal 1995, operating results were significantly weaker than anticipated. To address this problem, the Company realigned its management and simplified its organizational structure to drive profitable growth. To address the immediate business challenges facing our beverage business, Philip A. Marineau, President and Chief Operating Officer, is concentrating his attention on that segment of our portfolio. Major initiatives have also been launched to improve the effectiveness of trade and merchandising spending and the efficiency of the Company's supply chain. The acquisition of Snapple beverages is the largest in the Company's history. Its performance to date has fallen short of expectations. Since the December acquisition, the Company has worked to upgrade Snapple beverage manufacturing standards, integrate order-entry and accounting systems and is currently working on improving the efficiency and effectiveness of advertising and merchandising (A&M) programs and distributor communications. These activities were neither sufficient nor quick enough to allow Snapple beverages to make a strong start in the calendar 1995 beverage season. Snapple beverages had an operating loss (which includes intangible amortization) in the seven months since its acquisition. The Company continues to believe that Snapple is a strong brand and is currently focusing on strengthening Snapple beverage business results. The Company is trying to improve the distribution network by building stronger communication links with distributors, a number of whom have exclusive distribution rights and long-term contracts. The Company is expanding product availability by investing in additional cold-channel merchandising equipment and adding to the innovation of the brand by introducing more convenient packaging and new flavors while rationalizing the line of flavors. With the Company's more focused portfolio and as a result of the divestitures, the size of the Company's international division is greatly reduced with European operations now representing a smaller portion of the Company's overall business. The Company, however, is continuing to expand its beverage and grain-based products in the Latin America and Asia/Pacific regions to create long-term opportunities for profitable growth. In the short term, this expansion negatively affects profitability. Fiscal 1995 Compared with Fiscal 1994 Operating Results Consolidated net sales for fiscal 1995 were $6.37 billion, up 7 percent from fiscal 1994. The increase in net sales reflects a 10 percent worldwide increase in volume, including acquisitions and divestitures, and a favorable impact of translating European currencies into U.S. dollars. Sales for fiscal 1995 would have been $96.7 million lower if European exchange rates had remained stable with the prior year. Price increases did not have a significant impact on sales. Businesses divested during the year contributed $1.32 billion in sales. U.S. and Canadian Grocery Products sales increased 9 percent to $4.62 billion on a volume increase of 12 percent. Sales and volume growth were driven mainly by the acquisition of Snapple beverages in December 1994 and by increases in Gatorade thirst quencher, food service and grain-based snacks, partly reduced by decreases in hot cereals and the divestitures of the pet food and bean and chili businesses, which were completed in March 1995 and in June 1995, respectively. Gatorade thirst quencher volume grew 7 percent despite the fact that two major soft drink competitors broadened the distribution of their sports beverages throughout the United States, which is currently Gatorade thirst quencher's largest market. 27 Hot cereals sales were 10 percent lower than in the prior year primarily due to continued volume weakness caused by warm winter weather and increased competition from private-label products. The Company is implementing marketing plans for the upcoming hot cereal season to improve profitability. International Grocery Products sales increased 2 percent to $1.74 billion. Volume increased 6 percent, primarily in Gatorade thirst quencher throughout the Pacific and Latin America. Volume also increased in Brazil due to the November 1994 acquisition of the Adria pasta business and the positive effects of the new economic plan in that country. These increases more than offset declines due to the divestitures of the European pet food and Mexican chocolate businesses in the fourth quarter of fiscal 1995. Gross profit margins decreased to 46.9 percent from 50.9 percent in the prior year primarily due to the inclusion of the Snapple beverage business. Because of its use of external manufacturing and distribution networks, Snapple beverages gross profit margin is inherently lower than the Company's historical average. In addition, packaging costs in the United States reduced Gatorade thirst quencher gross profit margin while raw coffee bean price and manufacturing cost increases reduced the gross profit margin in the food service business. Selling, general and administrative (SG&A) expenses rose 7 percent to $2.60 billion due mainly to a 6 percent increase in A&M expenses. A&M expenses were 26.3 percent of net sales in fiscal 1995, down slightly from 26.6 percent in fiscal 1994. Significant spending increases occurred within the U.S. Gatorade thirst quencher business as the Company focused on growing in a highly competitive market, and in the cereals, Aunt Jemima, Golden Grain and Celeste businesses where merchandising spending increased. As a result, profits declined in each of these product lines. The Company is taking steps to improve the efficiency and effectiveness of merchandising spending across its U.S. businesses. SG&A expenses for fiscal 1995 included a provision of $29.0 million for estimated costs related to a 1984 trademark lawsuit involving Gatorade thirst quencher advertising. See Note 18 to the consolidated financial statements for a detailed discussion of this litigation. Consolidated operating income was $1.55 billion compared to $537.2 million last year. Excluding gains on divestitures and restructuring charges in both years, operating income was $456.0 million compared to $645.8 million. On that same basis, U.S. and Canadian Grocery Products operating income was $417.6 million versus $543.8 million in fiscal 1994. The decrease of 23 percent reflects significant profit declines due to the divestitures of the pet food and bean and chili businesses and due to significant spending increases as discussed above. These profit declines were partially offset by the increase in operating income in the grain-based snacks business. International Grocery Products operating income was $575.6 million compared to $106.3 million last year. Excluding gains on divestitures and restructuring charges in both years, operating income decreased to $38.4 million from $102.0 million in the prior year. The decrease was mainly due to lower operating income in Brazil, which was primarily caused by the effects of reduced inflation and currency changes. However, net financing costs in that country declined to a level that more than offset the decline in operating income. In addition, operating income declined due to the divestitures of the European pet food and Mexican chocolate businesses as well as due to declines in the Italian oils business and in the Pacific region where the Company is expanding Gatorade thirst quencher and grain-based products. Operating losses decreased significantly in European Gatorade thirst quencher compared to the prior year as funding increased for expansion of that business into the Asia/Pacific region. Gains on Divestitures In fiscal 1995, the Company realized gains on divestitures of: $513.0 million on the sale of the North American pet food business; $487.2 million on the sale of the European pet food business; $91.2 million on the sale of the bean and chili businesses; $74.5 million on the sale of the Mexican chocolate business; and $4.9 million on the sale of the Dutch honey business. See the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal 1994 gains on divestitures. 28 Restructuring Charges In fiscal 1995, the Company announced cost-reduction and realignment activities in order to address the changes in its portfolio and to allow it to quickly and effectively respond to the needs of trade customers and consumers. As described in Note 3 to the consolidated financial statements, these changes primarily include the realignment of the corporate, shared services and business unit structures, the European cereals business and the U.S. distribution center network. As a result, the Company recorded a restructuring charge of $76.5 million in the fourth quarter. The restructuring charge associated with the cost-reduction and realignment activities includes $41.0 million in cash expenses for severance and termination benefits for the elimination of approximately 850 positions. Non-cash asset write-offs related to European cereals manufacturing, the U.S. distribution center network and other assets are $19.0 million. Cash expenses for losses on headquarters and distribution center leases and other associated costs are $16.5 million. Estimated savings from the fiscal 1995 cost-reduction and realignment activities are expected to be about $50 million annually beginning in calendar 1996. Approximately 90 percent of the annual savings will be in cash. See the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal 1994 restructuring charges. Interest, Foreign Exchange and Income Taxes Net financing costs (interest and foreign exchange) were $114.9 million, a decrease of $1.0 million versus the prior year. This reduction resulted mainly from lower net financing costs in Brazil compared to the prior year, which more than offset the increase in interest expense resulting from borrowing related to the Company's significant acquisition activities. Through various hedging strategies, the Company will continue to try to mitigate the effects of foreign currency exchange fluctuations on its operating results, except in areas like Brazil where hedging opportunities are limited and costly. See Note 17 to the consolidated financial statements for further discussion of foreign currency hedging. The effective tax rate for fiscal 1995 was 40.7 percent compared to 38.9 percent in fiscal 1994. Excluding the effects of certain gains on divestitures and restructuring charges from the prior year, the effective tax rate for fiscal 1994 was 39.4 percent. The increase resulted mainly from non-deductible amortization of intangibles. The Company's effective tax rate will increase in the future as it will incur a full period's effect of non-deductible intangible asset amortization from the acquisition of Snapple beverages. The Company has evaluated its deferred tax assets and believes that future taxable income will be sufficient to realize a majority of these assets. A valuation allowance has been provided for that portion of the deferred tax assets that is not expected to be realized. Fiscal 1994 Compared with Fiscal 1993 Operating Results Consolidated net sales for fiscal 1994 were $5.95 billion, up 4 percent from fiscal 1993. The increase in net sales reflects a 4 percent worldwide increase in volume and an improved product mix. Significantly offsetting higher sales was the negative impact of translating European sales into U.S. dollars. Sales for fiscal 1994 would have been $140.1 million higher if European exchange rates had remained stable with the prior year. Price increases did not have a significant impact on sales. U.S. and Canadian Grocery Products sales increased 8 percent to $4.25 billion on a volume increase of 6 percent. Volume growth for Gatorade thirst quencher, ready-to-eat cereals, grain-based snacks and Golden Grain products more than offset decreases in food service volume. International Grocery Products sales decreased 5 percent to $1.70 billion, although overall volume increased 1 percent. Weaker European currencies and lower volume of European pet foods, cereals and oils contributed to the decline. Gross profit margins increased to 50.9 percent from 49.9 percent in the prior year primarily due to an improved product mix and cost-containment initiatives in the United States, which more than offset commodity and distribution cost increases. SG&A expenses rose 5 percent to $2.43 billion due mainly to an 8 percent increase in A&M expenses. A&M expenses were 26.6 percent of net sales in fiscal 1994, up from 25.7 percent in fiscal 1993. Consolidated operating income was $537.2 million in fiscal 1994 versus $575.2 million in fiscal 1993. Excluding gains on divestitures and restructuring charges in both years, operating income was $645.8 million versus $595.7 million. On that same basis, U.S. and Canadian Grocery Products fiscal 1994 operating income was $543.8 million versus $485.6 million in fiscal 1993. The 12 percent increase reflected increases from the Gatorade thirst quencher, ready-to-eat cereals and Aunt Jemima businesses, partially offset by decreases in food service. International Grocery Products fiscal 1994 operating income decreased to $102.0 million versus $110.1 million in fiscal 1993, excluding gains on divestitures and restructuring charges in both years. European operating income declined $14.9 million due mainly to volume declines in the pet food and cereals businesses. 29 Latin American and Pacific operating income increased $6.8 million primarily due to volume increases in Mexico and the hyper- inflationary effects of translating Brazil's results into U.S. dollars. The operating income improvement in Brazil was more than offset by higher net financing costs in that country. Gains on Divestitures In fiscal 1994, the Company realized a $9.8 million gain on the sale of a Venezuelan detergent additive business. In fiscal 1993, the Company realized a $17.4 million gain on the sale of two Italian businesses and a $10.4 million gain on the sale of a business in the United Kingdom. Restructuring Charges In fiscal 1994, the Company recorded a restructuring charge of $118.4 million to eliminate positions at its headquarters and research and development facilities, to realign its U.S. sales force, to consolidate manufacturing in its bean and chili, rice cake and Aunt Jemima syrup product lines and to close a Canadian pet food facility, as well as to pursue other cost-reduction initiatives. These changes eliminated approximately 1,500 positions, resulting in severance and termination benefits totaling $44.7 million. Charges associated with plant consolidations and sales office closures totaled $38.3 million, of which 80 percent represents asset write-offs. Product-line discontinuations resulted in charges of $35.4 million, of which 90 percent represents asset write-offs. Cash outlays related to severance, termination benefits and other expenses occurred mostly in fiscal 1995 and were funded through operating cash flows. Savings realized were consistent with expectations and cash outlays and asset write-offs have been consistent with amounts originally provided. In fiscal 1993, operating income included a charge of $38.6 million for the consolidation of production facilities at a U.S. pet food plant and a charge of $9.7 million for European cost-reduction programs. With the divestitures of the North American and European pet food businesses during fiscal 1995, there are no remaining reserves and no recurring savings to be realized from these restructuring activities. See Note 3 to the consolidated financial statements for further discussion of restructuring charges. Interest, Foreign Exchange and Income Taxes Net interest expense of $89.7 million increased $34.6 million versus the prior year. An increase of $22.1 million came from higher levels of local currency borrowing in Brazil at significantly higher interest rates. In addition, the Company issued $200.0 million of medium-term notes and increased commercial paper borrowings during the year, which accounted for most of the remaining increase in interest expense. The foreign exchange loss increased $11.1 million from the prior year, primarily reflecting small losses on European currency hedges in fiscal 1994 versus gains in fiscal 1993. The effective tax rate for fiscal 1994 was 38.9 percent compared to 38.7 percent in fiscal 1993. Excluding the effects of certain gains on divestitures and restructuring charges in both years, the effective tax rate increased to 39.4 percent from 38.4 percent. The higher U.S. statutory tax rate, including the legislated retroactive adjustment to January 1, 1993, caused the overall rate to increase. Liquidity and Capital Resources Short-term and long-term debt (total debt) increased $635.8 million to $1.65 billion from June 30, 1994 to June 30, 1995 and increased $206.7 million to $1.02 billion from June 30, 1993 to June 30, 1994. On December 6, 1994, the Company acquired Snapple Beverage Corp. for a tender offer price of $1.7 billion. The acquisition was initially financed with commercial paper borrowings. During fiscal 1995, the Company divested businesses for approximately $1.7 billion. The after-tax proceeds on the fiscal 1995 divestitures of $1.25 billion were used to reduce the commercial paper borrowings. The total debt-to-total capitalization ratio was 59.0 percent, 68.8 percent and 59.0 percent as of June 30, 1995, 1994 and 1993, respectively. The Company's revolving credit facilities now consist of a $600.0 million annually extendible revolving credit facility expiring November 1999 and a $900.0 million 364-day annually extendible revolving credit facility which may, at the Company's option, be converted into a two-year term loan. The Company has determined that the aggregate amount of revolving credit facilities is in excess of anticipated short-term financing needs. The Company expects to reduce the aggregate amount when the facilities are renewed and extended in November 1995. 30 The increase in debt, substantial change in the mix of the Company's portfolio to businesses with greater seasonality, and disappointing operating income from ongoing businesses reduced the Company's free cash flow. As a result, the Company's debt ratings were lowered during fiscal 1995. The credit rating agencies cited reduced financial flexibility, lower profitability and cash flow, and greater business risk. The Company's long-term debt and commercial paper ratings (which are currently under review) are as follows: Standard & Poor's, A and A1; Moody's, A3 and P2; and Fitch's A and F1, respectively. All three credit rating agencies placed the Company's credit rating on "watch" or "review" in July 1995 following the preliminary announcement of lower than expected fiscal 1995 operating results. Net cash provided by operating activities was $475.5 million, $450.8 million and $558.2 million during fiscal 1995, 1994 and 1993, respectively. The decrease in net cash provided by operating activities in fiscal 1994 compared to fiscal 1993 resulted mainly from changes in working capital items, primarily accounts receivable and inventories. The Company utilized cash flow from operating activities, cash proceeds from the divestitures and debt financing to cover fiscal 1995 capital expenditures, cash dividends and the purchase of Snapple Beverage Corp. Capital expenditures for fiscal 1995, 1994 and 1993 were $275.5 million, $175.1 million and $172.3 million. The Company expects that its future capital expenditures and cash dividends will be financed through a combination of cash flow from operating activities and debt financing. Capital expenditures are expected to increase in the near term as the Company has plans to invest in the worldwide expansion of production capacity for beverages, particularly in China, and for grain-based products in the United States and Canada. In April 1995, the Company filed a prospectus supplement with the Securities and Exchange Commission (SEC) for the intended issuance of $400.0 million of medium-term notes, under a shelf registration covering $600.0 million of debt securities filed in fiscal 1990. As of June 30, 1995, the Company has issued $212.0 million in medium-term notes. The consolidated balance sheet as of June 30, 1995 includes the reclassification of $188.0 million of short-term debt to long-term debt, reflecting the Company's intent and ability to issue the additional medium-term notes in the near future. During the first quarter of fiscal 1995, 0.6 million shares of the Company's outstanding common stock were repurchased for $22.5 million under a 10 million share repurchase program announced in August 1993. The Company has not been active in its share repurchase program since August 1994. Accounting and Fiscal Year-end Changes Effective July 1, 1994, the Company adopted Financial Accounting Standards Board (FASB) Statement #112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of adoption was a $4.1 million after-tax charge in the first quarter of fiscal 1995. The adoption of this statement did not have a material effect on operating results or cash flows in fiscal 1995, nor is it expected to have a material effect in future years. Included in the net income of fiscal 1993 was the cumulative effect of adopting FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and FASB Statement #109, "Accounting for Income Taxes." The combined cumulative effect of adoption was an after-tax charge of $115.5 million. See Notes 12 and 16 to the consolidated financial statements for further discussion. Effective the calendar year beginning January 1, 1996, the Company will change from a fiscal year end of June 30 to December 31. A six-month fiscal transition period from July 1, 1995 through December 31, 1995 will precede the start of the new calendar- year cycle. 31 EX-13.2 18 Exhibit 13.2 THE QUAKER OATS COMPANY AND SUBSIDIARIES
Eleven-Year Selected Financial Data Year Ended June 30 1995 1994 Operating Results(a)(b)(c)(d)(e)(f) Net sales $6,365.2 $5,955.0 Gross profit 2,983.7 3,028.8 Income from continuing operations before income taxes and cumulative effect of accounting changes 1,359.9 378.7 Provision for income taxes 553.8 147.2 Income from continuing operations before cumulative effect of accounting changes 806.1 231.5 (Loss) income from discontinued operations-net of tax - - Income from the disposal of discontinued operations-net of tax - - Cumulative effect of accounting changes-net of tax (4.1) - Net income $ 802.0 $ 231.5 Per common share: Income from continuing operations before cumulative effect of accounting changes $ 6.00 $ 1.68 (Loss) income from discontinued operations - - Income from the disposal of discontinued operations - - Cumulative effect of accounting changes (0.03) - Net income $ 5.97 $ 1.68 Dividends declared: Common stock $ 150.8 $ 140.6 Per common share $ 1.14 $ 1.06 Convertible preferred and redeemable preference stock $ 4.0 $ 4.0 Average number of common shares outstanding (in thousands) 133,763 135,236 (a)Fiscal 1995 results include pretax gains of $1.17 billion, or $5.20 per share, for business divestitures and a pretax restructuring charge of $76.5 million, or $.35 per share, for cost-reduction and realignment activities. (b)Fiscal 1994 results include a pretax restructuring charge of $118.4 million, or $.55 per share, for workforce reductions, plant consolidations and product discontinuations and a pretax gain of $9.8 million, or $.07 per share, for the sale of a business in Venezuela. (c)See Management's Discussion and Analysis for further discussion of fiscal 1993 through 1995 gains on divestitures and restructuring charges. 32 Dollars in Millions (Except Per Share Data) 1993 1992 1991 1990 1989 1988 1987 1986 1985 $5,730.6 $5,576.4 $5,491.2 $ 5,030.6 $4,879.4 $4,508.0 $3,823.9 $2,968.6 $2,925.6 2,860.6 2,745.3 2,652.7 2,350.3 2,229.0 2,114.6 1,750.7 1,298.7 1,174.7 467.6 421.5 411.5 382.4 239.1 314.6 295.9 255.8 238.8 180.8 173.9 175.7 153.5 90.2 118.1 141.3 113.4 110.3 286.8 247.6 235.8 228.9 148.9 196.5 154.6 142.4 128.5 - - (30.0) (59.9) 54.1 59.2 33.5 37.2 28.1 - - - - - - 55.8 - - (115.5) - - - - - - - - $ 171.3 $ 247.6 $ 205.8 $ 169.0 $ 203.0 $ 255.7 $ 243.9 $ 179.6 $ 156.6 $ 1.96 $ 1.63 $ 1.53 $ 1.47 $ 0.94 $ 1.23 $ 0.98 $ 0.89 $ 0.77 - - (0.20) (0.40) 0.34 0.37 0.22 0.23 0.17 - - - - - - 0.35 - - (0.79) - - - - - - - - $ 1.17 $ 1.63 $ 1.33 $ 1.07 $ 1.28 $ 1.60 $ 1.55 $ 1.12 $ 0.94 $ 136.1 $ 128.6 $ 118.7 $ 106.9 $ 95.2 $ 79.9 $ 63.2 $ 55.3 $ 50.5 $ 0.96 $ 0.86 $ 0.78 $ 0.70 $ 0.60 $ 0.50 $ 0.40 $ 0.35 $ 0.31 $ 4.2 $ 4.2 $ 4.3 $ 3.6 - - - $ 2.3 $ 3.6 143,948 149,762 151,808 153,074 158,614 159,670 157,624 158,120 162,984 (d)See Notes 12 and 16 to the consolidated financial statements for discussion of fiscal 1993 and 1995 accounting changes. (e)Fiscal 1989 results include a pretax restructuring charge of $124.3 million, or $.50 per share, for plant consolidations and overhead reductions and a pretax charge of $25.6 million, or $.10 per share, for a change to the LIFO method of accounting for the majority of U.S. Grocery Products inventories. (f)Per share data and average number of common shares outstanding reflect the fiscal 1995 two-for-one stock split-up. 33 THE QUAKER OATS COMPANY AND SUBSIDIARIES Eleven-Year Selected Financial Data Year Ended June 30 1995 1994 Financial Statistics(a)(b) Current ratio 0.7 1.0 Working capital $ (496.3) $ (5.5) Property, plant and equipment-net $ 1,113.4 $ 1,214.2 Depreciation expense $ 125.4 $ 133.3 Total assets $ 4,826.9 $ 3,043.3 Long-term debt $ 1,103.1 $ 759.5 Convertible preferred stock (net of deferred compensation) and redeemable preference stock $ 18.8 $ 15.3 Common shareholders' equity $ 1,128.8 $ 445.8 Net cash provided by operating activities $ 475.5 $ 450.8 Operating return on assets(c) 42.3% 19.9% Gross profit as a percentage of sales 46.9% 50.9% Advertising and merchandising as a percentage of sales 26.3% 26.6% Income from continuing operations before cumulative effect of accounting changes as a percentage of sales 12.7% 3.9% Total debt-to-total capitalization ratio(d) 59.0% 68.8% Common dividends as a percentage of income available for common shares (excluding cumulative effect of accounting changes) 19.0% 63.1% Number of common shareholders 29,148 28,197 Number of employees worldwide 17,300 20,000 Market price range of common stock-High(e) $ 42 1/2 $ 41 -Low(e) $ 29 3/4 $30 15/16 (a)Income-related statistics exclude the results of businesses reported as discontinued operations. Balance sheet amounts and related statistics have not been restated for discontinued operations, other than Fisher-Price, due to materiality. (b)Effective fiscal 1991, common shareholders' equity and number of employees worldwide were reduced as a result of the Fisher-Price spin-off. 34 Dollars in Millions (Except Per Share Data) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1.0 1.2 1.3 1.3 1.8 1.4 1.4 1.4 1.7 $ (37.5) $ 168.7 $ 317.8 $ 342.8 $ 695.8 $ 417.5 $ 507.9 $ 296.8 $ 400.7 $ 1,228.2 $ 1,273.3 $ 1,232.7 $ 1,154.1 $ 959.6 $ 922.5 $ 898.6 $ 691.0 $ 616.5 $ 129.9 $ 129.7 $ 125.2 $ 103.5 $ 94.2 $ 88.3 $ 81.6 $ 59.1 $ 56.3 $ 2,815.9 $ 3,039.9 $ 3,060.5 $ 3,377.4 $ 3,125.9 $ 2,886.1 $ 3,136.5 $ 1,944.5 $ 1,760.3 $ 632.6 $ 688.7 $ 701.2 $ 740.3 $ 766.8 $ 299.1 $ 527.7 $ 160.9 $ 168.2 $ 11.4 $ 7.9 $ 4.8 $ 1.8 - - - - $ 37.9 $ 551.1 $ 842.1 $ 901.0 $ 1,017.5 $ 1,137.1 $ 1,251.1 $ 1,087.5 $ 831.7 $ 786.9 $ 558.2 $ 581.3 $ 543.2 $ 460.0 $ 408.3 $ 320.8 $ 375.1 $ 266.9 $ 295.5 21.1% 18.9% 18.8% 20.4% 14.4% 18.3% 22.1% 25.8% 24.5% 49.9% 49.2% 48.3% 46.7% 45.7% 46.9% 45.8% 43.7% 40.2% 25.7% 26.0% 25.6% 23.8% 23.4% 24.9% 22.9% 21.7% 19.4% 5.0% 4.4% 4.3% 4.6% 3.1% 4.4% 4.0% 4.8% 4.4% 59.0% 48.7% 47.4% 52.3% 44.2% 33.8% 50.2% 35.7% 28.9% 48.9% 52.9% 58.9% 65.1% 46.9% 31.3% 25.9% 31.2% 33.0% 33,154 33,580 33,603 33,859 34,347 34,231 32,358 27,068 26,670 20,200 21,100 20,900 28,200 31,700 31,300 30,800 29,500 28,700 $ 38 1/2 $ 37 7/8 $ 32 7/16 $ 34 7/16 $ 33 1/8 $28 11/16 $28 13/16 $ 19 7/8 $ 13 1/16 $ 28 1/16 $ 25 1/8 $ 20 7/8 $ 22 9/16 $ 21 5/16 $ 15 1/2 $ 16 5/16 $ 11 3/4 $ 7 3/8 (c)Operating income divided by average identifiable assets of U.S. and Canadian and International Grocery Products. (d)Total debt divided by total debt plus total shareholders' equity including convertible preferred stock (net of deferred compensation) and redeemable preference stock. (e)Per share data reflect the fiscal 1995 two-for-one stock split-up. 35 THE QUAKER OATS COMPANY AND SUBSIDIARIES Dollars in Millions (Except Per Share Data) Consolidated Statements of Income Year Ended June 30 1995 1994 1993 Net Sales $6,365.2 $5,955.0 $5,730.6 Cost of goods sold 3,381.5 2,926.2 2,870.0 Gross profit 2,983.7 3,028.8 2,860.6 Selling, general and administrative expenses 2,603.2 2,425.6 2,302.3 Gains on divestitures and restructuring charges-net (1,094.3) 108.6 20.5 Interest expense-net of $6.3, $8.9 and $10.5 interest income, respectively 110.7 89.7 55.1 Foreign exchange loss-net 4.2 26.2 15.1 Income Before Income Taxes and Cumulative Effect of Accounting Changes 1,359.9 378.7 467.6 Provision for income taxes 553.8 147.2 180.8 Income Before Cumulative Effect of Accounting Changes 806.1 231.5 286.8 Cumulative effect of accounting changes-net of tax (4.1) - (115.5) Net Income 802.0 231.5 171.3 Preferred dividends-net of tax 4.0 4.0 4.2 Net Income Available for Common $ 798.0 $ 227.5 $ 167.1 Per Common Share: Income Before Cumulative Effect of Accounting Changes $ 6.00 $ 1.68 $ 1.96 Cumulative effect of accounting changes (0.03) - (0.79) Net Income $ 5.97 $ 1.68 $ 1.17 Dividends declared $ 1.14 $ 1.06 $ 0.96 Average Number of Common Shares Outstanding (in thousands) 133,763 135,236 143,948 See accompanying notes to the consolidated financial statements. 36 Dollars in Millions Consolidated Statements of Cash Flow Year Ended June 30 1995 1994 1993 Cash Flows from Operating Activities: Net income $ 802.0 $ 231.5 $ 171.3 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting changes 4.1 - 115.5 Depreciation and amortization 191.4 171.2 156.9 Deferred income taxes 17.8 (7.7) (46.4) Gains on divestitures-net of tax of $476.2 in 1995 (694.6) (9.8) (27.8) Restructuring charges 76.5 118.4 48.3 Loss on disposition of property and equipment 22.0 15.0 23.8 (Increase) decrease in trade accounts receivable (70.8) (77.7) 59.1 (Increase) decrease in inventories (56.5) (67.6) 41.9 (Increase) in other current assets (53.4) (56.3) (25.8) Increase (decrease) in trade accounts payable 83.9 44.1 (7.6) Increase (decrease) in other current liabilities 52.1 6.6 (6.4) Change in deferred compensation 17.2 15.6 11.0 Other items 83.8 67.5 44.4 Net Cash Provided by Operating Activities 475.5 450.8 558.2 Cash Flows from Investing Activities: Additions to property, plant and equipment (275.5) (175.1) (172.3) Business acquisitions (1,876.5) (96.3) (40.4) Businesses divestitures-net of tax of $476.2 in 1995 1,253.4 14.2 41.6 Change in other assets (4.0) (6.4) (25.6) Net Cash Used in Investing Activities (902.6) (263.6) (196.7) Cash Flows from Financing Activities: Cash dividends (154.8) (144.6) (140.3) Change in short-term debt 216.4 83.3 67.0 Proceeds from long-term debt 213.3 222.2 0.5 Reduction of long-term debt (89.3) (100.6) (59.0) Proceeds from short-term debt to be refinanced 188.0 - - Issuance of common treasury stock 23.0 11.8 23.3 Repurchases of common stock (22.5) (214.9) (323.1) Repurchases of preferred stock (2.4) (1.2) (1.1) Net Cash Provided by (Used) in Financing Activities 371.7 (144.0) (432.7) Effect of Exchange Rate Changes on Cash and Cash Equivalents 16.8 36.2 37.0 Net (Decrease) Increase in Cash and Cash Equivalents (38.6) 79.4 (34.2) Cash and Cash Equivalents-Beginning of Year 140.4 61.0 95.2 Cash and Cash Equivalents-End of Year $ 101.8 $ 140.4 $ 61.0 See accompanying notes to the consolidated financial statements. 37 THE QUAKER OATS COMPANY AND SUBSIDIARIES Consolidated Balance Sheets June 30 1995 1994 1993 Assets Current Assets Cash and cash equivalents $ 101.8 $ 140.4 $ 61.0 Trade accounts receivable-net of allowances 546.8 509.4 478.9 Inventories Finished goods 267.4 266.5 241.5 Grains and raw materials 94.4 78.8 73.1 Packaging materials and supplies 44.2 40.2 39.4 Total inventories 406.0 385.5 354.0 Other current assets 262.0 218.3 173.7 Total Current Assets 1,316.6 1,253.6 1,067.6 Property, Plant and Equipment Land 25.0 30.6 28.7 Buildings and improvements 376.0 455.0 441.5 Machinery and equipment 1,442.7 1,640.3 1,589.0 Property, plant and equipment 1,843.7 2,125.9 2,059.2 Less accumulated depreciation 730.3 911.7 831.0 Property-Net 1,113.4 1,214.2 1,228.2 Intangible Assets-Net of Amortization 2,311.1 493.4 431.3 Other Assets 85.8 82.1 88.8 Total Assets $4,826.9 $3,043.3 $2,815.9 See accompanying notes to the consolidated financial statements. 38 Dollars in Millions June 30 1995 1994 1993 Liabilities and Shareholders' Equity Current Liabilities Short-term debt $ 510.1 $ 211.3 $ 128.0 Current portion of long-term debt 38.8 45.4 48.9 Trade accounts payable 423.8 406.3 391.6 Accrued payroll, pension and bonus 123.8 158.9 161.3 Accrued advertising and merchandising 165.0 149.6 130.6 Income taxes payable 180.1 40.6 33.7 Other accrued liabilities 371.3 247.0 211.0 Total Current Liabilities 1,812.9 1,259.1 1,105.1 Long-term Debt 1,103.1 759.5 632.6 Other Liabilities 530.0 481.4 426.2 Deferred Income Taxes 233.3 82.2 89.5 Preferred Stock, Series B, no par value, authorized 1,750,000 shares; issued 1,282,051 of $5.46 cumulative convertible shares (liquidating preference of $78 per share) 100.0 100.0 100.0 Deferred Compensation (74.9) (80.8) (85.9) Treasury Preferred Stock, at cost, 81,194 shares, 47,817 shares, and 34,447 shares, respectively (6.3) (3.9) (2.7) Common Shareholders' Equity Common stock, $5 par value, authorized 400 million, 200 million and 200 million shares, respectively 840.0 420.0 420.0 Reinvested earnings 1,499.3 1,273.6 1,190.1 Cumulative translation adjustment (61.4) (75.4) (65.4) Deferred compensation (132.2) (143.5) (154.0) Treasury common stock, at cost (1,016.9) (1,028.9) (839.6) Total Common Shareholders' Equity 1,128.8 445.8 551.1 Total Liabilities and Shareholders' Equity $4,826.9 $3,043.3 $2,815.9 39 THE QUAKER OATS COMPANY AND SUBSIDIARIES Consolidated Statements of Common Common Stock Issued Shareholders' Shares Amount Equity Balance as of June 30, 1992 83,989,396 420.0 Net Income Cash dividends declared on common stock Cash dividends declared on preferred stock Common stock issued for stock purchase and incentive plans Repurchases of common stock Foreign currency adjustments (net of allocated income tax provisions of $(12.6)) Deferred compensation Other Balance as of June 30, 1993 83,989,396 420.0 Net Income Cash dividends declared on common stock Cash dividends declared on preferred stock Common stock issued for stock purchase and incentive plans Repurchases of common stock Foreign currency adjustments (net of allocated income tax benefits of $1.4) Deferred compensation Other Balance as of June 30, 1994 83,989,396 420.0 Net income Cash dividends declared on common stock Cash dividends declared on preferred stock Common stock issued for stock purchase and incentive plans Repurchases of common stock Two-for-one stock split-up 83,989,396 420.0 Foreign currency adjustments (net of allocated income tax benefits of $3.8) Deferred compensation Other Balance as of June 30, 1995 167,978,792 $840.0 See accompanying notes to the consolidated financial statements. 40 Dollars in Millions Common Additional Cumulative Shares Paid-In Reinvested Translation Deferred Treasury Common Stock Outstanding Capital Earnings Adjustment Compensation Shares Amount Total 73,403,305 $ 2.9 $ 1,162.3 $ (24.5) $ (160.4) 10,586,091 $ (558.2) $ 842.1 171.3 171.3 (136.1) (136.1) (4.2) (4.2) 805,434 (8.4) (3.2) (805,434) 41.7 30.1 (4,752,500) 4,752,500 (323.1) (323.1) (40.9) (40.9) 6.4 6.4 5.5 5.5 69,456,239 - 1,190.1 (65.4) (154.0) 14,533,157 (839.6) 551.1 231.5 231.5 (140.6) (140.6) (4.0) (4.0) 439,142 (1.3) (3.4) (439,142) 25.6 20.9 (3,091,085) 3,091,085 (214.9) (214.9) (10.0) (10.0) 10.5 10.5 1.3 1.3 66,804,296 - 1,273.6 (75.4) (143.5) 17,185,100 (1,028.9) 445.8 802.0 802.0 (150.8) (150.8) (4.0) (4.0) 1,151,137 (2.2) (1.5) (1,151,137) 34.5 30.8 (578,000) 578,000 (22.5) (22.5) 66,804,296 (420.0) 17,185,100 - 14.0 14.0 11.3 11.3 2.2 2.2 134,181,729 $ - $ 1,499.3 $ (61.4) $ (132.2) 33,797,063 $(1,016.9) $1,128.8 41 THE QUAKER OATS COMPANY AND SUBSIDIARIES Geographic Segment Net Sales Information Year Ended June 30 1995 1994 1993 U.S. and Canadian Grocery Products $4,624.2 $4,252.7 $3,930.3 Europe 1,106.1 1,164.3 1,335.8 Latin America and Pacific 634.9 538.0 464.5 International Grocery Products 1,741.0 1,702.3 1,800.3 Net Sales and Operating Income from Continuing Operations $6,365.2 $5,955.0 $5,730.6 Less: General corporate expenses(d) Interest expense-net Foreign exchange loss (gain)-net Income from continuing operations before income taxes and cumulative effect of accounting changes Provision for income taxes Income from continuing operations before cumulative effect of accounting changes Income from continuing operations per common share before cumulative effect of accounting changes(e) (a)Fiscal 1995 results include: pretax gains of $604.2 million, or $2.81 per share, for the sale of U.S. and Canadian businesses; $492.1 million, or $2.06 per share, for the sale of European businesses; and $74.5 million, or $.33 per share, for the sale of a Latin American business. Fiscal 1995 results also include a pretax restructuring charge of $76.5 million, or $.35 per share, for cost-reduction and realignment activities. The restructuring charge was included in operating income as follows: $47.1 million in the United States and Canada; $25.3 million in Europe; and $4.1 million in Latin America and Pacific. (b)Fiscal 1994 results include a pretax restructuring charge of $118.4 million, or $.55 per share, for workforce reductions, plant consolidations and product discontinuations and a pretax gain of $9.8 million, or $.07 per share, for the sale of a business in Venezuela. The restructuring charge was included in operating income as follows: $112.9 million in the United States and Canada; $1.7 million in Europe; and $3.8 million in Latin America and Pacific. 42 Dollars in Millions (Except Per Share Data) Operating Income(a)(b)(c) 1992 1991 1990 1995 1994 1993 1992 1991 1990 $3,842.3 $3,860.2 $3,610.0 $ 974.7 $430.9 $447.0 $435.0 $429.0 $372.5 1,354.5 1,326.4 1,084.6 482.7 17.5 52.2 41.2 68.3 88.6 379.6 304.6 336.0 92.9 88.8 76.0 64.0 35.7 83.1 1,734.1 1,631.0 1,420.6 575.6 106.3 128.2 105.2 104.0 171.7 $5,576.4 $5,491.2 $5,030.6 1,550.3 537.2 575.2 540.2 533.0 544.2 75.5 42.6 37.4 38.2 40.4 34.3 110.7 89.7 55.1 67.4 86.2 101.8 4.2 26.2 15.1 13.1 (5.1) 25.7 1,359.9 378.7 467.6 421.5 411.5 382.4 553.8 147.2 180.8 173.9 175.7 153.5 $ 806.1 $231.5 $286.8 $247.6 $235.8 $228.9 $ 6.00 $ 1.68 $ 1.96 $ 1.63 $ 1.53 $ 1.47 (c)See Management's Discussion and Analysis for further discussion of fiscal 1993 through 1995 gains on divestitures and restructuring charges. (d)Fiscal 1995 general corporate expenses include a provision of $29.0 million, or $.13 per share, for estimated litigation costs. (e)Per share data reflect the fiscal 1995 two-for-one stock split-up. 43 THE QUAKER OATS COMPANY AND SUBSIDIARIES Dollars in Millions Geographic Segment Information Year Ended June 30 1995 1994 1993 1992 1991 Identifiable Assets U.S. and Canadian Grocery Products $3,917.5 $1,999.4 $1,877.3 $1,997.9 $2,228.7 Europe 255.0 576.5 562.9 687.5 533.5 Latin America and Pacific 369.9 209.4 182.4 154.4 122.5 International Grocery Products 624.9 785.9 745.3 841.9 656.0 Total Operating Businesses 4,542.4 2,785.3 2,622.6 2,839.8 2,884.7 Corporate(a) 284.5 258.0 193.3 200.1 175.8 Total Assets $4,826.9 $3,043.3 $2,815.9 $3,039.9 $3,060.5 Capital Expenditures U.S. and Canadian Grocery Products $ 193.1 $ 123.9 $ 107.2 $ 110.7 $ 167.0 International Grocery Products 69.6 51.2 65.1 65.7 73.6 Total Operating Businesses 262.7 175.1 172.3 176.4 240.6 Corporate 12.8 - - - - Total Capital Expenditures $ 275.5 $ 175.1 $ 172.3 $ 176.4 $ 240.6 Depreciation and Amortization U.S. and Canadian Grocery Products $ 155.3 $ 131.6 $ 117.6 $ 116.6 $ 112.9 International Grocery Products 35.0 38.5 38.2 38.2 36.4 Total Operating Businesses 190.3 170.1 155.8 154.8 149.3 Corporate 1.1 1.1 1.1 1.1 1.0 Total Depreciation and Amortization $ 191.4 $ 171.2 $ 156.9 $ 155.9 $ 150.3 (a)Includes corporate cash and cash equivalents, certain other current assets, property and miscellaneous other assets.
44 EX-13.3 19 Exhibit 13.3 Notes to the Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Consolidation - The consolidated financial statements include The Quaker Oats Company and all of its subsidiaries (the Company). All significant intercompany transactions have been eliminated. Businesses acquired are included in the results of operations since their acquisition dates. Businesses divested are included in the results of operations until their divestiture dates. Foreign Currency Translation - Assets and liabilities of the Company's foreign subsidiaries, other than those located in highly inflationary countries, are translated at current exchange rates, while income and expenses are translated at average rates for the period. For entities in highly inflationary countries, a combination of current and historical rates is used to determine foreign currency gains and losses resulting from financial statement translation. Translation gains and losses are reported as a component of common shareholders' equity, except for those associated with highly inflationary countries, which are reported directly in the consolidated income statements. Futures, Swaps, Options, Caps and Forward Contracts - The Company enters into a variety of futures, swaps, options, caps and forward contracts in its management of foreign currency, interest rate and commodity price exposures. Realized and unrealized gains and losses on purchased foreign currency options, currency swaps and foreign exchange forward contracts that are effective as net investment hedges are recognized in a component of common shareholders' equity. Realized and unrealized gains and losses on purchased foreign currency options that hedge exchange rate exposure on future raw material purchases are deferred in inventory and subsequently included in cost of goods sold as the inventory is sold. Expenses associated with interest rate cap and swap agreements that hedge interest rate exposure are deferred and recognized as a component of interest expense over the term of each agreement. Realized and unrealized gains and losses on commodity options and futures contracts that hedge commodity price exposure are deferred in inventory and subsequently included in cost of goods sold as the inventory is sold. Other realized and unrealized gains and losses on financial instruments are recognized currently in the consolidated income statements. Cash and Cash Equivalents - Cash equivalents are composed of all highly liquid investments with an original maturity of three months or less. As a result of the Company's cash management system, checks issued but not presented to the banks for payment may create negative book cash balances. Such negative balances are included in trade accounts payable and amounted to $102.6 million, $53.0 million and $45.9 million as of June 30, 1995, 1994 and 1993, respectively. Inventories - Inventories are valued at the lower of cost or market, using various cost methods, and include the cost of raw materials, labor and overhead. The percentages of year-end inventories valued using each of the methods were as follows: June 30 1995 1994 1993 Last-in, first-out (LIFO) 46% 60% 53% Average quarterly cost 47% 30% 35% First-in, first-out (LIFO) 7% 10% 12% If the LIFO method of valuing these inventories was not used, total inventories would have been $10.5 million, $19.6 million and $17.2 million higher than reported as of June 30, 1995, 1994 and 1993, respectively. Property and Depreciation - Property, plant and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives range from five to 50 years for buildings and improvements and from three to 17 years for machinery and equipment. Intangibles - Intangible assets consist principally of excess purchase price over net tangible assets of businesses acquired (goodwill) and trademarks. Goodwill is amortized on a straight-line basis over periods not exceeding 40 years. The Company continually evaluates whether events or circumstances have occurred indicating that the remaining estimated useful life of goodwill may not be appropriate. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the acquired business' undiscounted future cash flows compared to the carrying value of goodwill to determine if a write-off is necessary. Gross goodwill as of June 30, 1995, 1994 and 1993 was $1.87 billion, $615.2 million and $528.0 million, respectively. Accumulated goodwill amortization as of June 30, 1995, 1994 and 1993 was $122.1 million, $128.0 million and $113.3 million, respectively. Trademarks are amortized on a straight- line basis over periods not exceeding 40 years. Gross trademark cost and accumulated trademark amortization as of June 30, 1995 were $452.2 million and $8.0 million, respectively. Trademark cost as of June 30, 1994 and 1993 was not material. See Note 2 to the consolidated financial statements for further discussion of intangibles and amortization periods. 45 THE QUAKER OATS COMPANY AND SUBSIDIARIES Software Costs - The Company defers significant software development project costs. Software costs of $0.8 million, $5.3 million and $5.0 million were deferred during fiscal 1995, 1994 and 1993, respectively. Amounts deferred are amortized over a three-year period beginning with a project's completion. Net deferred software costs as of June 30, 1995 were $9.4 million. Income Taxes - The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the bases of assets and liabilities. Federal income taxes have been provided on $167.2 million of the $282.7 million of unremitted earnings from foreign subsidiaries. Taxes are not provided on earnings expected to be indefinitely reinvested. Fiscal-Year Change - In May 1995, the Board of Directors approved a change in the Company's fiscal year end from June 30 to December 31, effective the calendar year beginning January 1, 1996. A six-month fiscal transition period from July 1, 1995 through December 31, 1995 will precede the start of the new calendar-year cycle. Fiscal years presented and referred to in these consolidated financial statements and notes thereto are on a June 30 fiscal-year basis unless otherwise indicated. Note 2 Acquisitions and Divestitures The Company has realigned its business portfolio through the acquisition and divestiture of a number of businesses. On December 6, 1994, the Company purchased Snapple Beverage Corp. for a tender-offer price of $1.7 billion. The acquisition was accounted for as a purchase and the results of Snapple beverages are included in the consolidated financial statements since the date of acquisition. The acquisition was initially financed with commercial paper borrowings. The after-tax proceeds on the fiscal 1995 divestitures of $1.25 billion were used to reduce the commercial paper borrowings. The allocation of the purchase price included the following intangible assets along with the related amortization periods. Amortization is on a straight-line basis. Amortization Amount Periods (in years) Dollars in Millions Goodwill $1,300.7 40 Trademark - Snapple 440.0 40 Trademark - Made From the Best Stuff 6.0 7 on Earth Proprietary formulas 75.0 15 Distribution rights 30.0 30 Distribution network 7.0 10 Total $1,858.7 The following table presents unaudited pro forma combined historical results as if Snapple Beverage Corp. was acquired at the beginning of fiscal 1994. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of fiscal 1994, nor are they necessarily indicative of future consolidated results. Pro Forma Results (Unaudited) Dollars in Millions (Except Per Share Data) 1995 1994 Net sales $ 6,636.8 $ 6,652.6 Income before cumulative effect of $ 767.4 $ 208.1 accounting change Income per common share before $ 5.71 $ 1.51 cumulative effect of accounting change In fiscal 1995, the Company also purchased the Adria pasta business in Brazil, the Southern Foods oat milling business in Australia, and the Nile Spice variety meals-in-a-cup and Arnie's bagels businesses in the United States. In fiscal 1994, the Company purchased the Near East flavored rice business and three small food service businesses. In fiscal 1993, the Company purchased the Chico-San rice cakes business. Pro forma information for all these acquisitions was not material in the aggregate. On March 14, 1995, the Company completed the sale of its North American pet food business to H.J. Heinz Company for $725.0 million and realized a gain of $513.0 million. On April 24, 1995, the Company completed the sale of its European pet food business to Dalgety PLC for $700.0 million and realized a gain of $487.2 million. Other divestitures in fiscal 1995 included the Dutch honey business in February 1995, the Mexican chocolate business in May 1995 and the U.S. bean and chili businesses in June 1995. The Company realized gains on these divestitures of $4.9 million, $74.5 million and $91.2 million, respectively. 46 The following table presents sales and operating income from the businesses divested in fiscal 1995 through the sale dates. Operating income includes certain allocations of overhead expenses and excludes gains on divestitures and restructuring charges in all fiscal years. Dollars in Millions 1995 1994 1993 Sales: U.S. and Canadian Grocery Products $ 554.6 $ 757.3 $ 720.8 International Grocery Products 760.4 876.0 969.8 Sales from divested businesses $ 1,315.0 $ 1,633.3 $ 1,690.6 Operating income: U.S. and Canadian Grocery $ 39.3 $ 54.2 $ 55.6 Products International Grocery Products 34.1 50.6 63.7 Operating income from divested $ 73.4 $ 104.8 $ 119.3 businesses In fiscal 1994, the Company realized a $9.8 million gain on the sale of a business in Venezuela. In fiscal 1993, the Company realized a $17.4 million gain on the sale of two Italian businesses and a $10.4 million gain on the sale of a business in the United Kingdom. Sales and operating income from these businesses were not material. Note 3 Restructuring Charges In fiscal 1995, the Company recorded a restructuring charge of $76.5 million for cost-reduction and realignment activities in order to address the changes in its business portfolio and to allow it to quickly and effectively respond to the needs of trade customers and consumers. These changes result in the elimination of approximately 850 positions and primarily include the realignment of the corporate, shared services and business unit structures, the European cereals business and the U.S. distribution center network. Savings from these activities are expected to be about $50 million annually beginning in calendar 1996. Approximately 90 percent of the annual savings will be in cash. In fiscal 1994, the Company recorded a restructuring charge of $118.4 million for the elimination of positions at the headquarters and research and development facilities, a combination and realignment of the U.S. sales force, manufacturing consolidations for the bean and chili, rice cakes and Aunt Jemima syrup businesses and the closing of a Canadian pet food facility and refocusing of the Canadian business, as well as other cost-reduction initiatives. Approximately 1,500 positions are being eliminated as a result of these initiatives. In fiscal 1993, the Company recorded a restructuring charge of $48.3 million to consolidate production facilities at a U.S. pet food plant and to implement European cost-reduction programs. Savings realized from fiscal 1994 and 1993 restructuring activities have been in line with expectations and reserve balances are adequate to cover committed restructuring actions. The restructuring charges and utilization to date were as follows:
Dollars in Millions As of June 30, 1995 Amounts Charged Amounts Remaining Cash Non-Cash Total Utilized Reserve 1995 Severance and termination benefits $ 41.0 $ - $ 41.0 $ 3.3 $ 37.7 Asset write-offs to consolidate facilities - 19.0 19.0 12.5 6.5 Loss on leases and other 16.5 - 16.5 - 16.5 Subtotal 57.5 19.0 76.5 15.8 60.7 1994 Severance and termination benefits 44.7 - 44.7 30.7 14.0 Asset write-offs and loss on leases 7.6 30.7 38.3 29.6 8.7 Product-line discontinuations 3.3 32.1 35.4 35.4 - Subtotal 55.6 62.8 118.4 95.7 22.7 1993 Severance and termination benefits 27.6 - 27.6 27.6 - Asset write-offs to consolidate facilities - 20.7 20.7 20.7 - Subtotal 27.6 20.7 48.3 48.3 - Totals $140.7 $102.5 $243.2 $159.8 $ 83.4 Operating income excluding restructuring charges and gains on divestitures in all fiscal years was as follows: Dollars in Millions 1995 1994 1993 Operating income as reported $1,550.3 $ 537.2 $ 575.2 Restructuring charges: U.S. and Canadian Grocery Products 47.1 112.9 38.6 International Grocery Products 29.4 5.5 9.7 Subtotal 76.5 118.4 48.3 Gains on divestitures: U.S. and Canadian Grocery Products (604.2) - - International Grocery Products (566.6) (9.8) (27.8) Subtotal (1,170.8) (9.8) (27.8) Operating income excluding charges and gains $456.0 $ 645.8 $ 595.7
47 THE QUAKER OATS COMPANY AND SUBSIDIARIES Note 4 Trade Accounts Receivable Allowances Dollars in Millions 1995 1994 1993 Balance at beginning of year $17.5 $15.0 $16.6 Provision for doubtful accounts 11.2 7.5 5.7 Provision for discounts and allowances 19.4 16.6 13.8 Write-offs of doubtful accounts net of recoveries (6.1) (5.2) (4.4) Discounts and allowances taken (15.6) (13.9) (13.9) Effect of acquisitions and divestitures 1.4 - - Effect of exchange rate changes (1.0) (2.5) (2.8) Balance at end of year $26.8 $17.5 $15.0 Note 5 Revolving Credit Facilities, Short-term Debt and Lines of Credit The Company has revolving credit facilities totaling $1.5 billion with various banks that support its commercial paper borrowings and are also available for direct borrowings. The facilities consist of a $600.0 million annually extendible revolving credit facility expiring November 1999 and a $900.0 million 364-day annually extendible revolving credit facility which may, at the Company's option, be converted into a two-year term loan. As of June 30, 1995, no direct borrowings were outstanding. Under the revolving credit facilities, the Company and certain domestic subsidiaries must maintain certain financial ratios. The Company has an Adjusted Principal Revolving Credit Agreement (Agreement). Each quarter, the Company may borrow a predetermined amount from $4.0 million up to $22.0 million. The amount borrowed may be repaid based upon certain foreign currency rates. The Agreement is in effect through June 1996 and bears interest at market rates in effect at the time of each borrowing. The Company borrowed the predetermined amount available each quarter in fiscal 1995. Short-term debt consists primarily of commercial paper borrowings in the United States and notes payable to banks in foreign countries. Commercial paper borrowings outstanding as of June 30, 1995, 1994 and 1993 were $676.9 million, $78.4 million and $142.4 million, respectively. Notes payable to banks were $21.2 million, $132.9 million and $35.6 million as of June 30, 1995, 1994 and 1993, respectively. (See Note 6 for discussion of reclassification of short- term debt to long-term debt). Weighted average interest rates on all short-term debt outstanding as of June 30, 1995, 1994 and 1993 were 6.7 percent, 6.1 percent and 4.4 percent, respectively. Nominal interest rates in highly inflationary countries have been adjusted for currency devaluation to express interest rates in U.S. dollar terms. The Company's foreign subsidiaries have additional committed lines of credit of $30.6 million, none of which was utilized as of June 30, 1995. Note 6 Long-term Debt
Dollars in Millions 1995 1994 1993 7.76% Senior ESOP Notes due through 2002 $ 74.9 $ 80.8 $ 85.9 8.0% Senior ESOP Notes due through 2002 125.7 133.9 140.3 8.75% ESOP installment loan due through 1996 2.9 5.5 7.9 7.4%-7.9% Series A Medium-term Notes due through 2000 56.7 71.8 86.8 8.15%-9.34% Series B Medium-term Notes due through 2020 216.4 229.6 248.0 6.5%-7.48% Series C Medium-term Notes due through 2024 200.0 200.0 - 6.45%-7.77% Series D Medium-term Notes due through 2025 212.0 - - 6.63% deutsche mark swap due 1998 20.2 17.5 16.3 5.7%-10.75% Industrial Revenue Bonds due through 2010, tax-exempt 34.4 34.4 35.6 Non-interest bearing installment note due 2014 5.1 4.5 4.0 Short-term debt to be refinanced 188.0 - 50.0 Other 5.6 26.9 6.7 Subtotal 1,141.9 804.9 681.5 Less: Current portion of long-term debt 38.8 45.4 48.9 Long-term debt $1,103.1 $759.5 $632.6 All maturity dates presented refer to fiscal years. 48 Aggregate required payments of maturities of long-term debt for the next five fiscal years are as follows: Dollars in Millions 1996 1997 1998 1999 2000 Required payments $38.8 $53.9 $131.5 $50.9 $113.7
During fiscal 1994, the Company issued $200.0 million of Series C Medium-term Notes bearing interest rates ranging from 6.5 percent to 7.48 percent per annum with maturities from 10 to 30 years. The debt was issued under a $600.0 million shelf registration filed with the SEC in January 1990. In April 1995, the Company filed a prospectus supplement with the SEC for the issuance of an additional $400.0 million of medium-term notes under the 1990 shelf registration. As of June 30, 1995, the Company has issued $212.0 million of Series D Medium-term Notes bearing interest ranging from 6.45 percent to 7.77 percent per annum with maturities from three to 30 years. The Company intends to issue the remaining $188.0 million of medium- term notes by December 31, 1995. As a result, the consolidated balance sheet as of June 30, 1995 included the reclassification of $188.0 million of short-term debt to long-term debt. The consolidated balance sheet as of June 30, 1993 included the reclassification of $50.0 million of short-term debt to long-term debt, reflecting the Company's intent and ability to refinance this debt on a long-term basis. The non-interest bearing installment note for $55.5 million has an unamortized discount of $50.4 million, $51.0 million and $51.5 million as of June 30, 1995, 1994 and 1993, respectively, based on an imputed interest rate of 13 percent. Note 7 Capital Stock In fiscal 1995, shareholders of record received an additional share of common stock for each share held, pursuant to a two-for-one stock split-up approved by the Board of Directors. Per share data and average number of common shares outstanding have been retroactively restated. As a result of the increase in issued shares, common stock has been increased and reinvested earnings has been decreased by $420.0 million. In November 1994, shareholders approved an increase in authorized shares from 200 million to 400 million. During fiscal 1995, 0.6 million shares of the Company's outstanding common stock were repurchased for $22.5 million under a 10 million share repurchase program announced in August 1993. The Company is authorized to issue 10 million shares of preferred stock in series, with terms fixed by resolution of the Board of Directors. One million shares of Series A Junior Participating Preferred Stock have been reserved for issuance in connection with the Shareholder Rights Plan (see Note 10). An additional 1,750,000 shares of Series B ESOP Convertible Preferred Stock (Series B Stock) have been reserved for issuance in connection with the Company's ESOP. As of June 30, 1995, 1,282,051 shares of the Series B Stock had been issued and are each convertible into 2.1576 shares of the Company's common stock. The Series B Stock will be issued only for the ESOP and will not be traded on the open market. The Company is also authorized to issue one million shares of redeemable preference stock, none of which had been issued as of June 30, 1995. 49 THE QUAKER OATS COMPANY AND SUBSIDIARIES Note 8 Deferred Compensation The ESOP was established to issue debt and to use the proceeds of such debt to acquire shares of the Company's stock for future allocation to ESOP participants. The ESOP borrowings are included as long-term debt on the Company's consolidated balance sheets. See Note 6 for further detail on the ESOP notes. Deferred compensation of $207.1 million as of June 30, 1995 primarily represents the Company's payment of future compensation expense related to the ESOP. As the Company makes annual contributions to the ESOP, these contributions, along with the dividends accumulated on the common and preferred stock held by the ESOP, are used to repay the outstanding loans. As the loans are repaid, common and preferred stock are allocated to ESOP participants and deferred compensation is reduced by the amount of the principal payments on the loans. The following table presents the ESOP loan payments: Dollars in Millions 1995 1994 1993 Principal payments $ 16.7 $ 13.9 $ 11.6 Interest payments 16.9 18.4 19.4 Total ESOP payments $ 33.6 $ 32.3 $ 31.0 As of June 30, 1995, 5,081,987 shares of common stock and 464,047 shares of preferred stock were held in the accounts of ESOP participants. Note 9 Employee Stock Option and Award Plans In fiscal 1990, the Company's shareholders approved the adoption of The Quaker Long Term Incentive Plan of 1990 (Plan). The purpose of the Plan is to promote the interests of the Company and its shareholders by providing the officers and other key employees with additional incentive and the opportunity through stock ownership to increase their proprietary interest in the Company and their personal interest in its continued success. The Plan provides for benefits to be awarded in a variety of ways, with stock options being used most frequently. Twenty-six million shares of common stock have been authorized for grant under the Plan. Previously, stock options were issued under the 1984 Long-Term Incentive Plan, which expired by its terms on December 31, 1990. Stock options may be granted for the purchase of common stock at a price not less than the fair market value on the date of grant. Portions of the fiscal 1992 and 1993 option awards were granted at exercise prices higher than the fair market value on the date of grant. Options are generally exercisable after one or more years and expire no later than 10 years from the date of grant. As of June 30, 1995, 693 persons held such options. Changes in stock options outstanding are summarized as follows: Shares Option Price (Per Share) Balance as of June 30, 1992 4,557,528 $ 9.83-88.36 Granted 1,602,646 $ 63.56-79.45 Exercised (780,724) $ 9.83-70.69 Expired or terminated (83,303) $ 9.83-88.36 Balance as of June 30, 1993 5,296,147 $ 14.03-88.36 Granted 1,448,265 $ 68.88-69.06 Exercised (312,042) $ 14.03-70.69 Expired or terminated (141,635) $ 26.42-88.36 Balance as of June 30, 1994 6,290,735 $ 17.53-88.36 Adjustment due to two-for-one stock split-up 6,290,735 $ 8.77 - 44.18 Granted 2,978,450 $33.53 - 40.35 Exercised (906,714) $ 8.77 - 39.73 Expired or terminated (1,083,665) $ 8.77 - 44.18 Balance as of June 30, 1995 13,569,541 $13.21 - 44.18 As of June 30, 1995, options for 8,214,202 shares were exercisable and the average per share option price of unexercised options expiring during the period January 1996 to November 2004 was $33.89. 50 Under the Plan, restricted stock awards grant shares of the Company's common stock to key officers and employees. These shares are subject to a restriction period from the date of grant, during which they may not be sold, assigned, pledged or otherwise encumbered. The number of shares of the Company's common stock awarded was 49,000, 23,200 and 70,800 in fiscal 1995, 1994 and 1993, respectively. The fiscal 1995 awards reflect the fiscal 1995 two-for-one stock split-up. Restrictions on these awards lapse after a period of time designated by the Compensation Committee of the Board of Directors. Note 10 Shareholder Rights Plan The Company's Shareholder Rights Plan, adopted July 9, 1986 and amended July 12, 1989, is designed to deter coercive or unfair takeover tactics and to prevent a person or group from gaining control of the Company without offering a fair price to all shareholders. Under the terms of the Shareholder Rights Plan, all common shareholders own one-quarter of a "Right" entitling them to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $300. The Rights become exercisable: (1) 10 days after a public announcement that a person or group has acquired shares representing 20 percent or more of the voting power of the Company's capital stock; (2) 10 business days following commencement of a tender offer for more than 20 percent of such voting power; or (3) 10 business days after a holder of at least 15 percent of such voting power is determined to be an adverse person by the Board of Directors. The time periods can be extended by the Company. Unless the Board of Directors has made a determination that any person is an adverse person, the Company can redeem the Rights for $.05 per Right at any time prior to their becoming exercisable. The Rights will expire on July 30, 1996, unless redeemed earlier by the Company. If after the Rights become exercisable the Company is involved in a merger or other business combination at any time when there is a holder of 20 percent or more of the Company's stock, the Rights will then entitle holders, upon exercise of the Rights, to receive shares of common stock of the acquiring company with a market value equal to twice the exercise price of each Right. Alternatively, if a 20 percent holder acquires the Company by means of a reverse merger in which the Company and its stock survive, or if any person acquires 20 percent or more of the Company's voting power or acquires 15 percent of the Company's voting power and is determined by the Board of Directors to be an adverse person, each Right not owned by such 20 percent shareholder or adverse person would, upon exercise of the Right, entitle the holder to common stock of the Company (or in certain circumstances other consideration) having a market value equal to twice the exercise price of the Right. The Rights described in this paragraph shall not apply to an acquisition, merger or consolidation which is determined by a majority of the Company's independent directors, after consulting one or more investment banking firms, to be fair and otherwise in the best interest of the Company and its shareholders. Note 11 Pension Plans The Company has various pension plans covering substantially all U.S. employees and certain foreign employees. Plan benefits are based on compensation paid to employees and their years of service. Company policy is to make contributions to its U.S. plans within the maximum amount deductible for Federal income tax purposes. Plan assets consist primarily of equity securities and government, corporate and other fixed-income obligations. The components of net pension costs for defined plans were as follows: Dollars in Millions 1995 1994 1993 Service cost (benefits earned during the year) $53.8 $46.0 $41.5 Interest cost on projected benefit obligation 59.5 55.6 51.9 Actual return on plan assets (65.8) (64.2) (64.8) Net amortization and deferral (7.4) (8.8) (8.5) Multi-employer plans 0.4 0.3 0.2 Net pension costs $40.5 $28.9 $20.3 51 THE QUAKER OATS COMPANY AND SUBSIDIARIES
Reconciliations of the funded status of the Company's U.S. defined plans to the (accrued) prepaid pension costs were as follows: Overfunded Underfunded Dollars in Millions 1995 1994 1993 1995 1994 1993 Vested benefits $ 551.4 $ 505.9 $ 459.5 $ 52.5 $ 52.0 $ 47.3 Non-vested benefits 11.8 10.8 10.1 1.2 1.1 0.2 Accumulated benefit 563.2 516.7 469.6 53.7 53.1 47.5 obligation Effect of projected future salary increases 56.7 64.0 62.0 12.7 4.7 8.9 Projected benefit obligation 619.9 580.7 531.6 66.4 57.8 56.4 Plan assets at market value 673.0 640.9 637.5 24.7 22.0 23.3 Projected benefit obligation less (greater) than plan assets 53.1 60.2 105.9 (41.7) (35.8) (33.1) Unrecognized net (gain) (69.5) (40.6) (59.6) (2.6) (4.0) (4.2) Unrecognized prior service cost 20.4 6.9 8.1 5.7 4.9 5.6 Unrecognized net (asset) liability at transition (28.1) (40.7) (52.9) 1.8 3.5 4.2 (Accrued) prepaid pension costs $ (24.1) $ (14.2) $ 1.5 $ (36.8) $ (31.4) $ (27.5) Assumptions (reflecting averages across all plans): Weighted average discount rate: 8.25%. Rate of future compensation increases: 4.5%. Long-term rate of return on plan assets: 8.75%. Reconciliations of the funded status of the Company's foreign defined plans to the prepaid (accrued) pension costs were as follows: Overfunded Underfunded Dollars in Millions 1995 1994 1993 1995 1994 1993 Vested benefits $83.9 $79.7 $89.8 $ 18.6 $ 19.6 $ 18.7 Non-vested benefits 0.4 14.5 - 3.1 4.8 4.5 Accumulated benefit obligation 84.3 94.2 89.8 21.7 24.4 23.2 Effect of projected future salary increases 25.5 18.9 18.8 1.4 3.6 3.4 Projected benefit obligation 109.8 113.1 108.6 23.1 28.0 26.6 Plan assets at market value 120.0 127.6 113.0 - - - Projected benefit obligation less (greater) than plan assets 10.2 14.5 4.4 (23.1) (28.0) (26.6) Unrecognized net loss (gain) 1.3 (4.3) 13.4 (0.2) (0.3) (0.2) Unrecognized prior service cost 2.1 2.8 3.1 0.8 0.8 0.8 Unrecognized net (asset) at transition (8.6) (4.2) (13.5) (0.2) - (0.2) Prepaid (accrued) pension costs $ 5.0 $ 8.8 $ 7.4 $ (22.7) $ (27.5) $ (26.2) $(26.2) Assumptions (reflecting averages across all plans): Weighted average discount rate: 8.0%. Rate of future compensation increases: 5.8%. Long-term rate of return on plan assets: 8.1%. Unrecognized prior service cost is being amortized over periods ranging from 10 to 18 years. The foreign pension plans included unfunded termination indemnity reserves of $14.0 million, $14.1 million and $14.1 million as of June 30, 1995, 1994 and 1993, respectively.
Note 12 Postretirement Benefits Other Than Pensions and Other Postemployment Benefits The Company has various postretirement health care plans covering substantially all U.S. employees and certain foreign employees. The plans provide for the payment of certain health care and life insurance benefits for retired employees who meet certain service-related eligibility requirements. The Company funds only the plans' annual cash requirements. Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the expected cost of these benefits be charged to expense during the years that the employees render service. The statement was adopted through a cumulative pretax charge of $205.5 million, or $125.4 million after-tax, which represents the accumulated postretirement benefit obligation for years prior to fiscal 1993. Cash expenditures are not affected by this accounting change. The components of postretirement benefit costs were as follows: Dollars in Millions 1995 1994 1993 Service cost (benefits earned during the year) $ 7.2 $ 7.0 $ 6.2 Interest cost on projected benefit obligation 19.6 18.4 18.3 Amortization of prior service cost 0.1 0.1 - Total postretirement benefit costs $26.9 $25.5 $24.5 52 The Company's unfunded accumulated postretirement benefit obligations and accrued postretirement benefit costs were as follows: Dollars in Millions 1995 1994 1993 Current retirees $ 132.0 $122.1 $122.5 Current active employees- fully eligible 13.4 12.5 12.0 Current active employees- not fully eligible 94.4 115.2 100.0 Accumulated postretirement benefit obligation 239.8 249.8 234.5 Unrecognized net gain (loss) 7.7 (12.5) (11.1) Unrecognized prior service cost (1.9) (2.0) - Accrued postretirement benefit costs $ 245.6 $235.3 $223.4 Assumptions: Weighted average discount rate: 8.25% Health care trend rates (varies by plan): 1996 2006 and Beyond Pre-age 65 10-13% 4-6% Age 65 and over 10-13% 5-6% If the health care trend rates were increased one percentage point, the current-year postretirement benefit costs would have been $4.2 million higher and the accumulated postretirement benefit obligation as of June 30, 1995 would have been $30.8 million higher. Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers' Accounting for Postemployment Benefits." This statement requires that the expected cost of other postemployment benefits be charged to expense during the years that employees render services. The cumulative effect of adoption was a $6.8 million pretax charge, or $4.1 million after-tax, in the first quarter of fiscal 1995. The adoption of this statement did not have a material effect on operating results or cash flows in fiscal 1995, nor is it expected to have a material effect in future years. Note 13 Lease and Other Commitments Certain equipment and operating properties are rented under non- cancelable operating leases. Total rental expense under operating leases was $35.2 million, $33.1 million and $34.3 million in fiscal 1995, 1994 and 1993, respectively. The following is a schedule of future minimum annual rentals on non-cancelable operating leases, primarily for sales offices, distribution centers and corporate headquarters, in effect as of June 30, 1995. Dollars in Millions 1996 1997 1998 1999 2000 Later Total Total payments $24.5 $22.6 $20.5 $19.3 $18.4 $72.0 $177.3 The Company enters into executory contracts to promote various products. As of June 30, 1995, future commitments under these contracts amounted to $57.9 million.
Note 14 Supplementary Income Statement Information Dollars in Millions 1995 1994 1993 Advertising, media and production $ 292.9 $ 295.3 $ 282.0 Merchandising 1,382.7 1,291.5 1,193.0 Total advertising and merchandising $ 1,675.6 $ 1,586.8 $ 1,475.0 Depreciation expense $ 125.4 $ 133.3 $ 129.9 Amortization of intangibles $ 63.8 $ 33.9 $ 26.3 Research and development $ 52.2 $ 56.3 $ 52.4
Note 15 Interest Expense Dollars in Millions 1995 1994 1993 Interest expense $ 119.0 $ 99.9 $ 66.1 Interest expense capitalized-net (2.0) (1.3) (0.5) Subtotal 117.0 98.6 65.6 Interest income (6.3) (8.9) (10.5) Interest expense-net $ 110.7 $ 89.7 $ 55.1 Interest paid in fiscal 1995, 1994 and 1993 was $115.9 million, $72.0 million and $74.3 million, respectively. 53 THE QUAKER OATS COMPANY AND SUBSIDIARIES Note 16 Income Taxes The Company uses an asset and liability approach to financial accounting and reporting for income taxes in accordance with FASB Statement #109, "Accounting for Income Taxes." FASB Statement #109 was adopted effective July 1, 1992 and the cumulative effect of adoption was to increase fiscal 1993 net income by $9.9 million. Provisions for income taxes on income before cumulative effect of accounting changes were as follows: Dollars in Millions 1995 1994 1993 Currently payable: Federal $382.4 $140.1 $129.2 Foreign 122.3 23.4 25.0 State 64.7 30.3 29.7 Total currently payable 569.4 193.8 183.9 Deferred-net: Federal (26.3) (34.0) (6.7) Foreign 13.0 (13.3) 2.7 State (2.3) 0.7 0.9 Total deferred-net (15.6) (46.6) (3.1) Provision for income taxes $553.8 $147.2 $180.8 The components of the deferred income tax benefit were as follows: Dollars in Millions 1995 1994 1993 Accelerated tax depreciation $(26.0) $11.2 $15.0 Postretirement benefits (2.2) (8.2) (5.8) Accrued expenses including (1.8) (36.9) (8.6) restructuring charges Loss carryforwards 0.5 (8.3) (2.2) Foreign gain deferral 24.3 - - Other (10.4) (4.4) (1.5) Benefit for deferred income $(15.6) $(46.6) $(3.1) taxes Total income tax provisions (benefits) were allocated as follows: Dollars in Millions 1995 1994 1993 Continuing operations $553.8 $ 147.2 $ 180.8 Cumulative effect of accounting changes $ (2.7) $ - $ (90.0) Items charged directly to common shareholders' equity $ (9.8) $ (8.1) $ 2.6 The sources of pretax income before cumulative effect of accounting changes were as follows: Dollars in Millions 1995 1994 1993 U.S. sources $1,029.4 $365.8 $389.3 Foreign sources 330.5 12.9 78.3 Income before income taxes and cumulative effect of accounting changes $1,359.9 $378.7 $467.6 Reconciliations of the statutory Federal income tax rates to the effective income tax rates were as follows:
Dollars in Millions 1995 1994 1993 % of % of % of Pretax Pretax Pretax Amount Income Amount Income Amount Income Tax provision based on the Federal statuory rate $476.0 35.0% $132.5 35.0% $159.0 34.0% State and local income taxes-net of Federal income tax benefit 40.6 3.0 18.4 4.8 19.7 4.2 Repatriation of foreign earnings 7.9 0.6 (9.6) (2.5) (2.4) (0.5) Foreign tax rate differential 19.6 1.4 9.0 2.4 1.7 0.4 Miscellaneous items 9.7 0.7 (3.1) (0.8) 2.8 0.6 Provision for income taxes $553.8 40.7% $147.2 38.9% $180.8 38.7% Deferred tax assets and deferred tax liabilities were as follows: Dollars in 1995 1994 1993 Millions Assets Liabilities Assets Liabilities Assets Liabilities Depreciation and amortization $ 59.7 $ 395.2 $ 21.1 $ 219.3 $ 14.5 $ 211.0 Postretirement benefits 97.2 - 94.1 - 85.9 - Other benefit plans 54.9 15.6 52.4 11.5 42.0 13.5 Accrued expenses including restructuring charges 155.1 17.7 112.9 21.7 59.1 4.1 Loss carryforwards 8.7 - 24.3 - 20.8 - Other 15.2 48.5 18.1 33.5 21.8 34.6 Subtotal 390.8 477.0 322.9 286.0 244.1 263.2 Valuation allowance (18.7) - (28.1) - (18.1) - Total $ 372.1 $ 477.0 $ 294.8 $ 286.0 $ 226.0 $ 263.2
54 As of June 30, 1995, the Company had $35.3 million of operating and capital loss carryforwards available to reduce future taxable income of certain international subsidiaries. These loss carryforwards must be utilized within the carryforward periods of these international jurisdictions. The majority of loss carryforwards expire in five years. A valuation allowance has been provided for a portion of the deferred tax assets related to the loss carryforwards. Included in other current assets were deferred tax assets of $128.4 million, $91.0 million and $52.3 million as of June 30, 1995, 1994 and 1993, respectively. Income taxes paid in fiscal 1995, 1994 and 1993 were $367.1 million, $163.9 million and $213.3 million, respectively. Note 17 Financial Instruments Financial instruments are primarily used to fund working capital requirements and to reduce the impact of foreign currency rate, interest rate and commodity price fluctuations. The main financial instruments used are short-term and long-term debt instruments, foreign exchange forward contracts, purchased foreign currency options, interest rate cap and swap agreements and commodity options and futures contracts. The foreign currency hedge instruments are used to reduce the risk that the U.S. dollar value of the net investment and cash flows of foreign operations will be reduced as exchange rates decline. Similarly, interest rate cap and swap agreements are used to reduce the risk that interest expense will be increased from interest rate changes and commodity hedge instruments are used to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from exchange or interest rate movement or changing commodity prices, the losses would generally be offset by expected gains on translation of the net investments, lower interest expense or lower costs of the purchases being hedged. The Company uses financial instruments for purposes other than trading and does not use these instruments with the objective of earning financial gains on the exchange or interest rate or commodity price fluctuations alone, nor does it utilize instruments in currencies or commodities for which there are no underlying exposures. Management believes that its use of financial instruments to reduce risk is in the Company's best interest. The Company's significant net investments, net hedges and net exposures in foreign currencies subject to the hedging program as of June 30, 1995 were as follows: Dollars in Millions Currency Net Investment Hedge Exposure British pound $ 26.9 $ 4.9 $ 22.0 Canadian dollar $ 46.2 $ 11.8 $ 34.4 Dutch guilder $ 47.2 $ 47.2 $ - German mark $ 45.0 $ 41.7 $ 3.3 Italian lire $ 56.5 $ 45.3 $ 11.2 The Company actively monitors the net exposures and adjusts the hedge amounts as appropriate. The net hedges are stated above on an after-tax basis as the Company manages the exposures on an economic basis. The net exposures are subject to gain or loss if foreign currency exchange rates fluctuate. On a consolidated basis, the gain or loss would be recognized as an increase or decrease in the cumulative translation adjustment account on the consolidated balance sheet, but future reported income would not be affected. In some countries, mainly in Latin America, foreign currency hedge instruments are not available or are cost prohibitive. The exposures in these countries are addressed through managing net asset positions and borrowing or investing in a combination of local currency and U.S. dollars. As of June 30, 1995, 1994 and 1993, the Company had net foreign exchange forward contracts to sell $72.2 million, $142.5 million and $225.5 million, respectively, of primarily European and Canadian currencies to hedge its net investments. These contracts generally mature in less than two years, except for contracts to sell $8.0 million in British pounds in fiscal 1998. Unrealized (losses) gains as of June 30, 1995, 1994 and 1993 were $(9.9) million, $(4.0) million and $10.3 million, respectively. The carrying value of these contracts approximates fair value. In fiscal 1988, the Company swapped $15.0 million of long-term debt for 27.9 million in deutsche mark (DM) denominated long-term debt, effectively hedging its German net investment. The DM swap agreement requires the Company to re-exchange 27.9 million DM for $15.0 million in August 1997 and to make semiannual interest payments of 0.9 million DM through August 1997. The DM swap was included in long-term debt as of June 30, 1995, 1994 and 1993 for $20.2 million, $17.5 million and $16.3 million, respectively. The long- term debt is marked to market as the U.S. dollar/DM exchange rate changes. Because of the sale of the European pet food business, the net investment in Germany has been reduced to the point where the DM swap is no longer effective as a net investment hedge, requiring any mark to market adjustment to be charged or credited to the consolidated income statement. 55 THE QUAKER OATS COMPANY AND SUBSIDIARIES To offset this charge or credit, the Company entered into a foreign exchange forward contract and the net effect on the consolidated income statement for fiscal 1995 was not material. The interest payments are subject to exchange rate fluctuations, but the effect on the Company's consolidated income statements has not been material. The Company uses options to hedge currency fluctuations on certain anticipated purchases denominated in foreign currencies. As of June 30, 1995, 1994 and 1993, the Company had options to sell Italian lire and purchase U.S. dollars for $57.9 million, $77.0 million and $91.2 million, respectively. In the event of unfavorable currency fluctuations, the options are exercised resulting in a gain which offsets the higher cost of the purchases. Deferred unrecognized losses related to these options were $6.3 million, $9.0 million and $6.9 million as of June 30, 1995, 1994 and 1993, respectively. The fair values of outstanding purchased foreign currency options as of June 30, 1995, 1994 and 1993, based on broker quotes, were $2.0 million, $2.7 million and $3.3 million, respectively. Included in the consolidated income statements were (losses) gains of $(2.8) million, $1.1 million and $6.2 million in fiscal 1995, 1994 and 1993, respectively, from foreign currency hedge instruments. The Company actively monitors its interest rate exposure. In fiscal 1995, the Company entered into interest rate cap agreements with a notional value of $600.0 million. The cap agreements were used to hedge floating interest rate risk. As of June 30, 1995, there were no interest rate cap agreements in place. The Company also entered into interest rate swap agreements with a notional value of $150.0 million. The swap agreements were used to hedge fixed interest rate risk. Included in the consolidated balance sheet as of June 30, 1995 was $9.9 million of prepaid interest expense as settlement of $136.0 million of interest rate swap agreements. Prepaid interest expense will be recognized in the consolidated income statement on a straight-line basis over the life of the swap agreements, which range from three to 10 years. The carrying value of the settled interest rate swap agreements approximates fair value. The fair value of the interest rate swap agreements which are not yet settled was $1.7 million. Included in interest expense was $1.1 million related to the interest rate cap and swap agreements. The Company uses commodity options and futures contracts to reduce its exposure to commodity price changes. The Company regularly hedges purchases of oats, corn, wheat, coffee beans and orange juice concentrate. Of the $3.38 billion in cost of goods sold, approximately $250 million to $300 million is in commodities that may be hedged. The Company's strategy is to typically hedge certain production requirements for various periods up to twelve months. As of June 30, 1995, approximately 33 percent of hedgeable production requirements for the next twelve months were hedged. Deferred unrecognized (losses) gains related to commodity options and futures contracts as of June 30, 1995, 1994 and 1993 were $(0.1) million, $(4.4) million and $0.4 million, respectively. Realized losses charged to cost of goods sold in fiscal 1995, 1994 and 1993 were $5.9 million, $0.2 million and $1.9 million, respectively. The fair values of these commodity instruments as of June 30, 1995, 1994 and 1993, based on quotes from brokers, were net losses of $4.3 million, net gains of $7.3 million and net losses of $1.0 million, respectively. The carrying value of cash and cash equivalents and short-term debt approximates fair value because of the short-term maturity of the instruments. The fair value of long-term debt was $1.16 billion, $779.7 million and $730.7 million as of June 30, 1995, 1994 and 1993, respectively, which was based on market prices for the same or similar issues or on the current rates offered to the Company for similar debt of the same maturities. The carrying value of long-term debt as of June 30, 1995, 1994 and 1993 was $1.10 billion, $759.5 million and $632.6 million, respectively. The counterparties to the Company's financial instruments are major financial institutions. The Company continually evaluates the creditworthiness of the counterparties and has never experienced, nor does it anticipate nonperformance by any of its counterparties. Note 18 Litigation On December 18, 1990, Judge Prentice H. Marshall of the United States District Court for the Northern District of Illinois entered judgment against the Company in favor of Sands, Taylor & Wood Co., holding that the use of the words "thirst aid" in advertising Gatorade thirst quencher infringed the Plaintiff's rights in the trademark THIRST-AID. On July 9, 1991, Judge Marshall entered a judgment of $42.6 million, composed of $31.4 million in principal, prejudgment interest of $10.6 million, and fees, expenses and costs of $0.6 million. The order enjoined use of the phrase "THIRST-AID" in connection with the advertising or sale of Gatorade thirst quencher in the United States. The Company appealed the judgment. On September 2, 1992, the Court of Appeals for the Seventh Circuit affirmed the finding of infringement, but found that the monetary award was an inequitable "windfall" to the Plaintiff, and it therefore remanded the case to the District Court. On June 7, 1993, Judge Marshall issued a judgment on remand of $26.5 million, composed of $20.7 million in principal, prejudgment interest of $5.4 million, and fees, expenses and costs of $0.4 million. The Company appealed this 56 judgment. On September 13, 1994, the Court of Appeals affirmed the lower court's award of a reasonable royalty and prejudgment interest, but again remanded the case to allow the District Court to explain the enhancement of the royalty award. On April 11, 1995, Judge Marshall affirmed his prior ruling and the Company filed another appeal. Management, with advice from outside legal counsel, has determined that the Court of Appeals' opinion appears to indicate a range of exposure between $18 million and $30 million. The Company recorded a provision of $29.0 million for this litigation in fiscal 1995. The Company is not a party to any other pending legal proceedings or environmental clean-up actions that it believes will have a material adverse effect on its financial position or results of operations. Note 19 Quarterly Financial Data (Unaudited)
Dollars in Millions (Except Per Share Data) First Second Third Fourth 1995 Quarter(a) Quarter Quarter(b) Quarter(c) Net sales $1,636.4 $1,507.9 $1,633.5 $1,587.4 Cost of goods sold 825.2 791.2 871.0 894.1 Gross profit $ 811.2 $ 716.7 $ 762.5 $ 693.3 Income before cumulative effect of accounting change $ 61.4 $ 34.4 $ 366.1 $ 344.2 Net income $ 57.3 $ 34.4 $ 366.1 $ 344.2 Per common share: Income before cumulative effect of accounting change $ 0.45 $ 0.25 $ 2.73 $ 2.57 Net income $ 0.42 $ 0.25 $ 2.73 $ 2.57 Cash dividends declared $ 0.285 $ 0.285 $ 0.285 $ 0.285 Market price range: High $ 42 1/2 $ 38 3/4 $ 36 1/2 $ 37 1/2 Low $35 3/16 $ 29 3/4 $ 30 1/4 $ 32 1/8 (a)Includes an $18.4 million pretax provision ($11.0 million after-tax or $.08 per share) for estimated litigation costs. First quarter per share data have been restated to reflect the fiscal 1995 two-for-one stock split-up. (b)Includes a $513.0 million pretax gain ($322.2 million after-tax or $2.41 per share) for the sale of the North American pet food business and a $4.9 million pretax gain ($2.8 million after-tax or $.02 per share) for the sale of the Dutch honey business. (c)Includes a $487.2 million pretax gain ($272.6 million after-tax or $2.04 per share) for the sale of the European pet food business; a $74.5 million pretax gain ($43.9 million after-tax or $.33 per share) for the sale of the Mexican chocolate business; a $91.2 million pretax gain ($53.1 million after-tax or $.40 per share) for the sale of the U.S. bean and chili businesses; a $76.5 million pretax charge ($46.1 million after-tax or $.35 per share) for cost-reduction and realignment activities; and an additional $10.6 million pretax provision ($6.2 million after-tax or $.05 per share) for estimated litigation costs. Dollars in Millions (Except Per Share Data) 1994 (a) First Second Third Fourth Quarter Quarter Quarter Quarter(b) Net sales $ 1,534.3 $1,353.9 $ 1,449.2 $ 1,617.6 Cost of goods sold 749.8 670.1 701.5 804.8 Gross profit $ 784.5 $ 683.8 $ 747.7 $ 812.8 Net income $ 91.4 $ 42.8 $ 73.8 $ 23.5 Per common share: Net income $ 0.66 $ 0.31 $ 0.54 $ 0.17 Cash dividends declared $ 0.265 $ 0.265 $ 0.265 $ .0265 Market price range: High $37 15/16 $ 38 1/8 $ 35 9/16 $ 41 Low $ 31 1/4 $33 1/16 $30 15/16 $ 31 (a) Per share data reflect the fiscal 1995 two-for-one stock split-up. (b)Includes a $118.4 million pretax restructuring charge ($72.8 million after- tax or $.55 per share) for workforce reductions, plant consolidations and product discontinuations and a $9.8 million pretax gain (or $.07 per share) for the sale of a business in Venezuela.
57 Report of Independent Public Accountants To the Shareholders of The Quaker Oats Company: We have audited the accompanying consolidated balance sheets of The Quaker Oats Company (a New Jersey corporation) and subsidiaries as of June 30, 1995, 1994 and 1993, and the related consolidated statements of income, common shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Quaker Oats Company and subsidiaries as of June 30, 1995, 1994 and 1993, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As indicated in Note 12, effective July 1, 1992, the Company changed their accounting for postretirement benefits other than pensions and effective July 1, 1994, the Company changed their accounting for postemployment benefits. As indicated in Note 16, effective July 1, 1992, the Company changed their accounting for income taxes. Chicago, Illinois, August 1, 1995 Report of Management Management is responsible for the preparation and integrity of the Company's financial statements. The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include some amounts that are based on management's estimates and judgment. To fulfill its responsibility, management's goal is to maintain strong systems of internal controls, supported by formal policies and procedures that are communicated throughout the Company. Management regularly evaluates its systems of internal controls with an eye toward improvement. In addition, during audits conducted by the independent accountants and the internal auditors, management regularly receives recommendations to strengthen or modify internal controls. This year, as a result of its major business portfolio and organizational changes, some of the Company's internal control systems did not operate as effectively as before the changes. While no material control weaknesses have been brought to management's attention, the Company is taking action to improve its internal control systems. Our independent public accountants, Arthur Andersen LLP, have audited the financial statements and have rendered an opinion as to the statements' fairness in all material respects. During the audit, they obtain an understanding of the Company's internal control systems and perform tests and other procedures to the extent required by generally accepted auditing standards. The Board of Directors pursues its oversight role with respect to the Company's financial statements through the Audit Committee, which is composed solely of non-management directors. The Audit Committee meets periodically with the independent public accountants, internal auditors and management to assure that all are properly discharging their responsibilities. The Audit Committee approves the scope of the annual audit and reviews the recommendations the independent public accountants have for improving internal accounting controls. The Board of Directors, on recommendation of the Audit Committee, engages the independent public accountants, subject to shareholder approval. Both Arthur Andersen LLP and the internal auditors have unrestricted access to the Audit Committee. 58 Additional 10-K Information Description of Property As of June 30, 1995, the Company operated 53 manufacturing plants in 18 states and 12 foreign countries and owned or leased distribution centers and sales offices in 22 states and 24 foreign countries. The number of locations utilized by each segment of the business was as follows:
Owned and Leased Owned and Leased Owned and Leased Mfg. Locations Distribution Centers Sales Offices Geographic Segment U.S. Foreign U.S. Foreign U.S. Foreign U.S. and Canadian Grocery Products 30 3 12 - 42 5 International Grocery Products - 20 - 20 - 45 Total 30 23 12 20 42 50
The Company owns a research and development laboratory in Barrington, Illinois. The corporate offices are maintained in leased space in downtown Chicago, Illinois. Management believes manufacturing, distribution and office space owned and leased are suitable and adequate for the business and productive capacity is appropriately utilized. Trademarks The Company and its subsidiaries own a number of trademarks and are not aware of any circumstances that could adversely affect the continued use of these trademarks. Among the most important of the domestic trademarks owned by the Company are Quaker, Cap'n Crunch, Quaker Toasted Oatmeal, Life, Quaker 100% Natural and Quaker Oatmeal Squares for breakfast cereals; Gatorade for thirst- quenching beverages; Snapple and Made From the Best Stuff on Earth for teas and juice drinks; Quaker and Quaker Chewy for grain-based snacks; Rice-A-Roni and Near East for value-added rice and grain products, Pasta Roni for value-added pasta; Nile Spice for variety meals-in-a-cup; Golden Grain and Mission for pasta; Quaker and Aunt Jemima for mixes, syrups and corn goods; Aunt Jemima and Celeste for frozen foods; Ardmore Farms for citrus and fruit juices; Continental, Maryland Club and Continental WB for coffee; and Mrs. Richardson's for ice cream toppings. Many of the grocery product trademarks owned by the Company in the United States are registered in foreign countries in which the Company does substantial business. Internationally, key trademarks owned include: Quaker, Cruesli, Honey Monster, Sugar Puffs and Scott's for breakfast cereals, Cuore for edible oils; Coqueiro for fish; Toddy and ToddYnho for chocolate beverages; and Adria for pasta products. U.S. and Canadian Grocery Products Description The Company is a major participant in the competitive packaged food and beverage industry in the United States and Canada and is a leading manufacturer of sports beverages, premium iced tea and single-serve juice drinks, hot cereals, pancake mixes, grain-based snacks, cornmeal, hominy grits and value-added rice products. In addition, the Company is the second-largest manufacturer of syrups and value-added pasta products and is among the five largest manufacturers of ready-to-eat cereals and dry pasta products. The Company competes with a significant number of both large and small companies on the basis of price, value, quality and convenience, among other attributes. The Company's grocery products are purchased by consumers through a wide range of food distributors. The Company utilizes both its own and broker sales forces and has distribution centers throughout the country, each of which carries an inventory of most of the Company's grocery products. In addition, the Company markets a line of over 400 items for the food service market, including Quaker hot and ready-to-eat cereals; Aunt Jemima frozen breakfast products and mixes; Continental coffee; Ardmore Farms single-serve frozen fruit juices; Gatorade thirst quencher; a specialty line of custom-blended dry baking mixes; ready-to-bake biscuits; Arnie's Bagelicious bagels and Petrofsky's bagels; Burry cookies and crackers; and Mrs. Richardson's syrups, ice cream toppings and condiments. International Grocery Products Description The Company is broadly diversified in the packaged food and beverage industry, both geographically and by product line. Competitive conditions vary by country. The Company manufacturers and markets its products in many countries throughout Europe, Latin America and the Asia/Pacific region. It is the leading hot cereals producer in many countries and has other leading market positions for products in a number of countries, including the following: the leading pasta manufacturer in Brazil; the leading producer of edible seed oils in Italy; the leading canned fish processor in Brazil; and the leading sports beverage distributor in Mexico, Korea, Italy, Argentina, Australia, Brazil, Venezuela, Colombia and the Philippine Islands. Raw Materials The raw materials used in manufacturing include oats, wheat, corn, rice, sweeteners, tea, orange and other juice concentrate, almonds, coffee beans, raisins, beef, chicken, corn oil, shortening and fish, as well as a variety of packaging materials. These products are purchased mainly in the open market. Supplies of all raw materials have been adequate and continuous. 59 Directors Members of the Board of Directors Frank C. Carlucci 1*,5,6 Chairman The Carlyle Group (Banking) Washington, D.C. Silas S. Cathcart 2*,5 Retired Chairman Illinois Tool Works (Diversified Products) Chicago, Illinois Kenneth I. Chenault 1,4,5,6 Vice Chairman American Express Company (Financial and Travel Services) New York, New York Judy C. Lewent 1,4,5,6 Senior Vice President and Chief Financial Officer Merck & Co., Inc. (Pharmaceuticals) Whitehouse Station, New Jersey Vernon R. Loucks, Jr. 2,3,5* Chairman and Chief Executive Officer Baxter International Inc. (Medical Care Products) Deerfield, Illinois Thomas C. MacAvoy 1,5,6 Paul M. Hammaker Professor of Business Administration Darden Graduate School of Business Administration University of Virginia Charlottesville, Virginia Philip A. Marineau 3 President and Chief Operating Officer Luther C. Mckinney 3 Senior Vice President Law and Corporate Affairs Gertrude G. Michelson 2,4,5,6* Federated Department Stores, Inc. (Retail Merchandising) New York, New York Walter J. Salmon 4,5 Stanley Roth, Sr. Professor of Retailing Harvard Business School Boston, Massachusetts William D. Smithburg 3,5 Chairman and Chief Executive Officer William L. Weiss 2,3,4*,5 Chairman Emeritus Ameritech Corporation (Telecommunications) Chicago, Illinois Board Committees 1 Audit 2 Compensation 3 Executive 4 Finance 5 Nominating (William D. Smithburg Ex Officio member) 6 Public Responsibility * Denotes Committee Chairman Officers Senior Officers William D. Smithburg + Age 57 Chairman and Chief Executive Officer Joined Quaker in 1966. Elected to present office in 1983. Philip A. Marineau + Age 48 President and Chief Operating Officer Joined Quaker in 1972. Elected to present office in 1993. Luther C. McKinney + Age 64 Senior Vice President Law and Corporate Affairs Joined Quaker in 1974. Elected to present office in 1994. Douglas J. Ralston + Age 50 Senior Vice President Human Resources Joined Quaker in 1981 Elected to present office in 1992. Robert S. Thomason + Age 50 Senior Vice President Finance and Chief Financial Officer Joined Quaker in 1971. Elected to present office in March 1995. Corporate Staff Officers Jeffrey A. Atkins + Age 46 Vice President Corporate Planning Joined Quaker in 1977. Elected to present office in April 1995. John H. Calhoun Vice President International Law Penelope C. Cate Vice President Government Relations Janet K. Cooper + Age 42 Vice President and Treasurer Joined Quaker in 1978. Elected to present office in 1992. Margaret M. Eichman Vice President Investor Relations and Corporate Communications Thomas L. Gettings + Age 38 Vice President and Corporate Controller Joined Quaker in 1987. Elected to present office in 1992. Mary M. Hoskins Assistant Treasurer R. Thomas Howell, Jr. + Age 53 Vice President General Corporate Counsel and Corporate Secretary Joined Quaker in 1971. Elected to present office in 1994. 60 John G. Jartz Vice President Business Development James G. LeGere Vice President Information Services Mart C. Matthews Vice President and Associate General Corporate Counsel Kenneth W. Murray Vice President Internal Auditing W. Stephen Perry + Age 53 Vice President Corporate Tax Joined Quaker in 1994. Elected to present office in 1994. Arthur R. Skantz Vice President Corporate Growth U.S. and Canadian Quaker Food Products Douglas W. Mills + Age 49 Executive Vice President Joined Quaker in 1969. Elected to present office in 1994. John A. Boynton + Age 41 Vice President and Chief Customer Officer Joined Quaker in 1981. Elected to present office in 1994. Polly B. Kawalek President - Snacks David L. Morton President and Chief Executive Officer The Quaker Oats Company of Canada Limited Russell A. Young + Age 47 Vice President Supply Chain Joined Quaker in 1971. Elected to present office in March 1995. Worldwide Beverages James F. Doyle + Age 43 Executive Vice President Joined Quaker in 1981. Elected to present office in 1994. Donald R. Uzzi President - Beverages, North America A.J. Brown President - Beverages, Europe Michael T. Tay President - Beverages, North Asia Bernardo Wolfson President - Beverages, Latin America John S. Breuer President - Beverages, South Asia Worldwide Quaker Food Service A. Stephen Diamond Vice President - President Paul V. Baron Vice President and Business Leader North American Food Service and In-Store Bake Dale W. Tremblay Vice President and Business Leader McDonald's Business Unit International Quaker Food Products Barbara R. Allen + Age 42 Executive Vice President Joined Quaker in 1977. Elected to present office in March 1995. Europe Franco Cianci President Italian Products George F. Sewell President Cereals, Europe Latin America Mark A. Shapiro Vice President - President, Latin American Quaker Food Products Pacific William C. Trotter Vice President - President Quaker Pacific + also Executive Officers as defined by Securities and Exchange Commission regulations. Such Executive Officers serve at the pleasure of the Board of Directors. All Executive Officers (except W. Stephen Perry, who joined the Company in January 1994 and was formerly a tax partner of Coopers & Lybrand) have been employed by The Quaker Oats Company in an executive capacity for five years or more. 61 Shareholder Information Dividend Reinvestment and Stock Purchase Plan Owners of Quaker Oats common stock may use the Company's Dividend Reinvestment and Stock Purchase Plan to purchase additional shares, commission-free, through automatic dividend reinvestment and/or optional cash investments. A booklet describing the Plan and enrollment procedures is available on request from the Harris Bank. Dividends Cash dividends on Quaker common stock have been paid for 90 consecutive years. Dividends are generally declared on a quarterly basis, with holders as of the record date being entitled to receive the cash dividend on the payable date. Shareholder Services Harris Trust and Savings Bank acts as transfer agent and registrar for the Company stock and maintains all primary shareholder records. Shareholders may obtain information relating to their share positions, dividends, stock transfer requirements, lost certificates, dividend reinvestment accounts and other related matters by telephoning the Shareholder Hotline toll-free at 1-800-344-1198. Form 10-K This Annual Report includes all financial statements required by Form 10-K. If you request a Form 10-K, you will receive the annual report, proxy statement, and the Form 10-K cover page, exhibit list and conformed signature page. Annual Meeting Shareholders are cordially invited to attend the Annual Meeting, which will be held at the Hotel Nikko Chicago, 320 North Dearborn Street, Chicago, Illinois on Wednesday, November 8, 1995, at 9:30 a.m. (CST). Investor Relations Security analysts, investment professionals, and shareholders should direct their business-related inquiries to: Investor Relations - Suite 27-7 or call (312) 222-7818 Media Relations Copies of press releases are available at no charge through PR Newswire's Company News On-Call fax service. 1-800-758-5804, extension 103689. Press and media related inquiries should be addressed to: Media Relations - Suite 27-6 or call (312) 222-7388 Consumer Affairs Inquiries regarding our products should be addressed to: Consumer Affairs The Quaker Oats Company P.O. Box 049003 Chicago, Illinois 60604-9003 or call 1-800-494-7843 64 Corporate Headquarters Mailing Address: Street Address: The Quaker Oats Quaker Tower Company 321 North Clark Street P.O. Box 049001 Chicago, Illinois 60610-4714 Chicago, Illinois (312) 222-7111 60604-9001 Transfer Agent, Harris Trust and Savings Bank, Shareholder Services Registrar and Dividend Division Disbursing Agent P.O. Box 755, 311 West Monroe - 14th Floor Chicago, Illinois 60690-0755 1-800-344-1198 Dividend Reinvestment Harris Trust and Savings Bank, Dividend Reinvestment and and Stock Purchase Plan Stock Purchase Plan P.O. Box 95894 Chicago, Illinois 60690-9938 1-800-344-1198 Independent Public Arthur Andersen LLP Accountants 33 West Monroe Chicago, Illinois 60603 (312) 580-0033 Shares Listed New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange The Stock Exchange, London The Quaker Oats Company was incorporated in 1901 under the laws of the state of New Jersey. Ticker Symbol: OAT 65 EX-21 20 EXHIBIT 21 State of Subsidiary Incorporation THE QUAKER OATS COMPANY ACTIVE DOMESTIC SUBSIDIARIES AS OF 7/1/95 State of Subsidiary Incorporation Ardmore Farms, Inc. Pennsylvania Arnie's Bagelicious Bagels, Inc. Nebraska Bob's Farms, Inc. Delaware Continental Coffee Products Company Delaware The Gatorade Company Delaware Gatorade Puerto Rico Company Delaware Golden Grain Company California Grocery International Holdings, Inc. Delaware Liqui-Dri Foods, Inc. Kentucky Mr. Natural, Inc. Delaware Q-Bear Company Delaware Q-Ketchikan Company Delaware QO Acquisition Corp. Delaware QO Coffee Holdings, Inc. Delaware Quaker Leasing Corp. Delaware Quaker Oats Asia, Inc. Delaware Quaker Oats Europe, Inc. Illinois Quaker Oats Foreign Sales Corporation Barbados Quaker Oats Holdings, Inc. Delaware Quaker Oats Music, Inc. Delaware Richardson Foods Corporation New York Rockford Farms, Inc. Delaware Snapple Beverage Corp. Delaware Snapple Caribbean Corp. Delaware Snapple Distributors of Orange County, Inc. Delaware Snapple Distribution Corp. Delaware Snapple Finance Corp. Delaware Snapple International Corp. Delaware Snapple-Tetley Tea Ventures Corp. Delaware Snapple-Tetley Tea Ventures, L.P. Delaware Snapple Worldwide Corp. Delaware Southwest Snapple Holdings Corp. Delaware Stokely-Van Camp, Inc. Indiana ACTIVE FOREIGN SUBSIDIARIES AS OF 7/1/95 Subsidiary Country Elaboradora Argentina de Cereales, S.A. Argentina Quaker Oats Australia Limited Australia The Gatorade Company of Australia Pty. Ltd. Australia EH (Holdings) Limited Bermuda QUIC Ltd. Bermuda Quaker Brasil Ltda. Brazil The Quaker Oats Company of Canada Limited Canada Beverages Gatorade (Chile) Ltda. Chile Productos Quaker, S.A. Colombia Snapple Beverage (Europe) Limited England Quaker Oats Limited England The Quaker Beverages GmbH Germany Quaker-Chiari & Forti S.p.A. Italy Quaker Oats Japan, Ltd. Japan Quaker Products (Malaysia) Sdn. Bhd. Malaysia Quaker de Mexico, S.A. de C.V. Mexico Snapple Beverages de Mexico, S.A. de C.V. Mexico Snapple Beverages Services de Mexico, S.A. de C.V. Mexico Subsidiary Country Quaker Oats B.V. The Netherlands Gatorade Portugal-Services de Marketing S.A. Portugal QO Puerto Rico, Inc. Puerto Rico Quaker Oats Iberia, S.A. Spain Nevex, C.A. Venezuela Productos Quaker, C.A. Venezuela DOMESTIC JOINT VENTURES Rhone Poulenc The Quaker Oats Company 50% Rhone Poulenc 50% FOREIGN JOINT VENTURES Standard Foods Singapore Pte. Ltd. The Quaker Oats Company 51% (holding company for Chinese company Standard Foods Taiwan 49% - - Suzhou Standard Foods Co.) Beverages Gatorade (Chile) Limitada Stokely-Van Camp, Inc. 99.9% The Quaker Oats Company 0.1% Shanghai Quaker Oats Beverages Co. Ltd. The Quaker Oats Company 80% Shanghai Bomy Foodstuffs Co. Ltd. 10% Chou Chin Industrial (H.K.) Ltd. 10% P.T. AdeS Alfindo Putrasetia The Quaker Oats Company 90% Indonesia Alfi Gunawan 10% (President/Director) EX-23 21 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated August 1, 1995, included in The Quaker Oats Company annual report to shareholders for the year ended June 30, 1995, into this form 10-K and into the Company's previously filed Registration Statement File Nos. 33-13980, 33-13981, 33-32970, 2-79503 and 33-33253. /s/ Arthur Andersen LLP Chicago, Illinois September 25, 1995 EX-27 22
5 1000000 3-MOS 6-MOS 9-MOS 12-MOS JUN-30-1995 JUN-30-1995 JUN-30-1995 JUN-30-1995 SEP-30-1994 DEC-31-1994 MAR-31-1995 JUN-30-1995 185 103 106 102 0 0 0 0 537 568 591 574 23 22 27 27 398 481 478 406 1326 1357 1400 1317 2158 2283 2195 1843 934 950 909 730 3133 5061 4964 4827 1348 2974 2496 1813 722 1026 1107 1103 420 840 840 840 0 0 0 0 100 100 100 100 (35) (470) (135) 208 3133 5061 4964 4827 1636 3144 4778 6365 1636 3144 4778 6365 825 1616 2487 3382 825 1616 2487 3382 0 0 0 0 2 4 6 11 18 44 92 119 102 165 751 1360 41 69 289 554 61 96 462 806 0 0 0 0 0 0 0 0 4 4 4 4 57 92 458 802 .84 .67 3.40 5.97 .82 .66 3.31 5.80
-----END PRIVACY-ENHANCED MESSAGE-----