-----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, LdFlmdewNZcvS0WtavsOcrZKZZE10oUPlw2oYdSYfmN2HM+I9K/lOduVzLQ+g4Fa g9S2jQG8nJEVUnDzrvw9pA== 0000081371-98-000006.txt : 19980506 0000081371-98-000006.hdr.sgml : 19980506 ACCESSION NUMBER: 0000081371-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER OATS CO CENTRAL INDEX KEY: 0000081371 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 361655315 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00012 FILM NUMBER: 98610828 BUSINESS ADDRESS: STREET 1: QUAKER TOWER STREET 2: PO BOX 049001 CITY: CHICAGO STATE: IL ZIP: 60604-9001 BUSINESS PHONE: 3122228503 MAIL ADDRESS: STREET 1: P.O. BOX 049001-STE 26-5 CITY: CHICAGO STATE: IL ZIP: 60604-9001 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 ___ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission file number 1-12 THE QUAKER OATS COMPANY (Exact name of registrant as specified in its charter) New Jersey 36-1655315 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Quaker Tower P.O. Box 049001 Chicago, Illinois 60604-9001 (Address of principal executive office) (Zip Code) (312) 222-7111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file for such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO ___ The number of shares of Common Stock, $5.00 par value, outstanding as of the close of business on March 31, 1998 was 138,555,449 THE QUAKER OATS COMPANY AND SUBSIDIARIES INDEX TO FORM 10-Q Page PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Statements of Income and Reinvested Earnings for the Three Months Ended March 31, 1998 and 1997 3 Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 5 Net Sales and Operating Income by Segment for the Three Months Ended March 31, 1998 and 1997 6 Notes to the Condensed Consolidated Financial Statements 7-11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 17 Item 6 - Exhibits and Reports on Form 8-K 17 SIGNATURES 18 EXHIBIT INDEX 19 2 THE QUAKER OATS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS (UNAUDITED) Three Months Ended Dollars in Millions (Except Per Share Data) March 31, 1998 1997 Net sales $ 1,092.3 $ 1,201.7 Cost of goods sold 552.2 627.7 Gross profit 540.1 574.0 Selling, general and administrative expenses 435.0 491.5 Restructuring charges and loss on divestiture 9.1 1,404.0 Interest expense 18.2 25.5 Interest income (2.2) (1.5) Foreign exchange loss - net 4.2 2.5 Income (loss) before income taxes 75.8 (1,348.0) Provision (benefit) for income taxes 28.8 (238.2) Net Income (Loss) 47.0 (1,109.8) Preferred dividends - net of tax 0.8 0.9 Net Income (Loss) Available for Common $ 46.2 $(1,110.7) Per Common Share: Net income (loss) $ 0.33 $ (8.15) Net income (loss) - assuming dilution $ 0.32 $ (8.15) Dividends declared $ 0.285 $ 0.285 Average Number of Common Shares Outstanding (in thousands) 138,625 136,305 Reinvested Earnings: Balance beginning of year $ 431.0 $ 1,521.3 Net income (loss) 47.0 (1,109.8) Dividends (40.0) (39.5) Balance end of period $ 438.0 $ 372.0 See accompanying notes to the condensed consolidated financial statements. 3 THE QUAKER OATS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, Dollars in Millions 1998 1997 Assets Current Assets: Cash and cash equivalents $ 187.9 $ 84.2 Marketable securities 103.3 -- Trade accounts receivable - net of allowances 326.4 305.7 Inventories: Finished goods 194.9 172.6 Grains and raw materials 63.5 59.0 Packaging materials and supplies 27.5 24.5 Total inventories 285.9 256.1 Other current assets 195.0 487.0 Total Current Assets 1,098.5 1,133.0 Property, plant and equipment 1,909.5 1,913.1 Less: accumulated depreciation 762.6 748.4 Property - net 1,146.9 1,164.7 Intangible assets - net of amortization 325.8 350.5 Other assets 51.5 48.8 Total Assets $ 2,622.7 $ 2,697.0 Liabilities and Shareholders' Equity Current Liabilities: Short-term debt $ 48.4 $ 61.0 Current portion of long-term debt 106.5 108.4 Trade accounts payable 209.7 191.3 Other current liabilities 563.9 585.0 Total Current Liabilities 928.5 945.7 Long-term debt 867.6 887.6 Other liabilities 569.6 578.9 Deferred income taxes 22.5 36.3 Preferred Stock, Series B, no par value, authorized 1,750,000 shares; issued 1,282,051 of $5.46 cumulative convertible shares (liquidating preference of $78 per share) 100.0 100.0 Deferred compensation (52.8) (57.2) Treasury Preferred Stock, at cost, 253,850 shares and 245,147 shares, respectively (23.4) (22.3) Common Shareholders' Equity: Common stock, $5 par value, authorized 400 million shares; issued 167,978,792 shares 840.0 840.0 Additional paid-in capital 45.8 29.0 Reinvested earnings 438.0 431.0 Cumulative translation adjustment (74.0) (82.4) Deferred compensation (89.8) (91.0) Treasury common stock, at cost, 29,423,343 shares and 29,165,692 shares, respectively (949.3) (898.6) Total Common Shareholders' Equity 210.7 228.0 Total Liabilities and Shareholders' Equity $ 2,622.7 $ 2,697.0 See accompanying notes to the condensed consolidated financial statements. 4 THE QUAKER OATS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended Dollars in Millions March 31, 1998 1997 Cash Flows from Operating Activities: Net income (loss) $ 47.0 $(1,109.8) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 33.5 51.4 Deferred income taxes (3.1) (4.2) Loss on divestiture - net of tax benefit of $260.0 -- 1,144.0 Restructuring charges 9.1 -- (Gain) loss on disposition of property, plant and equipment (1.1) 9.2 Increase in trade accounts receivable (22.8) (60.8) Increase in inventories (34.6) (45.9) Decrease (increase) in other current assets 15.2 (3.2) Increase in trade accounts payable 19.2 54.2 Decrease in other current liabilities (21.8) (19.4) Change in deferred compensation 5.6 4.0 Other items (11.8) 8.7 Net Cash Provided by Operating Activities 34.4 28.2 Cash Flows from Investing Activities: Capital gains tax recovery 240.0 -- Business divestitures 73.2 -- Purchase of marketable securities (103.3) -- Additions to property, plant and equipment (34.9) (40.9) Proceeds on sale of property, plant and equipment 3.2 -- Net Cash Provided By (Used in) Investing Activities 178.2 (40.9) Cash Flows from Financing Activities: Cash dividends (40.0) (39.5) Change in short-term debt (12.5) 44.5 Proceeds from long-term debt 0.5 2.4 Reduction of long-term debt (22.7) (4.4) Issuance of common treasury stock 53.4 8.1 Repurchases of common stock (87.8) -- Repurchases of preferred stock (1.1) (1.3) Net Cash (Used in) Provided by Financing Activities (110.2) 9.8 Effect of Exchange Rate Changes on Cash and Cash Equivalents 1.3 (2.5) Net Increase (Decrease) in Cash and Cash Equivalents 103.7 (5.4) Cash and Cash Equivalents - Beginning of Year 84.2 110.5 Cash and Cash Equivalents - End of Period $187.9 $ 105.1 See accompanying notes to the condensed consolidated financial statements. 5 THE QUAKER OATS COMPANY AND SUBSIDIARIES NET SALES AND OPERATING INCOME BY SEGMENT (UNAUDITED) Net Sales Operating Income (Loss)(a) Three Months Three Months Dollars in Millions Ended March 31, Ended March 31, 1998 1997 1998 1997 Foods (b) U.S. and Canadian $ 636.2 $ 642.7 $ 82.4 $ 77.9 International 161.3 155.2 2.7 0.8 Total Foods $ 797.5 $ 797.9 $ 85.1 $ 78.7 Beverages (b) U.S. and Canadian $ 205.7 $ 213.6 $ 13.7 $ 34.7 International 89.1 71.0 5.0 (0.3) Total Beverages $ 294.8 $ 284.6 $ 18.7 $ 34.4 Divested Businesses (c) -- $ 119.2 -- $ (1,424.8) Total Sales/Operating Income (Loss) $ 1,092.3 $ 1,201.7 $ 103.8 $ (1,311.7) Less: General corporate expenses 7.8 9.8 Interest expense - net 16.0 24.0 Foreign exchange loss - net 4.2 2.5 Income (loss) before income taxes $ 75.8 $ (1,348.0) (a) Operating income (loss) includes certain allocations of overhead expenses. (b) 1998 operating income for the Foods and Beverages businesses includes pretax restructuring charges of $9.1 million. U.S. and Canadian Foods and Beverages operating income each includes $3.3 million of these charges. International Foods and Beverages operating income includes $1.3 million and $1.2 million, respectively, of these charges. (c) 1997 includes the sales and operating results of the Snapple beverages and certain food service businesses that were divested in 1997. Operating loss for the three months ended March 31, 1997, includes a noncash, pretax impairment loss of $1.40 billion related to the sale of the Snapple beverages business. See Note 3 for further discussion. 6 THE QUAKER OATS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 Note 1 - Basis of Presentation The condensed consolidated financial statements include The Quaker Oats Company and its subsidiaries (the Company). The condensed consolidated statements of income and reinvested earnings for the three months ended March 31, 1998 and 1997, the condensed consolidated balance sheet as of March 31, 1998, and the condensed consolidated statements of cash flows for the three months ended March 31, 1998 and 1997, have been prepared by the Company without audit. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows as of March 31, 1998, and for all periods presented. All adjustments made have been of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's report to shareholders for the year ended December 31, 1997. Certain previously reported amounts have been reclassified to conform to the current presentation. Note 2 - Litigation The Company is a party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to the Company's past acquisition activity and other issues. Certain of these actions seek damages in large amounts. While the results of litigation cannot be predicted with certainty, management believes that the final outcome of such litigation will not have a material adverse effect on the Company's consolidated financial position or results of operations. Changes in assumptions, as well as actual experience, could cause the estimates made by management to change. Note 3 - Divestitures Cash proceeds of $73.2 million from the December 1997 sale of certain food service businesses were received in January 1998. In March 1998, the Company received $240.0 million from the recovery of income taxes paid on previous capital gains related to divestitures. Cash provided by investing activities for the three months ended March 31, 1998 (the current year) includes these amounts. The Company reached a definitive agreement to sell the Snapple beverages business on March 27, 1997, and, accordingly, classified the business as an asset held for sale. On that date, the Company recorded a $1.40 billion noncash impairment loss to reduce the carrying value of Snapple net assets to fair market value. On May 22, 1997, the Company completed the sale of 100 percent of its shares of Snapple Beverage Corp. to Triarc Companies, Inc. for $300.0 million, and realized a loss on sale of $10.6 million. 7 Note 4 - Restructuring Charges During the current year, the Company recorded pretax restructuring charges of $9.1 million related to the organizational changes announced on March 12, 1998. The changes included removing a layer of executive management and resulted in the elimination of approximately 20 positions. The restructuring charges are comprised of severance benefits and are reflected in the operating results of the business segments as follows: U.S. and Canadian Foods $3.3 million, U.S. and Canadian Beverages $3.3 million, International Foods $1.3 million and International Beverages $1.2 million. Cash savings from these actions will begin in 1998 and are estimated to be about $6.5 million annually. Note 5 - Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 6 - Marketable Securities In January 1998, the Company purchased $103.3 million of marketable securities. The marketable securities are available for sale and consist of investments in a mutual fund that holds U.S. Treasury instruments with maturities of less than twelve months. At March 31, 1998, the book value of the Company's investment in marketable securities approximated fair value. Note 7 - Current and Pending Accounting Changes In July 1997, the Financial Accounting Standards Board (the FASB) issued Statement #130, "Reporting Comprehensive Income." This Statement establishes standards for reporting comprehensive income in financial statements. The Company adopted Statement #130 in January 1998 and has elected to disclose comprehensive income in the notes to the condensed consolidated financial statements. See Note 8 for further discussion. In July 1997, the FASB issued Statement #131, "Disclosures about Segments of an Enterprise and Related Information." This Statement expands certain reporting and disclosure requirements for segments from current standards. In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt these Statements until December 1998 and does not expect the adoption of these standards to result in material changes to previously reported amounts. In January 1998, Statement of Position (SOP) #98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," was issued. This SOP provides guidance on the accounting for computer software costs. In April 1998, SOP #98-5, "Reporting on the 8 Costs of Start-Up Activities," was issued. This SOP provides guidance on accounting for the cost of start-up activities. The Company is not required to adopt these Statements until January 1999 and does not expect the adoption of these standards to result in material changes to previously reported amounts or disclosures. Note 8 - Comprehensive Income (Loss) Total comprehensive income (loss) for the three months ended March 31, 1998 and 1997, was $55.4 million and $(1,113.2) million, respectively. Total comprehensive income (loss) for the Company includes net income (loss) and foreign currency translation adjustments. Note 9 - Derivative Financial and Commodity Instruments The Company actively monitors its exposure to commodity price, foreign currency exchange rate and interest rate risks and uses derivative financial and commodity instruments to manage the impact of these risks. The Company uses derivatives only for purposes of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the commodity price, exchange rate or interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. Complex instruments involving leverage or multipliers are not used. Management believes that its use of these instruments to manage risk is in the Company's best interest. Instruments used as hedges must be effective at reducing the risks associated with the underlying exposure and must be designated as a hedge at the inception of the contract. Accordingly, changes in the market value of the instruments must have a high degree of inverse correlation with changes in market values or cash flows of the underlying hedged item. Summarized below are the specific accounting policies by market risk category. Commodity Price Risk The Company uses commodity futures and options to manage price exposures on commodity inventories or anticipated purchases of commodities. The deferral method is used to account for those instruments which effectively hedge the Company's price exposures. For hedges of anticipated transactions, the significant characteristics and terms of the anticipated transaction must be identified, and the transaction must be probable of occurring to qualify for deferral method accounting. Under the deferral method, gains and losses on derivative instruments are deferred in the condensed consolidated balance sheets as a component of other current assets (if a loss) or other current liabilities (if a gain) until the underlying inventory being hedged is sold. As the hedged inventory is sold, the deferred gains and losses are recognized in the condensed consolidated statements of income as a component of cost of goods sold. Derivative instruments that do not meet the above criteria required for deferral treatment are accounted for under the fair value method with gains and losses recognized currently in the condensed consolidated statements of income as a component of cost of goods sold. Foreign Currency Exchange Rate Risk The Company uses forward contracts, purchased options, and currency swap agreements to manage foreign currency exchange rate risk related to projected operating income from foreign operations and net investments in foreign subsidiaries. The fair value method is used to 9 account for these instruments. Under the fair value method, the instruments are carried at fair value on the condensed consolidated balance sheets as a component of other current assets (deferred charges) or other current liabilities (deferred revenue). Changes in the fair value of derivative instruments which are used to manage exchange rate risk in foreign-currency denominated operating income and net investments in highly inflationary economies are recognized in the condensed consolidated statements of income as foreign exchange loss or gain. Changes in the fair value of such instruments used to manage exchange rate risk on net investments in economies that are not highly inflationary are recognized in the condensed consolidated balance sheets as a component of the cumulative translation adjustment in common shareholders' equity and are included in comprehensive income. To the extent an instrument is no longer effective as a hedge of a net investment due to a change in the underlying exposure, gains and losses are recognized currently in the condensed consolidated statements of income as foreign exchange loss or gain. Interest Rate Risk The Company has used interest rate swap agreements to reduce its exposure to changes in interest rates and to balance the mix of its fixed and floating rate debt. Currently, there are no interest swap agreements outstanding. The settlement costs of terminated swap agreements are reported in the condensed consolidated balance sheets as a component of other assets and are being amortized over the life of the original swap agreements. The amortization of the settlement amounts is reported in the condensed consolidated statements of income as a component of interest expense. Note 10 - Share Repurchases During the current year, the Company repurchased 1.8 million shares of its outstanding common stock for $99.5 million under the 10 million share repurchase program announced in August 1993. On March 12, 1998, the Company announced a plan to repurchase up to $1 billion in shares of its outstanding common stock. 10 Note 11 - Earnings Per Share Reconciliations of basic earnings per share (EPS) to diluted EPS were as follows: Dollars in Millions Three Months Ended March 31, (Except Per Share Data) 1998 1997 Income Shares Income Shares Net income (loss) $ 47.0 $(1,109.8) Less: Preferred dividends 0.8 0.9 Net income (loss) available for common $ 46.2 138,625 $(1,110.7) 136,305 Net income (loss) per common share $ 0.33 $ (8.15) Net income (loss) available for common $ 46.2 138,625 $(1,110.7) 136,305 Effect of dilutive securities: Stock options -- 3,660 -- -- Non-vested awards -- 96 -- -- ESOP Convertible Preferred Stock 0.7 2,229 -- -- $ 46.9 144,610 $(1,110.7) 136,305 Net income (loss) per common share - assuming dilution $ 0.32 $ (8.15) The increase in common shares outstanding at March 31, 1998, compared to March 31, 1997, reflects the exercise of a significant number of employee stock options, partly offset by share repurchases. As of March 31, 1998 and 1997, certain stock options were excluded from the computation of diluted EPS because the exercise prices were higher than the average market price. As the Company incurred a net loss for the three months ended March 31, 1997, there were no adjustments for potentially dilutive securities as the adjustments would have been antidilutive. Adjustments to income and shares for such potentially dilutive securities in the three months ended March 31, 1997, had the Company earned net income, would have resulted in a $0.7 million increase to net income available for common and an increase of 4.0 million shares. Historical adjustments for potentially dilutive securities are not necessarily indicative of future trends. 11 THE QUAKER OATS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 1998 Compared with Three Months Ended March 31, 1997 Consolidated Operating Results The following tables summarize the net sales and operating results of the Company for the three months ended March 31, 1998 (current year) and March 31, 1997 (prior year):
NET SALES for the Three Months Ended March 31, Dollars in Millions 1998 1997 U.S. and U.S. and Canadian International Total Canadian International Total Foods $ 636.2 $ 161.3 $ 797.5 $ 642.7 $ 155.2 $ 797.9 Beverages 205.7 89.1 294.8 213.6 71.0 284.6 Ongoing Businesses 841.9 250.4 1,092.3 856.3 226.2 1,082.5 Divested Businesses -- -- -- 114.9 4.3 119.2 Total Company $ 841.9 $ 250.4 $1,092.3 $ 971.2 $ 230.5 $1,201.7 OPERATING INCOME (LOSS) for the Three Months Ended March 31, Dollars in Millions 1998 1997 U.S. and U.S. and Canadian International Total Canadian International Total Foods $ 82.4 $ 2.7 $ 85.1 $ 77.9 $ 0.8 $ 78.7 Beverages 13.7 5.0 18.7 34.7 (0.3) 34.4 Ongoing Businesses 96.1 7.7 103.8 112.6 0.5 113.1 Loss on divestiture -- -- -- (1,404.0) -- (1,404.0) Divested Businesses -- -- -- (18.8) (2.0) (20.8) -- -- -- (1,422.8) (2.0) (1,424.8) Total Company $ 96.1 $ 7.7 $ 103.8 $(1,310.2) $ (1.5) $(1,311.7) Note: Operating results include certain allocations of overhead expenses. "Foods": includes all food lines as well as the food service business. "Beverages": includes Gatorade thirst quencher sports beverages. "Ongoing Businesses": includes the net sales and operating results of all company businesses not reported as Divested Businesses (see below). "Loss on divestiture": represents the noncash, pretax impairment loss related to the sale of the Snapple beverages business. "Divested Businesses": 1997 includes prior year net sales and operating income (through the divestiture date) for the Snapple beverages business (May 1997) and certain food service businesses (December 1997).
12 Consolidated net sales decreased 9 percent primarily due to the absence of divested businesses in the current year. Excluding divested businesses, sales increased 1 percent from the prior year. Price changes did not significantly affect the comparison of current and prior year net sales. Consolidated gross profit margin was 49.5 percent in the current year compared to 47.8 percent in the prior year. The gross profit margin improvement reflects the divestiture of the lower-margin Snapple beverages business in May 1997. Selling, general and administrative (SG&A) expenses decreased $56.5 million, or 12 percent, primarily due to the absence of divested businesses. For ongoing businesses, SG&A expenses increased $8.8 million, or 2 percent. Total Company advertising and merchandising (A&M) expenses were 25.8 percent of sales during the current year, up from 25.4 percent in the prior year. On March 12, 1998, the Company announced organizational changes designed to capitalize on its competitive strengths in marketing, selling and manufacturing and to facilitate the sharing of best practices across its businesses. The changes included removing a layer of executive management which resulted in the elimination of approximately 20 positions and restructuring charges of $9.1 million for severance benefits. These restructuring charges are reflected in the operating results of the business segments as follows: U.S. and Canadian Foods $3.3 million, U.S. and Canadian Beverages $3.3 million, International Foods $1.3 million and International Beverages $1.2 million. Cash savings from these actions will begin in 1998 and are estimated to be about $6.5 million annually. The Company expects organizational alignment activities to continue during the current year and to total approximately $15 million to $25 million in restructuring charges. Additionally, the Company will continue to pursue other cost-reduction activities, some of which could result in future charges. Consolidated operating income was $103.8 million in the current year compared to a loss of $1.31 billion in the prior year which included a $1.40 billion noncash, pretax impairment loss related to the sale of the Snapple beverages business. Excluding the current year restructuring charges and operating results from divested businesses in 1997, operating income was $112.9 million compared to $113.1 million in the prior year. Net financing costs (net interest expense and foreign exchange losses) decreased $6.3 million in the current year, due to lower interest expense. Debt levels declined over $500 million from a year ago, as divestiture proceeds and cash flow from operations were used to pay down debt. Excluding the impact of restructuring charges and the prior year impairment loss, the effective tax rate in the current year was 38.2 percent versus 39.0 percent in the prior year. The decrease was primarily due to the absence of non-deductible amortization expense related to Snapple intangibles. 13 Industry Segment Operating Results Foods - U.S. and Canadian sales decreased 1 percent while volume was flat. Sales increases in flavored rice and pasta and snacks were offset by sales declines in hot cereals, partly driven by unusually mild winter weather. While ready-to-eat cereals sales decreased slightly, volumes were up 5 percent reflecting the continued growth of bagged cereals. Excluding current year restructuring charges of $3.3 million, U.S. and Canadian operating income increased 10 percent from the prior year as improved gross margins, reduced overheads and lower marketing costs offset the impact of the sales decline. Lower A&M expenses reflect reduced spending on hot cereals compared to the prior year. International sales and volume increased 4 percent, driven by 9 percent sales growth in Latin America, reflecting increases in the canned fish and chocolate beverage businesses, partly offset by declines in Europe and Asia/Pacific Foods. Excluding current year restructuring charges of $1.3 million, International Foods operating income increased $3.2 million reflecting profitability growth in the Latin American and European businesses. Beverages - U.S. and Canadian sales and volume declined 4 percent and 1 percent, respectively. Cool, wet weather in key West Coast and Southeastern markets contributed to the decline in the United States compared to the prior year. Prior year sales increased 15 percent, reflecting incremental sales from a new product, Gatorade Frost. Excluding current year restructuring charges of $3.3 million, operating income was $17.0 million, compared to $34.7 million in the prior year. The decrease in operating income was due to: a 15 percent increase in marketing costs, including spending for a new advertising campaign; the absorption of overhead costs previously allocated to the Snapple beverages business; and the sales decline. International sales increased 25 percent, primarily due to significant sales and volume gains in Latin America. Latin American sales increased 31 percent, reflecting strong execution of go-to- market initiatives, including improved cold-channel distribution. Sales in Europe increased 15 percent and sales in the Asia/Pacific region were nearly flat. Excluding current year restructuring charges of $1.2 million, operating income was $6.2 million compared to a loss of $0.3 million in the prior year. Operating income improved in the Latin American and European businesses, while underwriting was reduced in the Asia/Pacific business. Liquidity and Capital Resources Net cash provided by operating activities was $34.4 million, an increase of $6.2 million from the prior year, reflecting improved operating profitability. Capital expenditures for the current and prior year were $34.9 million and $40.9 million, respectively. The rate of capital expenditures is expected to increase during the remainder of the current year as the Company continues its expansion of production capacity for U.S. and International Beverages and grain- based products in the United States. The Company expects that capital expenditures and cash dividends for the remainder of the year will be financed through cash flow from operating activities and liquidation of the investments in marketable securities. 14 Cash provided by investing activities includes the $240.0 million recovery of income taxes paid on previous capital gains related to divestitures, and cash proceeds of $73.2 million from the December 1997 sale of certain food service businesses. These cash flows were partly offset by the Company's purchase of $103.3 million of marketable securities. Financing activities used cash of $110.2 million in the current year to pay down debt and to repurchase shares. Financing activities provided cash of $9.8 million in the prior year. During the current year, the Company repurchased 1.8 million shares of its outstanding common stock for $99.5 million under the 10 million share repurchase program announced in August 1993. On March 12, 1998, the Company announced a plan to repurchase up to $1 billion in shares of its outstanding common stock. During the current year, over 1.5 million of employee stock options were exercised which provided cash of $53.4 million. Short-term and long-term debt (total debt) as of March 31, 1998 was $1.02 billion, a decrease of $34.5 million from December 31, 1997. In March 1998, the Fitch rating agency upgraded Quaker's long-term debt rating from BBB to BBB+. The improved debt rating reflects the significant reduction in debt levels compared to the prior year. Other debt and commercial paper ratings were unchanged. Derivative Financial and Commodity Instruments The Company actively monitors its exposure to commodity price, foreign currency exchange rate and interest rate risks and uses derivative financial and commodity instruments to manage the impact of these risks. The Company uses derivatives only for purposes of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the commodity price, exchange rate or interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. Complex instruments involving leverage or multipliers are not used. Management believes that its use of these instruments to manage risk is in the Company's best interest. The Company has estimated its market risk exposures using sensitivity analyses. Market risk exposure has been defined as the change in fair value of a derivative commodity or financial instrument assuming a hypothetical 10 percent adverse change in market prices or rates. Fair value was determined using quoted market prices, if available. The results of the sensitivity analyses as of March 31, 1998 did not differ materially from the amounts reported as of December 31, 1997. Actual changes in market prices or rates may differ from hypothetical changes. Current and Pending Accounting Changes and Other Matters In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income." This Statement establishes standards for reporting comprehensive income in financial statements. The Company adopted Statement #130 in January 1998 and has elected to disclose comprehensive income, which for the Company includes net income and foreign currency translation adjustments, in the notes to the condensed consolidated financial statements. See Note 8 for further discussion. 15 In July 1997, the FASB issued Statement #131, "Disclosures about Segments of an Enterprise and Related Information." This Statement expands certain reporting and disclosure requirements for segments from current standards. In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt these Statements until December 1998 and does not expect the adoption of these standards to result in material changes to previously reported amounts. In January 1998, Statement of Position (SOP) #98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," was issued. This SOP provides guidance on the accounting for computer software costs. In April 1998, SOP #98-5, "Reporting on the Costs of Start-Up Activities," was issued. This SOP provides guidance on accounting for the cost of start-up activities. The Company is not required to adopt these Statements until January 1999 and does not expect the adoption of these standards to result in material changes to previously reported amounts or disclosures. The Company uses software and other related technologies throughout its business that will be affected by the date change in the Year 2000. With senior management accountability and corporate staff guidance, the affected operating units are in varying stages of assessment and implementation of a plan to address the Company's Year 2000 issues. Overall, the Company has targeted Year 2000 compliance primarily by the end of 1998, with certain operating units targeting compliance by no later than mid-1999. While the Company's plans are underway, and the Company does not anticipate such, the consequences of non-compliance by the Company, its customers or its suppliers, could have a material adverse impact on the Company's operations. The Company will continue to incur expenses related to these efforts; however, such expenses are not expected to have a material impact on the Company's results of operations. Cautionary Statement on Forward-Looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities and Exchange Act of 1934, are made throughout this Management's Discussion and Analysis. The Company's results may differ materially from those in the forward-looking statements. Forward-looking statements are based on management's current views and assumptions, and involve risks and uncertainties that could significantly affect expected results. For example, operating results may be affected by external factors such as: actions of competitors; changes in laws and regulations, including changes in governmental interpretations of regulations and changes in accounting standards; customer demand; effectiveness of spending or programs; fluctuations in the cost and availability of supply chain resources; and foreign economic conditions, including currency rate fluctuations. The Company continues to review its business strategies, including strategies related to its business portfolio, and may change its priorities, which could result in future charges. 16 PART II - OTHER INFORMATION Item 1 Legal Proceedings Note 2 in Part I is incorporated by reference herein. Item 6 Exhibits and Reports on Form 8-K Item 6(a) See Exhibit Index. All other items in Part II are either inapplicable to the Company during the quarter ended March 31, 1998, the answer is negative or a response has been previously reported and an additional report of the information need not be made, pursuant to the Instructions to Part II. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Quaker Oats Company (Registrant) Date May 1, 1998 /s/ Robert S. Thomason Robert S. Thomason Senior Vice President - Finance and Chief Financial Officer Date May 1, 1998 /s/ Thomas L. Gettings Thomas L. Gettings Vice President and Corporate Controller 18 EXHIBIT INDEX Exhibit Paper (P) or Number Description Electronic (E) 10(a) Agreement Upon Separation of Employment with Barbara R. Allen, effective as of April 1, 1998 E 10(b) Agreement Upon Separation of Employment with James F. Doyle, effective as of April 1, 1998 E 10(c) Agreement Upon Separation of Employment with Douglas W. Mills, effective as of April 1, 1998 E 10(d) Agreement Upon Separation of Employment with Douglas J. Ralston, effective as of April 1, 1998 E 27 Financial Data Schedule E 19 EX-27 2
5 1,000,000 3-MOS DEC-31-1998 MAR-31-1998 188 103 351 25 286 1099 1910 763 2623 929 868 0 100 840 (706) 2623 1092 1092 552 552 0 1 18 76 29 47 0 0 0 47 .33 .32
EX-10.1 3 Exhibit 10(a) AGREEMENT UPON SEPARATION OF EMPLOYMENT This Agreement Upon Separation Of Employment ("Agreement") is made and entered into by and between Barbara R. Allen, her successors, heirs, administrators, executors, personal representatives and assigns ("Allen") and The Quaker Oats Company, its officers, directors, shareholders, employees, agents, assigns, subsidiaries, divisions, parents, affiliates and successors ("Quaker"), collectively "the parties." The Agreement shall become effective seven (7) days after it is executed by Allen. 1. Economic Consideration to Allen Upon becoming effective, this Agreement shall satisfy the Quaker Officers Severance Program's (the "Program") prerequisites that in order to qualify for Program benefits, an officer must execute a valid waiver and release of all potential claims and must enter into a non-competition agreement. In addition, Allen shall receive the following consideration, to which she would not be entitled in the absence of this Agreement: A. Allen's active employment with Quaker is terminating on March 31, 1998. After severance payments under the Program have expired, and subject to the provisions in Paragraph 5, Quaker shall pay Allen an amount equal to one year of Program payments (i.e., final salary plus average bonus). This sum shall be paid in twenty four (24) equal semi-monthly installments commencing as soon as payments to her under the Program expire and terminating on March 31, 2000. Payments under this paragraph 1(A) are consideration for the covenants in paragraph 5, not for anything else. B. While Allen is scheduled to receive payments under paragraph 1(A) (without regard to interruption of such payments pursuant to paragraph 5), Quaker shall provide her with the same insurance coverage as is provided under the Program. This benefit is part of the consideration for the Waiver and Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4. 2. Termination Of Employment Allen understands and agrees that her active employment relationship with Quaker, its parent companies, affiliates and successors, will be permanently and irrevocably severed as of March 31, 1998. Allen agrees she shall not apply or otherwise seek reinstatement or reemployment by Quaker at any time, and that Quaker has no obligation, contractual or otherwise, to rehire, reemploy or recall her in the future. Allen further stipulates that this agreement is sufficient cause for Quaker to deny any request for rescission, rehire, reemployment or recall. Allen agrees that prior to the effective date of her termination from active employment, she will return all Quaker property, including but not limited to keys, office pass, credit cards, computers, office equipment, sales records and data; provided, Quaker has agreed that Allen may retain her home computer and fax machine, and the furniture in her home dedicated to supporting those pieces of equipment, as set forth in a letter signed by Douglas Ralston and dated March 19, 1998. Allen further agrees that within sixty (60) days after her termination date, she will submit all outstanding expenses and clear all advances and her personal advance account, if any. 3. Waiver & Release A. Allen waives, releases and discharges Quaker from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs and participation in a class action lawsuit, whether known or unknown, fixed or contingent, that she may have or claim to have against Quaker as of the date this Agreement becomes effective. Allen further covenants not to file a lawsuit or participate in a class action lawsuit to assert such claims. Without limitation, Allen specifically waives all claims for back pay, future pay or any other form of compensation or income, except as provided below. This waiver includes but is not limited to claims arising out of or in any way related to Allen's employment or termination of employment with Quaker, including age discrimination claims under the Age Discrimination In Employment Act (as amended), discrimination claims under Title VII of the Civil Rights Act of 1964 (as amended) or the Americans with Disabilities Act, claims for breach of contract, and any other statutory or common law cause of action under state, federal or local law. However, Allen does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. In addition, she does not waive any rights she may have as an employee on inactive status and/or as a former employee, as the case may be, under this Agreement or any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the Program, the Long Term Incentive Plan of 1990, etc.), nor does she waive her right to payment for unused vacation, if any, pursuant to Quaker's vacation policy. Notwithstanding anything to the contrary in Paragraph 8 of this Agreement, such benefits shall continue to be governed by the ERISA plans, contracts and/or Quaker policies that exist independent of this Agreement. B. Quaker waives, releases and discharges Allen from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs, that it may have or claim to have against Allen as of the date this Agreement becomes effective; provided, this waiver, release and discharge only apply to claims as to which Quaker's senior officers or its Board of Directors were aware, on or before the effective date of this Agreement, of all material facts necessary to establish Allen's liability; and further provided, Quaker does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. C. The parties stipulate that nothing contained in this Agreement shall be construed as an admission by either of them of any liability, wrongdoing or unlawful conduct. It is understood that both Quaker and Allen deny any liability, wrongdoing or unlawful conduct, and each is providing consideration for this waiver and release solely in order to resolve any potential disputes between them amicably and to avoid the expense of potential litigation. 4. Miscellaneous agreements The covenants and agreements set forth in this paragraph shall remain in effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of this Agreement, so a material breach of either of them by Allen would entitle Quaker, at its discretion, to rescind this Agreement, in addition to any other legal or equitable remedies it might have for breach: A. Allen shall provide accurate information or testimony or both in connection with any legal matter if so requested by Quaker. She shall make herself available upon request to provide such information and/or testimony, in a formal and/or an informal setting in accordance with Quaker's request, subject to reasonable accommodation of her schedule and reimbursement of reasonable expenses, including reasonable and necessary attorney fees (if independent legal counsel is reasonably necessary). B. Allen shall cooperate with media requests for interviews regarding her termination and/or Quaker, unless directed otherwise by Quaker in a particular instance. She shall not disparage The Quaker Oats Company, its products, or any of its directors, officers or employees in these interviews, nor in any other private or public setting; provided, if Allen is compelled to provide testimony under oath, she shall testify truthfully without regard to whether her testimony is favorable or unfavorable to Quaker, and such testimony shall be protected against claims under this Agreement by the same privilege that would apply to a defamation claim. C. The Quaker Oats Company, and any officer or director acting on its behalf, shall answer all reference inquiries directed to The Quaker Oats Company regarding Allen by stating only her positions held, compensation and dates of employment. No additional information shall be provided unless authorized in advance, in writing, by Allen. Allen agrees to direct all requests for references from Quaker to the highest ranking Human Resources officer within Quaker. 5. Prohibited Conduct A. Allen covenants and agrees that during the periods specified below, she shall not engage in any of the following activities anywhere in the world: i. Non-competition. Allen shall not undertake any employment, consulting position or ownership interest which involves her Participation in the management of a business entity that markets, sells, distributes, licenses or produces Covered Products, unless that business entity's sole involvement with Covered Products is that it makes retail sales or consumes Covered Products, without competing in any way against Quaker. This covenant shall remain in effect through March 31, 2000. a. "Participation" shall be construed broadly to include, without limitation: (1) holding a position in which she directly manages such a business entity; (2) holding a position in which anyone else who directly manages such a business entity is in Allen's reporting chain or chain-of- command (regardless of the number of reporting levels between them); (3) providing input, advice, guidance, or suggestions regarding the management of such a business entity to anyone responsible therefor; (4) providing a testimonial on behalf of such an operation or the product it produces; or (5) doing anything else which falls within a common sense definition of the term "participation," as used in the present context. b. "Covered Products" mean any product which falls into one or more of the following categories, so long as Quaker is producing, marketing, distributing, selling or licensing such product anywhere in the world: sports beverages; thirst quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain-based snacks; value-added rice products; pancake syrup; value-added pasta products; dry pasta products; and items Quaker produces for the food service market. ii. Raiding Employees. Allen shall not in any way, directly or indirectly (including through someone else acting on Allen's recommendation, suggestion, identification or advice), facilitate or solicit any existing Quaker employee to leave the employment of Quaker or to accept any position with any other company or corporation. This covenant shall remain in effect through March 31, 2001. For purposes of this provision, the following definitions apply: a. "Existing Quaker employee" means someone: (1) who is employed by Quaker on or before the date when Allen's employment terminates; (2) who is still employed by Quaker as of the date when the facilitating act or solicitation takes place; and (3) who holds a manager, director or officer level position at Quaker (or an equivalent position based on job duties and/or Hay points, regardless of the employee's title). b. The terms "solicit" and "facilitate" shall be given the ordinary, common sense meaning appropriate in the present context. iii. Non-disclosure. Allen shall not use or disclose to anyone any confidential information regarding Quaker. For purposes of this provision, the term "confidential information" shall be construed as broadly as Illinois law permits and shall include all non-public information Allen acquired by virtue of her positions with Quaker which might be of any value to a competitor or which might cause any economic loss (directly or via loss of an opportunity) or substantial embarrassment to Quaker or its customers, distributors or suppliers if disclosed. Examples of such confidential information include, without limitation, non-public information about Quaker's customers, suppliers, distributors and potential acquisition targets; its business operations and structure; its product lines, formulas and pricing; its processes, machines and inventions; its research and know-how; its financial data; and its plans and strategies. This covenant shall remain in effect through March 31, 2001. B. In the event of a breach, threatened breach or situation that creates an inevitable breach of any term of this paragraph by Allen, Quaker shall be entitled to an injunction compelling specific performance, restraining any future violations and/or requiring affirmative acts to undo or minimize the harm to Quaker, in addition to damages for any actual breach that occurs. The parties stipulate and represent that breach of any provision of this paragraph would cause irreparable injury to Quaker, for which there would be no adequate remedy at law, due among other reasons to the inherent difficulty of determining the precise causation for loss of customers, confidential information and/or employees and of determining the amount and ongoing effects of such losses. C. In the event Allen breaches any term of this Paragraph 5, Quaker shall have the option of seeking injunctive relief or cancelling the payments due under paragraph 1(A) of this Agreement. Quaker's right to terminate Program benefits is spelled out in the Program, and is not affected by this provision. D. In the event Quaker elects to pursue injunctive relief, then the following rules shall apply: i. While litigation over the requested injunction is pending, Quaker may, in its discretion, withhold payments otherwise due but not yet paid to Allen under paragraph 1(A); provided, Quaker's right to terminate or suspend Program benefits, which are separate from the benefits described in paragraph 1(A), is spelled out in the Program and is not affected by this provision. ii. If, at the conclusion of the litigation, Quaker successfully obtains full injunctive enforcement of all provisions in this paragraph 5 that it attempts to enforce, then Quaker shall pay Allen all amounts otherwise due under paragraph 1(A) that were withheld and shall resume making all payments required under paragraph 1(A), and shall likewise pay all Program payments that were withheld. iii. If, at the conclusion of the litigation, Quaker obtains some, but not all, of the injunctive relief it seeks under this paragraph, then Quaker shall make an election. It may either accept the injunction and proceed as specified in subparagraph (ii) above, or it may elect to voluntarily vacate and/or not enforce the injunction, in which event it shall have no obligation to resume paying Allen under paragraph 1(A), nor to pay withheld amounts. iv. If a court entirely declines to enforce paragraph 5 of this Agreement or holds it invalid or void, then Quaker shall have no further obligation to pay Allen under paragraph 1(A), including sums withheld while litigation was pending. v. If a court holds that the provisions of paragraph 5 are enforceable, but further finds that Allen did not breach any of them, then Quaker shall pay Allen all amounts otherwise due under paragraph 1(A) that were withheld, and shall resume making all payments required under paragraph 1(A). vi. Allen shall have no claim for damages based on any delay in the payments due under Paragraph 1(A) that results from a suspension of payments or withholding in accordance with the preceding provisions; PROVIDED, if payment of withheld amounts subsequently is required, then along with such payment Quaker shall pay Allen interest at an annualized rate of 6.0%. vii. For purposes of this paragraph, litigation shall not be deemed to have concluded, and no payment shall be due, until all potential appeals by all parties are waived or exhausted. E. Recitals: Allen stipulates and represents that the following facts are true, and further understands and agrees that they are material representations upon which Quaker is relying in entering into this Agreement: i. Allen has been President of Quaker's International Grocery Products division for several years, and in that capacity has been a member of Quaker's Senior Leadership Team. In these positions, she participated in forming and/or was informed about the details of operational plans and strategic long range plans for all of Quaker's businesses, in addition to acquiring intimate knowledge of plans and strategies for the International division she ran. Without limitation, she has detailed knowledge regarding Quaker's International businesses, and had access to detailed information regarding its domestic businesses, including business plans, new product development, pricing structure, marketing plans, sales plans, distribution plans, and supply chain plans for all of Quaker's products. This is: (1) information Allen gained by virtue of her employment at Quaker; (2) highly confidential and secret information from which Quaker derives economic value, actual or potential, from its not being generally known to other persons outside Quaker who might obtain economic value from its disclosure or use; (3) information known within Quaker only to key employees and those who need to know it to perform their jobs; (4) information regarding which Quaker has taken reasonable measures to preserve its confidentiality; (5) information that could not easily be duplicated by others, and which Quaker required considerable time and effort to develop; and (6) information which is likely to remain valuable and secret for at least two years. ii. By virtue of her employment at Quaker, Allen has developed personal and business relationships with existing Quaker employees, which she otherwise would not have had. By virtue of her position, she also has acquired knowledge as to which existing Quaker employees are critical to Quaker's success and future plans, and which ones have skills or contacts that would be valuable to a competitor. 6. Advance Determination Of Permitted/Prohibited Conduct Allen may request an advance written determination from Quaker's Chief Executive Officer as to whether taking a proposed action or job would, in Quaker's opinion, constitute a breach of this Agreement. In that event, and provided that Allen discloses in writing all material facts about the proposed action or job, Quaker shall make a reasonable effort to respond to the request for an advance written determination within ten (10) business days; PROVIDED, that if circumstances materially change after the advance determination is made (e.g., if the duties of a job change after Allen accepts it), the determination may be reconsidered and revised or reversed upon thirty days advance written notice to Allen. Quaker shall treat as confidential any non-public information that Allen communicates as part of a request for an advance determination. 7. Choice Of Law And Forum; Attorney Fees A. This Agreement shall be governed by and construed in accordance with the laws of the State Of Illinois, without giving effect to choice of law principles. B. In the event of any litigation over this Agreement or an alleged breach thereof, Allen consents to submit to the personal jurisdiction of any court, state or federal, in the State of Illinois. The parties agree that the Illinois courts, state or federal, shall be the exclusive jurisdiction for any litigation over this Agreement or an alleged breach thereof. C. In the event either party breaches this Agreement, in addition to any damages, injunction, or other relief awarded by a court, the party in violation of this Agreement shall reimburse the other party for its litigation costs and expenses, including reasonable attorney fees. 8. Full Agreement This written document contains the entire understanding and agreement of the parties on the subject matter set forth herein, and supercedes any prior agreement relating to these matters. No promises or inducements have been made other than those reflected herein, and no party is relying on any statement or representation by any person except those set forth herein, including without limitation oral or written summaries of this Agreement. This Agreement cannot be modified or altered except by a subsequent written agreement signed by the parties; and only Quaker's highest ranking Human Resources officer or his direct superior shall have authority to sign such an amendment on behalf of Quaker. Without limitation, nothing in this document shall eliminate or reduce Allen's obligation to comply with the Quaker Code Of Ethics, to the extent that certain provisions in the Code (such as non-disclosure rules) remain applicable to employees after termination. Likewise, nothing in this document shall eliminate or reduce Quaker's obligation to indemnify Allen in certain situations, pursuant to Quaker's by-laws or applicable law. 9. Severability Each term of this Agreement is deemed severable, in whole or in part, and if any provision of this Agreement or its application in any circumstance is found to be illegal, unlawful or unenforceable, the remaining terms and provisions shall not be affected thereby and shall remain in full force and effect, except as expressly provided below. Unless Quaker consents, the provisions in paragraph 5 of this Agreement are not severable from each other or from Paragraph 1(A). If any provision or aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then there is no consideration for payments under paragraph 1(A); PROVIDED, if any provision in paragraph 5 is invalid or broader than the law allows, a court is authorized to award the broadest injuntive relief permitted by law, and Quaker shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker elects to accept the limited injunctive relief, then it shall consent to sever the invalid provision(s). Quaker's consent to sever one or more provisions in paragraph 5 may be given at any time: before, during, or after litigation, in Quaker's sole discretion. The Quaker Oats Company /s/ Pamela S. Hewitt By one of its officers Allen has been advised in writing, via this notice, to consult with an attorney before signing this Agreement. She acknowledges that she received the original draft of this Agreement on March ___, 1998. Allen originally was given twenty one (21) days from March ___, 1998 to consider and decide whether to sign the Agreement, but at her request Quaker extended that period until April 14, 1998, and subsequently extended it to noon on April 15, 1998; also, certain provisions from the original draft were modified at her request. Allen understands that she may revoke the Agreement within seven (7) days after signing it. Allen further understands that she has the right to request a different waiver, release and separation agreeement which contains shorter non- compete, no raiding and non-disclosure periods. Execution of such a document would satisfy the Program's prerequisites and entitle her to Program benefits, but would not entitle her to the additional benefits provided under this Agreement, nor entail the additional obligations. Allen affirms that she has carefully read and fully understands all provisions of this Agreement, that the consideration she is receiving is fair and adequate, and that she has not been threatened or coerced into signing it. April 15, 1998 /s/ Barbara R. Allen Barbara R. Allen EX-10.2 4 Exhibit 10(b) AGREEMENT UPON SEPARATION OF EMPLOYMENT This Agreement Upon Separation Of Employment ("Agreement") is made and entered into by and between James F. Doyle, his successors, heirs, administrators, executors, personal representatives and assigns ("Doyle") and The Quaker Oats Company, its officers, directors, shareholders, employees, agents, assigns, subsidiaries, divisions, parents, affiliates and successors ("Quaker"), collectively "the parties." The Agreement shall become effective seven (7) days after it is executed by Doyle. 1. Economic Consideration to Doyle Upon becoming effective, this Agreement shall satisfy the Quaker Officers Severance Program's (the "Program") prerequisites that in order to qualify for Program benefits, an officer must execute a valid waiver and release of all potential claims and must enter into a non-competition agreement. In addition, Doyle shall receive the following consideration, to which he would not be entitled in the absence of this Agreement: A. Doyle's active employment with Quaker is terminating on March 31, 1998. After severance payments under the Program have expired, and subject to the provisions in Paragraph 5, Quaker shall pay Doyle an amount equal to one year of Program payments (i.e., final salary plus average bonus). This sum shall be paid in twenty four (24) equal semi-monthly installments commencing as soon as payments to him under the Program expire, and terminating on March 31, 2000. Payments under this paragraph 1(A) are consideration for the covenants in paragraph 5, not for anything else. B. While Doyle is scheduled to receive payments under paragraph 1(A) (without regard to interruption of such payments pursuant to paragraph 5), Quaker shall provide him with the same insurance coverage as is provided under the Program. This benefit is part of the consideration for the Waiver and Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4. 2. Termination Of Employment Doyle understands and agrees that his active employment relationship with Quaker, its parent companies, affiliates and successors, will be permanently and irrevocably severed as of March 31, 1998. Doyle agrees he shall not apply or otherwise seek reinstatement or reemployment by Quaker at any time, and that Quaker has no obligation, contractual or otherwise, to rehire, reemploy or recall him in the future. Doyle further stipulates that this agreement is sufficient cause for Quaker to deny any request for rescission, rehire, reemployment or recall. Doyle agrees that prior to the effective date of his termination from active employment, he will return all Quaker property, including but not limited to keys, office pass, credit cards, computers, office equipment, sales records and data. Doyle further agrees that within sixty (60) days after his termination date, he will submit all outstanding expenses and clear all advances and his personal advance account, if any. 3. Waiver & Release A. Doyle waives, releases and discharges Quaker from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs and participation in a class action lawsuit, whether known or unknown, fixed or contingent, that he may have or claim to have against Quaker as of the date this Agreement becomes effective. Doyle further covenants not to file a lawsuit or participate in a class action lawsuit to assert such claims. Without limitation, Doyle specifically waives all claims for back pay, future pay or any other form of compensation or income, except as provided below. This waiver includes but is not limited to claims arising out of or in any way related to Doyle's employment or termination of employment with Quaker, including age discrimination claims under the Age Discrimination In Employment Act (as amended), discrimination claims under Title VII of the Civil Rights Act of 1964 (as amended) or the Americans with Disabilities Act, claims for breach of contract, and any other statutory or common law cause of action under state, federal or local law. However, Doyle does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. In addition, he does not waive any rights he may have as an employee on inactive status and/or as a former employee, as the case may be, under this Agreement or any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the Program, the Long Term Incentive Plan of 1990, etc.), nor does he waive his right to payment for unused vacation, if any, pursuant to Quaker's vacation policy. Notwithstanding anything to the contrary in Paragraph 8 of this Agreement, such benefits shall continue to be governed by the ERISA plans, contracts and/or Quaker policies that exist independent of this Agreement. Finally, Doyle does not waive any right to indemnification he may have pursuant to Quaker's by-laws, insurance coverage and/or applicable law, and Quaker covenants to maintain directors and officers liability insurance coverage for Doyle, for actions or omissions while he was an officer, on the same terms as it maintains such coverage (if any) for active officers. B. Quaker waives, releases and discharges Doyle from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs, that it may have or claim to have against Doyle as of the date this Agreement becomes effective; provided, this waiver, release and discharge only apply to claims as to which Quaker's senior officers were aware, on or before the effective date of this Agreement, of all material facts necessary to establish Doyle's liability; and further provided, Quaker does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. C. The parties stipulate that nothing contained in this Agreement shall be construed as an admission by either of them of any liability, wrongdoing or unlawful conduct. It is understood that both Quaker and Doyle deny any liability, wrongdoing or unlawful conduct, and each is providing consideration for this waiver and release solely in order to resolve any potential disputes between them amicably and to avoid the expense of potential litigation. 4. Miscellaneous agreements The covenants and agreements set forth in this paragraph shall remain in effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of this Agreement, so a material breach of either of them by Doyle would entitle Quaker, at its discretion, to rescind this Agreement, in addition to any other legal or equitable remedies it might have for breach: A. Doyle shall provide accurate information or testimony or both in connection with any legal matter if so requested by Quaker. He shall make himself available upon request to provide such information and/or testimony, in a formal and/or an informal setting in accordance with Quaker's request, subject to reasonable accommodation of his schedule and reimbursement of reasonable expenses, including reasonable and necessary attorney fees (if independent legal counsel is reasonably necessary). B. Doyle shall cooperate with media requests for interviews regarding his termination and/or Quaker, unless directed otherwise by Quaker in a particular instance. He shall not disparage The Quaker Oats Company, its products, or any of its directors, officers or employees in these interviews, nor in any other private or public setting; provided, if Doyle is compelled to provide testimony under oath, he shall testify truthfully without regard to whether his testimony is favorable or unfavorable to Quaker, and such testimony shall be protected against claims under this Agreement by the same privilege that would apply to a defamation claim. C. The Quaker Oats Company, and any officer or director acting on its behalf, shall answer all reference inquiries directed to The Quaker Oats Company regarding Doyle by stating only his positions held, compensation and dates of employment. No additional information shall be provided unless authorized in advance, in writing, by Doyle. Doyle agrees to direct all requests for references from Quaker to the highest ranking Human Resources officer within Quaker. 5. Prohibited Conduct A. Doyle covenants and agrees that through the dates specified below, he shall not engage in any of the following activities anywhere in the world: i. Non-competition. Doyle shall not undertake any employment, consulting position or ownership interest which involves his Participation in the management of a business entity that markets, sells, distributes, licenses or produces Covered Products, unless that business entity's sole involvement with Covered Products is that it makes retail sales or consumes Covered Products, without competing in any way against Quaker. This covenant applies through March 31, 2000. a. "Participation" shall be construed broadly to include, without limitation: (1) holding a position in which he directly manages such a business entity; (2) holding a position in which anyone else who directly manages such a business entity is in Doyle's reporting chain or chain-of- command (regardless of the number of reporting levels between them); (3) providing input, advice, guidance, or suggestions regarding the management of such a business entity to anyone responsible therefor; (4) providing a testimonial on behalf of such an operation or the product it produces; or (5) doing anything else which falls within a common sense definition of the term "participation," as used in the present context. b. "Covered Products" mean any product which falls into one or more of the following categories, so long as Quaker is producing, marketing, distributing, selling or licensing such product anywhere in the world: sports beverages; thirst quenching beverages, excluding beverages which, based on the way they are marketed and/or consumed, do not compete at all against thirst quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain- based snacks, excluding grain-based foods which, based on how they are marketed and/or consumed, do not compete at all against snacks; value-added rice products; pancake syrup; value-added pasta products; dry pasta products; and items Quaker produces for the food service market. ii. Raiding Employees. Doyle shall not in any way, directly or indirectly (including through someone else acting on Doyle's recommendation, suggestion, identification or advice), facilitate or solicit any existing Quaker employee to leave the employment of Quaker or to accept any position with any other company or corporation. This covenant applies through March 31, 2001. For purposes of this provision, the following definitions apply: a. "Existing Quaker employee" means someone: (1) who is employed by Quaker on or before the date when Doyle's employment terminates; (2) who is still employed by Quaker as of the date when the facilitating act or solicitation takes place; and (3) who holds a manager, director or officer level position at Quaker (or an equivalent position based on job duties and/or Hay points, regardless of the employee's title). b. The terms "solicit" and "facilitate" shall be given the ordinary, common sense meaning appropriate in the present context. iii. Non-disclosure. Doyle shall not use or disclose to anyone any confidential information regarding Quaker. For purposes of this provision, the term "confidential information" shall be construed as broadly as Illinois law permits and shall include all non-public information Doyle acquired by virtue of his positions with Quaker which might be of any value to a competitor or which might cause any economic loss (directly or via loss of an opportunity) or substantial embarrassment to Quaker or its customers, distributors or suppliers if disclosed. Examples of such confidential information include, without limitation, non-public information about Quaker's customers, suppliers, distributors and potential acquisition targets; its business operations and structure; its product lines, formulas and pricing; its processes, machines and inventions; its research and know-how; its financial data; and its plans and strategies. This covenant applies through March 31, 2001. B. In the event of a breach, threatened breach, or situation that creates an inevitable breach of any term of this paragraph by Doyle, Quaker shall be entitled to an injunction compelling specific performance, restraining any future violations and/or requiring affirmative acts to undo or minimize the harm to Quaker, in addition to damages for any actual breach that occurs. The parties stipulate and represent that breach of any provision of this paragraph would cause irreparable injury to Quaker, for which there would be no adequate remedy at law, due among other reasons to the inherent difficulty of determining the precise causation for loss of customers, confidential information and/or employees and of determining the amount and ongoing effects of such losses. C. In the event Doyle breaches any term of this Paragraph 5, Quaker shall have the option of seeking injunctive relief or cancelling the payments due under paragraph 1(A) of this Agreement. Quaker's right to terminate Program benefits is spelled out in the Program, and is not affected by this provision. D. In the event Quaker elects to pursue injunctive relief, then the following rules shall apply: i. While litigation over the requested injunction is pending, Quaker may, in its discretion, withhold payments otherwise due to Doyle under paragraph 1(A); provided, Quaker's right to terminate or suspend Program benefits, which are separate from the benefits described in paragraph 1(A), is spelled out in the Program and is not affected by this provision. ii. If, at the conclusion of the litigation, Quaker successfully obtains full injunctive enforcement of all provisions in this paragraph 5 that it attempts to enforce, then Quaker shall pay Doyle all amounts otherwise due under paragraph 1(A) that were withheld and shall resume making all payments required under paragraph 1(A), and shall likewise pay all Program payments that were withheld. iii. If, at the conclusion of the litigation, Quaker obtains some, but not all, of the injunctive relief it seeks under this paragraph, then Quaker shall make an election. It may either accept the injunction and proceed as specified in subparagraph (ii) above, or it may elect to voluntarily vacate and/or not enforce the injunction, in which event it shall have no obligation to resume paying Doyle under paragraph 1(A), nor to pay withheld amounts. iv. If a court entirely declines to enforce paragraph 5 of this Agreement or holds it invalid or void, then Quaker shall have no further obligation to pay Doyle under paragraph 1(A), including sums withheld while litigation was pending. v. If a court holds that the provisions of paragraph 5 are enforceable, but further finds that Doyle did not breach any of them, then Quaker shall pay Doyle all amounts otherwise due under paragraph 1(A) that were withheld, and shall resume making all payments required under paragraph 1(A). vi. Doyle shall have no claim for damages based on any delay in the payments due under Paragraph 1(A) that results from a suspension of payments or withholding in accordance with the preceding provisions; PROVIDED, if payment of withheld amounts subsequently is required, then along with such payment Quaker shall pay Doyle interest at an annualized rate of 6.0%. vii. For purposes of this paragraph, litigation shall not be deemed to have concluded, and no payment shall be due, until all potential appeals by all parties are waived or exhausted. E. Recitals: Doyle stipulates and represents that the following facts are true, and further understands and agrees that they are material representations upon which Quaker is relying in entering into this Agreement: i. Doyle has been President of Quaker's Worldwide Beverages division for several years, and in that capacity has been a member of Quaker's Senior Leadership Team. In these positions, he participated in forming and/or was informed about the details of operational plans and strategic long range plans for all of Quaker's businesses, in addition to acquiring intimate knowledge of plans and strategies for the Beverages division he ran. Without limitation, he has detailed knowledge regarding Quaker's Worldwide Beverages business, and had access to detailed information regarding Quaker's other businesses, including without limitation business plans, new product development, pricing structure, marketing plans, sales plans, distribution plans, and supply chain plans for all of Quaker's products. This is: (1) information Doyle gained by virtue of his employment at Quaker; (2) highly confidential and secret information from which Quaker derives economic value, actual or potential, from its not being generally known to other persons outside Quaker who might obtain economic value from its disclosure or use; (3) information known within Quaker only to key employees and those who need to know it to perform their jobs; (4) information regarding which Quaker has taken reasonable measures to preserve its confidentiality; (5) information that could not easily be duplicated by others, and which Quaker required considerable time and effort to develop; and (6) information which is likely to remain valuable and secret for at least three years. ii. By virtue of his employment at Quaker, Doyle has developed personal and business relationships with existing Quaker employees, which he otherwise would not have had. By virtue of his position, he also has acquired knowledge as to which existing Quaker employees are critical to Quaker's success and future plans, and which ones have skills or contacts that would be valuable to a competitor. 6. Advance Determination Of Permitted/Prohibited Conduct Doyle may request an advance written determination from Quaker's Chief Executive Officer as to whether taking a proposed action or job would, in Quaker's opinion, constitute a breach of this Agreement. In that event, and provided that Doyle discloses in writing all material facts about the proposed action or job, Quaker shall make a reasonable effort to respond to Doyle's request for an advance written determination within ten (10) business days after receiving it; PROVIDED, that if circumstances materially change after the advance determination is made (e.g., if the duties of a job change after Doyle accepts it), the determination may be reconsidered and revised or reversed upon thirty days advance written notice to Doyle. Quaker shall treat as confidential any non-public information Doyle communicates as part of a request for an advance determination. 7. Choice Of Law And Forum; Attorney Fees A. This Agreement shall be governed by and construed in accordance with the laws of the State Of Illinois, without giving effect to choice of law principles. B. In the event of litigation over this Agreement or an alleged breach thereof, Doyle consents to the personal jurisdiction of any court, state or federal, in the State of Illinois. The parties agree that Illinois courts, state or federal, shall be the exclusive jurisdiction for any litigation over this Agreement or an alleged breach thereof. C. In the event of litigation between Doyle and Quaker regarding any provision of this Agreement, the party which prevails in such contest shall be entitled to receive from the other party, in addition to any damages, injunction, or other relief awarded by a court, reimbursement of all litigation costs and expenses, including reasonable attorney fees, which the prevailing party reasonably incurred as a result of such litigation, plus interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. If, in a particular contest, each party prevails on one or more issues, the court shall exercise its equitable judgment to determine which, if either, should be considered the prevailing party and the percentage of that party's expenses which should be reimbursed, taking into account inter alia the significance of the issue(s) on which each party prevailed and the reasonableness of each party's position(s). 8. Full Agreement This written document contains the entire understanding and agreement of the parties on the subject matter set forth herein, and supercedes any prior agreement relating to these matters. No promises or inducements have been made other than those reflected herein, and no party is relying on any statement or representation by any person except those set forth herein, including without limitation oral or written summaries of this Agreement. This Agreement cannot be modified or altered except by a subsequent written agreement signed by the parties; and only Quaker's highest ranking Human Resources officer or his direct superior shall have authority to sign such an amendment on behalf of Quaker. Without limitation, nothing in this document shall eliminate or reduce Doyle's obligation to comply with the Quaker Code Of Ethics, to the extent that certain provisions in the Code (such as non-disclosure rules) remain applicable to employees after termination. Likewise, nothing in this document shall eliminate or reduce Quaker's obligation to indemnify Doyle in certain situations, pursuant to Quaker's by-laws or applicable law. 9. Severability Each term of this Agreement is deemed severable, in whole or in part, and if any provision of this Agreement or its application in any circumstance is found to be illegal, unlawful or unenforceable, the remaining terms and provisions shall not be affected thereby and shall remain in full force and effect, except as expressly provided below. Unless Quaker consents, the provisions in paragraph 5 of this Agreement are not severable from each other or from Paragraph 1(A). If any provision or aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then there is no consideration for payments under paragraph 1(A); PROVIDED, if any provision in paragraph 5 is invalid or broader than the law allows, a court is authorized to award the broadest injunctive relief permitted by law, and Quaker shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker elects to accept the limited injunctive relief, then it shall consent to sever the invalid provision(s). Quaker's consent to sever one or more provisions in paragraph 5 may be given at any time: before, during, or after litigation, in Quaker's sole discretion. The Quaker Oats Company /s/ Pamela S. Hewitt By one of its officers Doyle has been advised in writing, via this notice, to consult with an attorney before signing this Agreement. He acknowledges that he received the original draft of this Agreement on March ___, 1998. Doyle originally was given twenty one (21) days from March ___, 1998 to consider and decide whether to sign the Agreement, but at his request Quaker agreed to extend that period to April 14, 1998; also, certain provisions from the original draft were revised at Doyle's request. Doyle understands that he may revoke the Agreement within seven (7) days after signing it. Doyle further understands that he has the right to request a different waiver, release and separation agreeement which contains shorter non-compete, no raiding and non-disclosure periods. Execution of such a document would satisfy the Program's prerequisites and entitle him to Program benefits, but would not entitle him to the additional benefits provided under this Agreement, nor entail the additional obligations. Doyle affirms that he has carefully read and fully understands all provisions of this Agreement, that the consideration he is receiving is fair and adequate, and that he has not been threatened or coerced into signing it. April 14, 1998 /s/ James F. Doyle James F. Doyle EX-10.3 5 Exhibit 10(c) AGREEMENT UPON SEPARATION OF EMPLOYMENT This Agreement Upon Separation Of Employment ("Agreement") is made and entered into by and between Douglas W. Mills, his successors, heirs, administrators, executors, personal representatives and assigns ("Mills") and The Quaker Oats Company, its officers, directors, shareholders, employees, agents, assigns, subsidiaries, divisions, parents, affiliates and successors ("Quaker"), collectively "the parties." The Agreement shall become effective seven (7) days after it is executed by Mills. 1. Economic Consideration to Mills Upon becoming effective, this Agreement shall satisfy the Quaker Officers Severance Program's (the "Program") prerequisites that in order to qualify for Program benefits, an officer must execute a valid waiver and release of all potential claims and must enter into a non-competition agreement. In addition, Mills shall receive the following consideration, to which he would not be entitled in the absence of this Agreement: A. Mills' active employment with Quaker is terminating on March 31, 1998. After severance payments under the Program have expired, and subject to the provisions in Paragraph 5, Quaker shall pay Mills an amount equal to one year of Program payments (i.e., final salary plus average bonus). This sum shall be paid in equal semi-monthly installments commencing as soon as payments to him under the Program expire, and terminating on January 31, 2001 (i.e., each individual semi-monthly payment will be smaller than semi-monthly payments under the Program, but there will be more than 24 such payments, and the total of all such payments will equal one year's worth of Program payments). Payments under this paragraph 1(A) are consideration for the covenants in paragraph 5, not for anything else. B. As soon as Program benefits end and continuing through January 31, 2001, Quaker shall provide Mills with the same insurance coverage as is provided under the Program. This benefit is part of the consideration for the Waiver and Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4. 2. Termination Of Employment Mills understands and agrees that his active employment relationship with Quaker, its parent companies, affiliates and successors, will be permanently and irrevocably severed as of March 31, 1998. Mills agrees he shall not apply or otherwise seek reinstatement or reemployment by Quaker at any time, and that Quaker has no obligation, contractual or otherwise, to rehire, reemploy or recall him in the future. Mills further stipulates that this agreement is sufficient cause for Quaker to deny any request for rescission, rehire, reemployment or recall. Mills agrees that prior to the effective date of his termination from active employment, he will return all Quaker property, including but not limited to keys, office pass, credit cards, computers, office equipment, sales records and data. Mills further agrees that within sixty (60) days after his termination date, he will submit all outstanding expenses and clear all advances and his personal advance account, if any. 3. Waiver & Release A. Mills waives, releases and discharges Quaker from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs and participation in a class action lawsuit, whether known or unknown, fixed or contingent, that he may have or claim to have against Quaker as of the date this Agreement becomes effective. Mills further covenants not to file a lawsuit or participate in a class action lawsuit to assert such claims. Without limitation, Mills specifically waives all claims for back pay, future pay or any other form of compensation or income, except as provided below. This waiver includes but is not limited to claims arising out of or in any way related to Mills' employment or termination of employment with Quaker, including age discrimination claims under the Age Discrimination In Employment Act (as amended), discrimination claims under Title VII of the Civil Rights Act of 1964 (as amended) or the Americans with Disabilities Act, claims for breach of contract, and any other statutory or common law cause of action under state, federal or local law. However, Mills does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. In addition, he does not waive any rights he may have as an employee on inactive status and/or as a former employee, as the case may be, under this Agreement or any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the Program, the Long Term Incentive Plan of 1990, etc.), nor does he waive his right to payment for unused vacation, if any, pursuant to Quaker's vacation policy. Notwithstanding anything to the contrary in Paragraph 8 of this Agreement, such benefits shall continue to be governed by the ERISA plans, contracts and/or Quaker policies that exist independent of this Agreement. Finally, Mills does not waive any right to indemnification he may have pursuant to Quaker's by-laws, insurance coverage and/or applicable law, and Quaker covenants to maintain directors and officers liability insurance coverage for Mills, for actions or omissions while he was an officer, on the same terms as it maintains such coverage for active officers. B. Quaker waives, releases and discharges Mills from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs, that it may have or claim to have against Mills as of the date this Agreement becomes effective; provided, this waiver, release and discharge only apply to claims as to which Quaker's senior officers were aware, on or before the effective date of this Agreement, of all material facts necessary to establish Mills' liability; and further provided, Quaker does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. C. The parties stipulate that nothing contained in this Agreement shall be construed as an admission by either of them of any liability, wrongdoing or unlawful conduct. It is understood that both Quaker and Mills deny any liability, wrongdoing or unlawful conduct, and each is providing consideration for this waiver and release solely in order to resolve any potential disputes between them amicably and to avoid the expense of potential litigation. 4. Miscellaneous agreements The covenants and agreements set forth in this paragraph shall remain in effect until January 31, 2001. Covenants 4(A) and 4(B) are material parts of this Agreement, so a material breach of either of them by Mills would entitle Quaker, at its discretion, to rescind this Agreement, in addition to any other legal or equitable remedies it might have for breach: A. Mills shall provide accurate information or testimony or both in connection with any legal matter if so requested by Quaker. He shall make himself available upon request to provide such information and/or testimony, in a formal and/or an informal setting in accordance with Quaker's request, subject to reasonable accommodation of his schedule and reimbursement of reasonable expenses, including reasonable and necessary attorney fees (if independent legal counsel is reasonably necessary). B. Mills shall cooperate with media requests for interviews regarding his termination and/or Quaker, unless directed otherwise by Quaker in a particular instance. He shall not disparage The Quaker Oats Company, its products, or any of its directors, officers or employees in these interviews, nor in any other private or public setting; provided, if Mills is compelled to provide testimony under oath, he shall testify truthfully without regard to whether his testimony is favorable or unfavorable to Quaker, and such testimony shall be protected against claims under this Agreement by the same privilege that would apply to a defamation claim. C. The Quaker Oats Company, and any officer or director acting on its behalf, shall answer all reference inquiries directed to The Quaker Oats Company regarding Mills by stating only his positions held, compensation and dates of employment. No additional information shall be provided unless authorized in advance, in writing, by Mills. Mills agrees to direct all requests for references from Quaker to the highest ranking Human Resources officer within Quaker. 5. Prohibited Conduct A. Mills covenants and agrees that through January 31, 2001, he shall not engage in any of the following activities anywhere in the world: i. Non-competition. Mills shall not undertake any employment, consulting position or ownership interest which involves his Participation in the management of a business entity that markets, sells, distributes, licenses or produces Covered Products, unless that business entity's sole involvement with Covered Products is that it makes retail sales or consumes Covered Products, without competing in any way against Quaker. a. "Participation" shall be construed broadly to include, without limitation: (1) holding a position in which he directly manages such a business entity; (2) holding a position in which anyone else who directly manages such a business entity is in Mills' reporting chain or chain-of-command (regardless of the number of reporting levels between them); (3) providing input, advice, guidance, or suggestions regarding the management of such a business entity to anyone responsible therefor; (4) providing a testimonial on behalf of such an operation or the product it produces; or (5) doing anything else which falls within a common sense definition of the term "participation," as used in the present context. b. "Covered Products" mean any product which falls into one or more of the following categories, so long as Quaker is producing, marketing, distributing, selling or licensing such product anywhere in the world: sports beverages; thirst quenching beverages, excluding beverages which, based on how they are marketed and/or consumed, do not compete at all against thirst quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain- based snacks, excluding grain-based foods which, based on how they are marketed and/or consumed, do not compete at all against snacks; value-added rice products; pancake syrup; value-added pasta products; dry pasta products; and items Quaker produces for the food service market. ii. Raiding Employees. Mills shall not in any way, directly or indirectly (including through someone else acting on Mills' recommendation, suggestion, identification or advice), facilitate or solicit any existing Quaker employee to leave the employment of Quaker or to accept any position with any other company or corporation. For purposes of this provision, the following definitions apply: a. "Existing Quaker employee" means someone: (1) who is employed by Quaker on or before the date when Mills' employment terminates; (2) who is still employed by Quaker as of the date when the facilitating act or solicitation takes place; and (3) who holds a manager, director or officer level position at Quaker (or an equivalent position based on job duties and/or Hay points, regardless of the employee's title). b. The terms "solicit" and "facilitate" shall be given the ordinary, common sense meaning appropriate in the present context. iii. Non-disclosure. Mills shall not use or disclose to anyone any confidential information regarding Quaker. For purposes of this provision, the term "confidential information" shall be construed as broadly as Illinois law permits and shall include all non-public information Mills acquired by virtue of his positions with Quaker which might be of any value to a competitor or which might cause any economic loss (directly or via loss of an opportunity) or substantial embarrassment to Quaker or its customers, distributors or suppliers if disclosed. Examples of such confidential information include, without limitation, non-public information about Quaker's customers, suppliers, distributors and potential acquisition targets; its business operations and structure; its product lines, formulas and pricing; its processes, machines and inventions; its research and know-how; its financial data; and its plans and strategies. B. In the event of a breach, threatened breach, or situation that creates an inevitable breach of any term of this paragraph by Mills, Quaker shall be entitled to an injunction compelling specific performance, restraining any future violations and/or requiring affirmative acts to undo or minimize the harm to Quaker, in addition to damages for any actual breach that occurs. The parties stipulate and represent that breach of any provision of this paragraph would cause irreparable injury to Quaker, for which there would be no adequate remedy at law, due among other reasons to the inherent difficulty of determining the precise causation for loss of customers, confidential information and/or employees and of determining the amount and ongoing effects of such losses. C. In the event Mills breaches any term of this Paragraph 5, Quaker shall have the option of seeking injunctive relief or cancelling the payments due under paragraph 1(A) of this Agreement. Quaker's right to terminate Program benefits is spelled out in the Program, and is not affected by this provision. D. In the event Quaker elects to pursue injunctive relief, then the following rules shall apply: i. While litigation over the requested injunction is pending, Quaker may, in its discretion, withhold payments otherwise due to Mills under paragraph 1(A); provided, Quaker's right to terminate or suspend Program benefits, which are separate from the benefits described in paragraph 1(A), is spelled out in the Program and is not affected by this provision. ii. If, at the conclusion of the litigation, Quaker successfully obtains full injunctive enforcement of all provisions in this paragraph 5 that it attempts to enforce, then Quaker shall pay Mills all amounts otherwise due under paragraph 1(A) that were withheld and shall resume making all payments required under paragraph 1(A), and shall likewise pay all Program payments that were withheld. iii. If, at the conclusion of the litigation, Quaker obtains some, but not all, of the injunctive relief it seeks under this paragraph, then Quaker shall make an election. It may either accept the injunction and proceed as specified in subparagraph (ii) above, or it may elect to voluntarily vacate and/or not enforce the injunction, in which event it shall have no obligation to resume paying Mills under paragraph 1(A), nor to pay withheld amounts. iv. If a court entirely declines to enforce paragraph 5 of this Agreement or holds it invalid or void, then Quaker shall have no further obligation to pay Mills under paragraph 1(A), including sums withheld while litigation was pending. v. If a court holds that the provisions of paragraph 5 are enforceable, but further finds that Mills did not breach any of them, then Quaker shall pay Mills all amounts otherwise due under paragraph 1(A) that were withheld, and shall resume making all payments required under paragraph 1(A). vi. Mills shall have no claim for damages based on any delay in the payments due under Paragraph 1(A) that results from a suspension of payments or withholding in accordance with the preceding provisions; PROVIDED, if payment of withheld amounts subsequently is required, then along with such payment Quaker shall pay Mills interest at an annualized rated of 6.0%. vii. For purposes of this paragraph, litigation shall not be deemed to have concluded, and no payment shall be due, until all potential appeals by all parties are waived or exhausted. E. Recitals: Mills stipulates and represents that the following facts are true, and further understands and agrees that they are material representations upon which Quaker is relying in entering into this Agreement: i. Mills has been President of Quaker's United States Grocery Products ("USGP") division for several years, and in that capacity has been a member of Quaker's Senior Leadership Team. In these positions, he participated in forming and/or was informed about the details of operational plans and strategic long range plans for all of Quaker's businesses, in addition to acquiring intimate knowledge of plans and strategies for the USGP division he ran. Without limitation, he has detailed knowledge regarding Quaker's U.S. and Canadian businesses (foods and beverages), and had access to detailed information regarding Quaker's international businesses, including without limitation business plans, new product development, pricing structure, marketing plans, sales plans, distribution plans, and supply chain plans for all of Quaker's products. This is: (1) information Mills gained by virtue of his employment at Quaker; (2) highly confidential and secret information from which Quaker derives economic value, actual or potential, from its not being generally known to other persons outside Quaker who might obtain economic value from its disclosure or use; (3) information known within Quaker only to key employees and those who need to know it to perform their jobs; (4) information regarding which Quaker has taken reasonable measures to preserve its confidentiality; (5) information that could not easily be duplicated by others, and which Quaker required considerable time and effort to develop; and (6) information which is likely to remain valuable and secret for at least three years. ii. By virtue of his employment at Quaker, Mills has developed personal and business relationships with existing Quaker employees, which he otherwise would not have had. By virtue of his position, he also has acquired knowledge as to which existing Quaker employees are critical to Quaker's success and future plans, and which ones have skills or contacts that would be valuable to a competitor. 6. Advance Determination Of Permitted/Prohibited Conduct Mills may request an advance written determination from Quaker's Chief Executive Officer as to whether taking a proposed action or job would, in Quaker's opinion, constitute a breach of this Agreement. In that event, and provided that Mills discloses in writing all material facts about the proposed action or job, Quaker shall make a reasonable effort to respond to Mills' request for an advance written determination within ten (10) business days after receiving it; PROVIDED, that if circumstances materially change after the advance determination is made (e.g., if the duties of a job change after Mills accepts it), the determination may be reconsidered and revised or reversed upon thirty days advance written notice to Mills. Quaker shall treat as confidential any non-public information Mills communicates as part of a request for an advance determination. 7. Choice Of Law And Forum; Attorney Fees A. This Agreement shall be governed by and construed in accordance with the laws of the State Of Illinois, without giving effect to choice of law principles. B. In the event of any litigation over this Agreement or an alleged breach thereof, Mills consents to submit to the personal jurisdiction of any court, state or federal, in the State of Illinois. The parties agree that the Illinois courts, state or federal, shall be the exclusive jurisdiction for any litigation over this Agreement or an alleged breach thereof. C. In the event of litigation between Mills and Quaker regarding any provision of this Agreement, the party which prevails in such contest shall be entitled to receive from the other party, in addition to any damages, injunction, or other relief awarded by a court, reimbursement of all litigation costs and expenses, including reasonable attorney fees, which the prevailing party reasonably incurred as a result of such litigation, plus interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. If, in a particular contest, each party prevails on one or more issues, the court shall exercise its equitable judgment to determine which, if either, should be considered the prevailing party and the percentage of that party's expenses which should be reimbursed, taking into account inter alia the significance of the issue(s) on which each party prevailed and the reasonableness of each party's position(s). 8. Full Agreement This written document contains the entire understanding and agreement of the parties on the subject matter set forth herein, and supercedes any prior agreement relating to these matters. No promises or inducements have been made other than those reflected herein, and no party is relying on any statement or representation by any person except those set forth herein, including without limitation oral or written summaries of this Agreement. This Agreement cannot be modified or altered except by a subsequent written agreement signed by the parties; and only Quaker's highest ranking Human Resources officer or his direct superior shall have authority to sign such an amendment on behalf of Quaker. Without limitation, nothing in this document shall eliminate or reduce Mills' obligation to comply with the Quaker Code Of Ethics, to the extent that certain provisions in the Code (such as non-disclosure rules) remain applicable to employees after termination. Likewise, nothing in this document shall eliminate or reduce Quaker's obligation to indemnify Mills in certain situations, pursuant to Quaker's by-laws or applicable law. 9. Severability Each term of this Agreement is deemed severable, in whole or in part, and if any provision of this Agreement or its application in any circumstance is found to be illegal, unlawful or unenforceable, the remaining terms and provisions shall not be affected thereby and shall remain in full force and effect, except as expressly provided below. Unless Quaker consents, the provisions in paragraph 5 of this Agreement are not severable from each other or from Paragraph 1(A). If any provision or aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then there is no consideration for payments under paragraph 1(A); PROVIDED, if any provision in paragraph 5 is invalid or broader than the law allows, a court is authorized to award the broadest injunctive relief permitted by law, and Quaker shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker elects to accept the limited injunctive relief, then it shall consent to sever the invalid provision(s). Quaker's consent to sever one or more provisions in paragraph 5 may be given at any time: before, during, or after litigation, in Quaker's sole discretion. The Quaker Oats Company /s/ Pamela S. Hewitt By one of its officers Mills has been advised in writing, via this notice, to consult with an attorney before signing this Agreement. He acknowledges that he received the original draft of this Agreement on March ___, 1998. Mills originally was given twenty one (21) days from March ___, 1998 to consider and decide whether to sign the Agreement, but at his request Quaker agreed to extend that period to April 14, 1998; also, certain provisions from the original draft were revised at Mills' request. Mills understands that he may revoke the Agreement within seven (7) days after signing it. Mills further understands that he has the right to request a different waiver, release and separation agreeement which contains shorter non-compete, no raiding and non-disclosure periods. Execution of such a document would satisfy the Program's prerequisites and entitle him to Program benefits, but would not entitle him to the additional benefits provided under this Agreement, nor entail the additional obligations. Mills affirms that he has carefully read and fully understands all provisions of this Agreement, that the consideration he is receiving is fair and adequate, and that he has not been threatened or coerced into signing it. April 9, 1998 /s/ Douglas W. Mills Douglas W. Mills EX-10.4 6 Exhibit 10(d) AGREEMENT UPON SEPARATION OF EMPLOYMENT This Agreement Upon Separation Of Employment ("Agreement") is made and entered into by and between Douglas J. Ralston, his successors, heirs, administrators, executors, personal representatives and assigns ("Ralston") and The Quaker Oats Company, its officers, directors, shareholders, employees, agents, assigns, subsidiaries, divisions, parents, affiliates and successors ("Quaker"), collectively "the parties." The Agreement shall become effective seven (7) days after it is executed by Ralston. 1. Economic Consideration to Ralston Upon becoming effective, this Agreement shall satisfy the Quaker Officers Severance Program's (the "Program") prerequisites that in order to qualify for Program benefits, an officer must execute a valid waiver and release of all potential claims and sign an agreement containing several covenants, including a non-competition provision. In addition, Ralston shall receive the following consideration, to which he would not be entitled in the absence of this Agreement: A. Ralston's active employment with Quaker is terminating on March 31, 1998. After severance payments under the Program have expired, and subject to the provisions in Paragraph 5, Quaker shall pay Ralston an amount equal to one year of Program payments (i.e., final salary plus average bonus). This sum shall be paid in equal semi-monthly installments commencing as soon as payments to him under the Program expire, and terminating on September 30, 2000 (i.e., each individual semi-monthly payment will be smaller than semi-monthly payments under the Program, but there will be more than 24 such payments, and the total of all such payments will equal one year's worth of Program payments). Payments under this paragraph 1(A) are consideration for the covenants in paragraph 5, not for anything else. B. As soon as Program benefits end and continuing through September 30, 2000, Quaker shall provide Ralston with the same insurance coverage as is provided under the Program. This benefit is part of the consideration for the Waiver and Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4. 2. Termination Of Employment Ralston understands and agrees that his active employment relationship with Quaker, its parent companies, affiliates and successors, will be permanently and irrevocably severed as of March 31, 1998. Ralston agrees he shall not apply or otherwise seek reinstatement or reemployment by Quaker at any time, and that Quaker has no obligation, contractual or otherwise, to rehire, reemploy or recall him in the future. Ralston further stipulates that this agreement is sufficient cause for Quaker to deny any request for rescission, rehire, reemployment or recall. Ralston agrees that prior to the effective date of his termination from active employment, he will return all Quaker property, including but not limited to keys, office pass, credit cards, computers, office equipment, sales records and data. Ralston further agrees that within sixty (60) days after his termination date, he will submit all outstanding expenses and clear all advances and his personal advance account, if any. 3. Waiver & Release A. Ralston waives, releases and discharges Quaker from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs and participation in a class action lawsuit, whether known or unknown, fixed or contingent, that he may have or claim to have against Quaker as of the date this Agreement becomes effective. Ralston further covenants not to file a lawsuit or participate in a class action lawsuit to assert such claims. Without limitation, Ralston specifically waives all claims for back pay, future pay or any other form of compensation or income, except as provided below. This waiver includes but is not limited to claims arising out of or in any way related to Ralston's employment or termination of employment with Quaker, including age discrimination claims under the Age Discrimination In Employment Act (as amended), discrimination claims under Title VII of the Civil Rights Act of 1964 (as amended) or the Americans with Disabilities Act, claims for breach of contract, and any other statutory or common law cause of action under state, federal or local law. However, Ralston does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. In addition, he does not waive any rights he may have as an employee on inactive status and/or as a former employee, as the case may be, under any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the Program, the Long Term Incentive Plan of 1990, etc.), nor does he waive his right to payment for unused vacation, if any, pursuant to Quaker's vacation policy. Notwithstanding anything to the contrary in Paragraph 8 of this Agreement, such benefits shall continue to be governed by the ERISA plans, contracts and/or Quaker policies that exist independent of this Agreement. B. Quaker waives, releases and discharges Ralston from any and all claims and liabilities, demands, actions and causes of action, including attorneys' fees and costs, that it may have or claim to have against Ralston as of the date this Agreement becomes effective; provided, this waiver, release and discharge only apply to claims as to which Quaker's senior officers were aware, on or before the effective date of this Agreement, of all material facts necessary to establish Ralston's liability; and further provided, Quaker does not waive, release, discharge or covenant not to sue for enforcement of any rights or claims that arise out of conduct or omissions which occur entirely after the date this Agreement becomes effective. C. The parties stipulate that nothing contained in this Agreement shall be construed as an admission by either of them of any liability, wrongdoing or unlawful conduct. It is understood that both Quaker and Ralston deny any liability, wrongdoing or unlawful conduct, and each is providing consideration for this waiver and release solely in order to resolve any potential disputes between them amicably and to avoid the expense of potential litigation. 4. Miscellaneous agreements The covenants and agreements set forth in this paragraph shall remain in effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of this Agreement, so a material breach of either of them by Ralston would entitle Quaker, at its discretion, to rescind this Agreement, in addition to any other legal or equitable remedies it might have for breach: A. Ralston shall provide accurate information or testimony or both in connection with any legal matter if so requested by Quaker. He shall make himself available upon request to provide such information and/or testimony, in a formal and/or an informal setting in accordance with Quaker's request, subject to reasonable accommodation of his schedule and reimbursement of reasonable expenses, including reasonable and necessary attorney fees (if independent legal counsel is reasonably necessary). B. Ralston shall cooperate with media requests for interviews regarding his termination and/or Quaker, unless directed otherwise by Quaker in a particular instance. He shall not disparage The Quaker Oats Company, its products, or any of its directors, officers or employees in these interviews, nor in any other private or public setting; provided, if Ralston is compelled to provide testimony under oath, he shall testify truthfully without regard to whether his testimony is favorable or unfavorable to Quaker, and such testimony shall be protected against claims under this Agreement by the same privilege that would apply to a defamation claim. C. The Quaker Oats Company, and any officer or director acting on its behalf, shall answer all reference inquiries directed to The Quaker Oats Company regarding Ralston by stating only his positions held, compensation and dates of employment. No additional information shall be provided unless authorized in advance, in writing, by Ralston. Ralston agrees to direct all requests for references from Quaker to the highest ranking Human Resources officer within Quaker. 5. Prohibited Conduct A. Ralston covenants and agrees that through the dates set forth below, he shall not engage in any of the following activities anywhere in the world: i. Non-competition. Ralston shall not undertake any employment, consulting position or ownership interest which involves his Participation in the management of a business entity that markets, sells, distributes, licenses or produces Covered Products, unless that business entity's sole involvement with Covered Products is that it makes retail sales or consumes Covered Products, without competing in any way against Quaker. This covenant shall remain in effect until September 30, 2000. a. "Participation" shall be construed broadly to include, without limitation: (1) holding a position in which he directly manages such a business entity; (2) holding a position in which anyone else who directly manages such a business entity is in Ralston's reporting chain or chain-of- command (regardless of the number of reporting levels between them); (3) providing input, advice, guidance, or suggestions regarding the management of such a business entity to anyone responsible therefor; (4) providing a testimonial on behalf of such an operation or the product it produces; or (5) doing anything else which falls within a common sense definition of the term "participation," as used in the present context. b. "Covered Products" mean any product which falls into one or more of the following categories, so long as Quaker is producing, marketing, distributing, selling or licensing such product anywhere in the world: sports beverages; thirst quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain-based snacks; value-added rice products; pancake syrup; value-added pasta products; dry pasta products; and items Quaker produces for the food service market. ii. Raiding Employees. Ralston shall not in any way, directly or indirectly (including through someone else acting on Ralston's recommendation, suggestion, identification or advice), facilitate or solicit any existing Quaker employee to leave the employment of Quaker or to accept any position with any other company or corporation. This covenant shall remain in effect until March 31, 2001. For purposes of this provision, the following definitions apply: a. "Existing Quaker employee" means someone: (1) who is employed by Quaker on or before the date when Ralston's employment terminates; (2) who is still employed by Quaker as of the date when the facilitating act or solicitation takes place; and (3) who holds a manager, director or officer level position at Quaker (or an equivalent position based on job duties and/or Hay points, regardless of the employee's title). b. The terms "solicit" and "facilitate" shall be given the ordinary, common sense meaning appropriate in the present context. iii. Non-disclosure. Ralston shall not use or disclose to anyone any confidential information regarding Quaker. For purposes of this provision, the term "confidential information" shall be construed as broadly as Illinois law permits and shall include all non-public information Ralston acquired by virtue of his positions with Quaker which might be of any value to a competitor or which might cause any economic loss (directly or via loss of an opportunity) or substantial embarrassment to Quaker or its customers, distributors or suppliers if disclosed. Examples of such confidential information include, without limitation, non-public information about Quaker's customers, suppliers, distributors and potential acquisition targets; its business operations and structure; its product lines, formulas and pricing; its processes, machines and inventions; its research and know-how; its financial data; and its plans and strategies. This covenant shall remain in effect until March 31, 2001. B. In the event of a breach, threatened breach or situation that creates an inevitable breach of any term of this paragraph by Ralston, Quaker shall be entitled to an injunction compelling specific performance, restraining any future violations and/or requiring affirmative acts to undo or minimize the harm to Quaker, in addition to damages for any actual breach that occurs. The parties stipulate and represent that breach of any provision of this paragraph would cause irreparable injury to Quaker, for which there would be no adequate remedy at law, due among other reasons to the inherent difficulty of determining the precise causation for loss of customers, confidential information and/or employees and of determining the amount and ongoing effects of such losses. C. In the event Ralston breaches any term of this Paragraph 5, Quaker shall have the option of seeking injunctive relief or cancelling the payments due under paragraph 1(A) of this Agreement. Quaker's right to terminate Program benefits is spelled out in the Program, and is not affected by this provision. D. In the event Quaker elects to pursue injunctive relief, then the following rules shall apply: i. While litigation over the requested injunction is pending, Quaker may, in its discretion, withhold payments otherwise due to Ralston under paragraph 1(A); provided, Quaker's right to terminate or suspend Program benefits, which are separate from the benefits described in paragraph 1(A), is spelled out in the Program and is not affected by this provision. ii. If, at the conclusion of the litigation, Quaker successfully obtains full injunctive enforcement of all provisions in this paragraph 5 that it attempts to enforce, then Quaker shall pay Ralston all amounts otherwise due under paragraph 1(A) that were withheld and shall resume making all payments required under paragraph 1(A), and shall likewise pay all Program payments that were withheld. iii. If, at the conclusion of the litigation, Quaker obtains some, but not all, of the injunctive relief it seeks under this paragraph, then Quaker shall make an election. It may either accept the injunction and proceed as specified in subparagraph (ii) above, or it may elect to voluntarily vacate and/or not enforce the injunction, in which event it shall have no obligation to resume paying Ralston under paragraph 1(A), nor to pay withheld amounts. iv. If a court entirely declines to enforce paragraph 5 of this Agreement or holds it invalid or void, then Quaker shall have no further obligation to pay Ralston under paragraph 1(A), including sums withheld while litigation was pending. v. If a court holds that the provisions of paragraph 5 are enforceable, but further finds that Ralston did not breach any of them, then Quaker shall pay Ralston all amounts otherwise due under paragraph 1(A) that were withheld, and shall resume making all payments required under paragraph 1(A). vi. Ralston shall have no claim for damages based on any delay in the payments due under Paragraph 1(A) that results from a suspension of payments or withholding in accordance with the preceding provisions; PROVIDED, if payment of withheld amounts subsequently is required, then along with such payment Quaker shall pay Ralston interest at an annualized rate of 6.0%. vii. For purposes of this paragraph, litigation shall not be deemed to have concluded, and no payment shall be due, until all potential appeals by all parties are waived or exhausted. E. Recitals: Ralston stipulates and represents that the following facts are true, and further understands and agrees that they are material representations upon which Quaker is relying in entering into this Agreement: i. Ralston has been Senior Vice President of Human Resources for several years, and in that capacity has been a member of Quaker's Senior Leadership Team. In these positions, he participated in forming and/or was informed about the details of operational plans and strategic long range plans for all of Quaker's businesses. Without limitation, he has detailed knowledge regarding business plans, new product development, pricing structure, marketing plans, sales plans, distribution plans, and supply chain plans for all of Quaker's products. This is: (1) information Ralston gained by virtue of his employment at Quaker; (2) highly confidential and secret information from which Quaker derives economic value, actual or potential, from its not being generally known to other persons outside Quaker who might obtain economic value from its disclosure or use; (3) information known within Quaker only to key employees and those who need to know it to perform their jobs; (4) information regarding which Quaker has taken reasonable measures to preserve its confidentiality; (5) information that could not easily be duplicated by others, and which Quaker required considerable time and effort to develop; and (6) information which is likely to remain valuable and secret for at least three years. ii. By virtue of his employment at Quaker, Ralston has developed personal and business relationships with existing Quaker employees, which he otherwise would not have had. By virtue of his position as Quaker's most senior Human Resources officer, he also has acquired detailed knowledge as to which existing Quaker employees are critical to Quaker's success and future plans, and which ones have skills or contacts that would be valuable to a competitor. 6. Advance Determination Of Permitted/Prohibited Conduct Ralston may request an advance written determination from Quaker's Chief Executive Officer as to whether taking a proposed action or job would, in Quaker's opinion, constitute a breach of this Agreement. In that event, and provided that Ralston discloses in writing all material facts about the proposed action or job, Quaker shall make a reasonable effort to respond to Ralston's request for an advance written determination within ten (10) business days after receiving it; PROVIDED, that if circumstances materially change after the advance determination is made (e.g., if the duties of a job change after Ralston accepts it), the determination may be reconsidered and revised or reversed upon thirty days advance written notice to Ralston. Quaker shall treat as confidential any non-public information Ralston communicates as part of a request for an advance determination. 7. Choice Of Law And Forum; Attorney Fees A. This Agreement shall be governed by and construed in accordance with the laws of the State Of Illinois, without giving effect to choice of law principles. B. In the event of any litigation over this Agreement or an alleged breach thereof, Ralston consents to submit to the personal jurisdiction of any court, state or federal, in the State of Illinois. The parties agree that the Illinois courts, state or federal, shall be the exclusive jurisdiction for any litigation over this Agreement or an alleged breach thereof. C. In the event of litigation between Ralston and Quaker regarding any provision of this Agreement, the party which prevails in such contest shall be entitled to receive from the other party, in addition to any damages, injunction, or other relief awarded by a court, reimbursement of all litigation costs and expenses, including reasonable attorney fees, which the prevailing party reasonably incurred as a result of such litigation, plus interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. If, in a particular contest, each party prevails on one or more issues, the court shall exercise its equitable judgment to determine which, if either, should be considered the prevailing party and the percentage of that party's expenses which should be reimbursed, taking into account inter alia the significance of the issue(s) on which each party prevailed and the reasonableness of each party's position(s). 8. Full Agreement This written document contains the entire understanding and agreement of the parties on the subject matter set forth herein, and supercedes any prior agreement relating to these matters. No promises or inducements have been made other than those reflected herein, and no party is relying on any statement or representation by any person except those set forth herein, including without limitation oral or written summaries of this Agreement. This Agreement cannot be modified or altered except by a subsequent written agreement signed by the parties; and only Quaker's highest ranking Human Resources officer (other than Ralston) or his direct superior shall have authority to sign such an amendment on behalf of Quaker. Without limitation, nothing in this document shall eliminate or reduce Ralston's obligation to comply with the Quaker Code Of Ethics, to the extent that certain provisions in the Code (such as non-disclosure rules) remain applicable to employees after termination. Likewise, nothing in this document shall eliminate or reduce Quaker's obligation to indemnify Ralston in certain situations, pursuant to Quaker's by-laws or applicable law. 9. Severability Each term of this Agreement is deemed severable, in whole or in part, and if any provision of this Agreement or its application in any circumstance is found to be illegal, unlawful or unenforceable, the remaining terms and provisions shall not be affected thereby and shall remain in full force and effect, except as expressly provided below. Unless Quaker consents, the provisions in paragraph 5 of this Agreement are not severable from each other or from Paragraph 1(A). If any provision or aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then there is no consideration for payments under paragraph 1(A); PROVIDED, if any provision in paragraph 5 is invalid or broader than the law allows, a court is authorized to award the broadest injunctive relief permitted by law, and Quaker shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker elects to accept the limited injunctive relief, then it shall consent to sever the invalid provision(s). Quaker's consent to sever one or more provisions in paragraph 5 may be given at any time: before, during, or after litigation, in Quaker's sole discretion. The Quaker Oats Company /s/ Pamela S. Hewitt By one of its officers Ralston has been advised in writing, via this notice, to consult with an attorney before signing this Agreement. He acknowledges that he received the original draft of this Agreement on or about March 13, 1998. Ralston originally was given twenty one (21) days from March 13, 1998 to consider and decide whether to sign the Agreement, but at his request Quaker agreed to extend that period to noon on April 15, 1998; also, certain provisions from the original draft were revised at Ralston's request. Ralston understands that he may revoke the Agreement within seven (7) days after signing it. Ralston further understands that he has the right to request a different waiver, release and separation agreeement which contains shorter non-compete, no raiding and non-disclosure periods. Execution of such a document would satisfy the Program's prerequisites and entitle him to Program benefits, but would not entitle him to the additional benefits provided under this Agreement, nor entail the additional obligations. Ralston affirms that he has carefully read and fully understands all provisions of this Agreement, that the consideration he is receiving is fair and adequate, and that he has not been threatened or coerced into signing it. April 15, 1998 /s/ Douglas J. Ralston Douglas J. Ralston -----END PRIVACY-ENHANCED MESSAGE-----