Exhibit 10(h)(2)
Employment Agreement
This Employment Agreement ("Agreement") is made and entered into by and
between Xxxxxxx X. Xxxxxx ("Xxxxxx") and The Quaker Oats Company ("Quaker"),
collectively the "parties." The "Effective Date" of this Agreement shall be
Xxxxxx'x first day of active service with Quaker, which is presently expected
to be November 11, 1998.
1. Position: On the Effective Date, Xxxxxx will commence employment with
Quaker as Senior Vice President and Chief Financial Officer ("CFO").
2. Relocation Expenses: To reimburse Xxxxxx for the expense of moving his
primary residence to Chicago, Quaker shall provide Xxxxxx with the relocation
benefits described in the Quaker Relocation Policy For Transferring Employees,
and shall reimburse him for any other reasonable expenses approved by Quaker's
Chief Executive Officer ("CEO").
3. Base Salary: From the Effective Date through December 31, 1999, Xxxxxx'x
annual base salary shall be four hundred seventy five thousand dollars
($475,000), paid in accordance with Quaker's standard payroll practices. After
that date, his salary shall be determined by Quaker through its normal
compensation practices; provided, during active service, his salary cannot be
reduced below four hundred seventy five thousand dollars ($475,000). Whenever
used in this Agreement, the phrase "normal compensation practices" refers to
practices in effect on the date a decision is made; this phrase is not intended
to freeze Quaker's current practices.
4. Bonuses: Xxxxxx is eligible to receive an annual performance bonus based
on the terms and provisions of Quaker's Management Incentive Bonus Plan (the
"MIB" plan).
A. 1998 & 1999 MIB Bonuses: For 1998 and 1999, Xxxxxx'x target bonus
shall be seventy percent (70%) of his annualized base salary, and the
maximum award will be two hundred percent (200%) of his target. The
actual amount of any bonus award shall be determined by applying the
terms of the MIB plan; provided, any award for 1998 shall be prorated
based on the percentage of the year that Xxxxxx was employed by
Quaker in active service.
B. Subsequent MIB Bonuses: Any bonus targets and awards for years after
1999 shall be determined by Quaker in its discretion through its
normal compensation practices and the terms of the MIB and/or any
other applicable plan.
C. Additional Bonuses: Quaker shall have discretion to award additional
bonuses to Xxxxxx, as it may deem appropriate.
5. Group/Executive Benefits: Except as specifically provided herein, and
subject to its normal compensation practices and the terms and conditions of
any applicable plans, Quaker shall provide Xxxxxx and his family with benefits
comparable to those enjoyed by other Quaker officers at a similar level, such
as group and/or executive life, hospitalization and disability insurance;
health program; pension, 401(k), and similar benefit plans; perquisite
allowance; financial counseling reimbursement; and similar programs. All
waiting periods shall be waived except with respect to the pension plan, where
waiver of the one year waiting period is not permitted.
6. Supplemental Retirement Benefit: Subject to the terms and conditions
described below, including vesting requirements, upon termination of his
employment with Quaker, Xxxxxx will receive a supplemental retirement benefit
pursuant to this Agreement.
A. Amount Of Supplemental Benefit: This supplemental retirement benefit
is expressed as an annualized figure. The annualized amount of this
benefit shall be calculated by taking the Base Amount and subtracting
the Setoff from it.
i. Base Amount: The Base Amount shall be an annualized figure
equal to the greater of three hundred thousand dollars
($300,000.00) or the amount Xxxxxx would receive under the
formula in The Quaker Supplemental Executive Retirement Program
("SERP"), were he eligible for SERP benefits; provided, this
figure may be prorated or actuarially reduced, as described
below. It is understood that under the SERP's present terms,
for an executive who retired at age 60 after 5 years of active
service, the SERP formula would produce a benefit equal to
average annual earnings (as defined in the SERP) times forty
five percent (45%) times five divided by fifteen (5/15).
ii. Setoff: The Setoff shall be an amount equal to the annualized
value of any and all other retirement benefits to which Xxxxxx
is entitled (or which he receives) under any defined benefit
plan(s) (qualified or non-qualified), including Quaker's plans
and those of Xxxxxx'x former employers.
iii. "Annualized" Value: All annualized calculations of this
supplemental retirement benefit and of other retirement benefits
shall assume that Xxxxxx elects to receive each benefit on a
straight line annuity basis, without regard to the form of
payment he actually elects or elected (including any lump sum
payment), and without regard to any actuarial reduction that may
apply based on the date he elects to commence receiving a
benefit.
B. Form Of Payment: Xxxxxx may elect to take this supplemental benefit
in any form permitted under either the SERP or The Quaker Retirement
Plan, subject to the applicable actuarial adjustment prescribed by
the plan in question for electing such an alternative form of payment
instead of a straight life annuity.
C. Actuarial Reduction: If Xxxxxx commences receipt of this
supplemental retirement benefit before reaching age 60, the Base
Amount shall be actuarially reduced to adjust for this early receipt,
in accordance with the terms of the SERP.
D. Vesting:
i. Full Vesting: This supplemental retirement benefit shall vest
when Xxxxxx completes sixty (60) months of active service with
Quaker.
ii.Prorated Vesting: If, before Xxxxxx completes sixty (60) months
of active service with Quaker, his employment terminates for any
reason that triggers the payment of supplemental separation
benefits and/or benefits under The Quaker Officers' Severance
Program ("Program"), or due to his death or his retirement
immediately following an approved long term disability leave,
then this supplemental retirement benefit shall vest on Xxxxxx'x
last day of employment with Quaker (i.e., at the end of his
inactive service period, if applicable), but shall be prorated
based on the number of months he was actively employed. To
prorate this benefit, both the Base Amount and the Setoff shall
be multiplied by a fraction: (a) whose numerator is the number
of full months Xxxxxx was employed in active service by Quaker or
thirty (30) months, whichever is lower; and (b) whose denominator
is thirty (30) months.
iii. No Vesting: If Xxxxxx'x employment with Quaker terminates
before he completes sixty (60) months of active service with
Quaker for any reason that does not result in a prorated benefit
under subsection (D)(ii), this supplemental retirement benefit
shall not vest.
E. Survivor Benefit: If Xxxxxx dies before payment of this supplemental
retirement benefit commences, then subject to the vesting and
proration rules in subsections (D)(i) and (D)(ii), and commencing on
the first day of the month following the date of death, his wife will
receive a survivor annuity for the rest of her life equal in amount
to seventy five percent (75%) of the straight life annuity which
would have been payable to Xxxxxx if, on the date immediately before
his death, he had terminated his employment for Good Reason, taking
into account all setoffs that would have applied to his benefit,
except that if his spouse only receives a reduced survivor annuity
under The Quaker Retirement Plan, then that amount, rather than the
full straight life annuity which would have been payable to Xxxxxx,
shall be setoff with respect to The Quaker Retirement Plan.
7. Equity Based Incentive Compensation:
A. Signing Bonus: As of the Effective Date, and pursuant to the
terms of The Quaker Long Term Incentive Plan of 1999 (the
"LTIP"), Quaker shall xxxxx Xxxxxx a 10-year option with respect
to two hundred fifty thousand (250,000) shares of Quaker common
stock. In accordance with the terms of the LTIP, the exercise
price for these shares will be equal to the fair market value on
the Effective Date. The following vesting rules shall apply to
these options:
i.While Xxxxxx is employed in active service or on an approved
disability leave, or if his active service terminates due to
his death, one-fifth (1/5) of these options shall vest each
year for five years, on the first five anniversaries of the
Effective Date (e.g., the first 50,000 options will vest on
November 11, 1999, and the last 50,000 options
will vest on November 11, 2003, based on the expected
Effective Date);
ii. If Xxxxxx'x employment terminates in circumstances that
trigger an award of Program benefits and/or supplemental
separation benefits, a prorated number of these options shall
vest (the "Prorated Award"). The Prorated Award will be
calculated by multiplying two hundred fifty thousand
(250,000) options by a fraction: (a) whose numerator is the
number of full months Xxxxxx was employed in active service
by Quaker or thirty (30) months, whichever is lower; and (b)
whose denominator is thirty (30) months. These options shall
vest according to the schedule in subsection (A)(i) (i.e., in
increments of up to 50,000, and on anniversaries of the
Effective Date) until the Prorated Award is exhausted;
iii. If Xxxxxx'x employment terminates in circumstances not
covered by subsection (A)(ii), then any of these options that
have not yet vested by his last day of active service shall
not vest.
B. Subsequent Stock Option Awards: Xxxxxx shall be eligible to receive
an award of options under the LTIP commencing in 1999. In 1999,
Xxxxxx shall be awarded at least fifty thousand (50,000) options, so
long as he is actively employed by Quaker on the date when Quaker
grants options to its executives. In subsequent years, the actual
number of options granted to Xxxxxx shall be determined by Quaker
pursuant to its normal compensation practices.
C. ESOP: Xxxxxx shall immediately be eligible to participate in any
award of stock under The Quaker Employee Stock Ownership Plan
("ESOP"). The size, terms, and conditions of any award to him shall
be determined by the provisions of the ESOP. Xxxxxx'x first award,
to be allocated as of June 1999, will be prorated in accordance with
the terms of the ESOP.
D. Other: Quaker may, in its discretion, xxxxx Xxxxxx additional equity
incentive compensation, pursuant to its normal compensation practices
and the terms and conditions of any applicable plans.
8. Vacation: Beginning in 1999, Xxxxxx shall be entitled to four (4) weeks
of vacation per calendar year. He is subject to Quaker's standard plans and
policies regarding related issues, such as unused vacation days.
9. Events Triggering Supplemental Separation Benefits: The employment
relationship between Quaker and Xxxxxx may be terminated at-will by either
party (i.e., at any time, for any reason). The following rules shall determine
whether, upon termination, Xxxxxx qualifies for supplemental separation
benefits:
A. Eligibility: Xxxxxx shall qualify for supplemental separation
benefits under this Agreement if, but only if, he qualifies for
severance benefits under the Program; provided, if he resigns within
six (6) months following any event that constitutes "Good Reason" (as
defined below), then for purposes of the Program and this Agreement,
Quaker shall treat him as involuntarily terminated due to job
elimination. The determination as to whether Xxxxxx qualifies for
Program benefits shall be made by the Committee that administers the
Program ("Committee"), pursuant to its regular procedures and
practices; provided, if the Committee denies benefits based on gross
misconduct, then the CEO and the Compensation Committee of Quaker's
Board of Directors ("Compensation Committee") shall review that
decision, and benefits will be denied only if the CEO and a majority
of the Compensation Committee vote to deny benefits; and further
provided, this internal review process shall not eliminate Xxxxxx'x
right to judicial review of the Committee's decision, so long as he
first allows a reasonable time for the CEO and the Compensation
Committee to review it. Xxxxxx understands that based on the current
terms of the Program, eligibility is contingent not only on the reason
for termination (e.g., not discharged for "gross misconduct"), but
also on executing a waiver and release of claims, among other
conditions. Xxxxxx is not hereby committing to execute such a waiver
and release in the future; rather, if terminated, he will have the
option of doing so to qualify for Program benefits and for
supplemental separation benefits. Nothing in this provision,
including its non-exhaustive summary of the Program's eligibility
rules, shall be construed as modifying, superseding or limiting the
Program's terms, except that the procedure for deciding claims under
the Program is modified by adding the internal review process
described above.
B. Termination Due To Change In Control:
i. Notwithstanding any other provision in this Agreement, if Xxxxxx
qualifies for benefits under his ESA, he will not receive
supplemental separation benefits under this Agreement. In that
event, his separation benefits would be limited to what is
provided under the ESA and the Program.
ii. Notwithstanding anything to the contrary in section 9(A), Xxxxxx
shall be paid double (2 times) the separation benefit described
in section 10(A) if, but only if, all of the following occur:
(a) there is a change in control of Quaker (as that term, or any
similar term, is defined under his ESA); and (b) Xxxxxx fails to
qualify for benefits under both his ESA and the Program; and (c)
he resigns or retires for any reason during the thirteenth (13th)
month following the change in control.
C. Definition Of "Good Reason": "Good Reason" for Xxxxxx to resign
shall exist if any of the following events occur without his consent:
(i) Quaker intentionally fails to pay or provide required
compensation, and does not cure the situation despite a reasonable
opportunity after Xxxxxx calls the omission to Quaker's attention in
writing; (ii) Quaker reduces Xxxxxx'x title, duties or authority
(compared to what they were on the Effective Date) so significantly
that his position is materially diminished; or (iii) Quaker
materially breaches the terms of this Agreement and fails or refuses
to cure the situation, provided that Xxxxxx calls the breach to
Quaker's attention in writing and allows a reasonable opportunity to
cure it.
10. Supplemental Separation Benefits: If, due to an involuntary termination,
Xxxxxx qualifies for supplemental separation benefits under section 9 of this
Agreement, then the following terms and conditions shall apply:
A. One Additional Year Of Benefits: In addition to benefits under the
Program, and subject to section 11(E), Quaker shall pay Xxxxxx an
amount equal to one (1) year of Program payments. This sum shall be
paid in a lump sum within thirty (30) days following his last day of
active service or within thirty (30) days following a determination
of his eligibility for Program benefits, whichever is later. This
payment is consideration for the covenants and other provisions in
section 11, not for anything else.
B. Calculating His Annual Compensation: Both under the Program and
under this Agreement, in calculating the bonus component of Xxxxxx'x
annual compensation, Quaker shall use his MIB bonus target at the
time of termination or his most recent MIB bonus payment, whichever
is greater.
C. Pro-Rata Bonus For Final Year: Within thirty (30) days after
Xxxxxx'x last day of active service, Quaker shall pay him a lump sum
that represents a pro-rated annual bonus for the year of termination.
This amount shall be calculated by taking his bonus target for the
year of termination and multiplying it times a fraction: (i) whose
numerator is the number of days elapsed in the fiscal year during
which Xxxxxx is terminated, from the first day of that fiscal year
through his final day of active service; and (ii) whose denominator
is 365 (e.g., based on Quaker's current fiscal year, which is the
same as the calendar year, if Xxxxxx'x last day of active service was
February 5, then this fraction would be 0.10, calculated as follows:
36 days elapsed in current fiscal year divided by 365 days).
D. Five Days Of Salary: Within thirty (30) days following Xxxxxx'x
termination from active service, Quaker shall pay him an amount equal
to five (5) days of pay at his then-current base salary rate.
11. Prohibited Conduct:
A. Covenants: Xxxxxx covenants and agrees that during the periods
specified below, he shall not engage in any of the following
activities anywhere in the world:
i. Non-competition. During the two (2) year period immediately
following the termination of Xxxxxx'x employment in
circumstances that qualify him for supplemental separation
benefits under sections 9 and 10, or during the one (1) year
period immediately following his termination in any other
circumstances, Xxxxxx 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.
ii. Raiding Employees. During the three (3) year period immediately
following the termination of Xxxxxx'x employment in circumstances
that qualify him for supplemental separation benefits under
sections 9 and 10, or during the two (2) year period immediately
following his termination in any other circumstances, Xxxxxx
shall not in any way, directly or indirectly (including through
someone else acting on Xxxxxx'x 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.
iii. Non-disclosure. During the three (3) year period immediately
following the termination of Xxxxxx'x employment in circumstances
that qualify him for supplemental separation benefits under
sections 9 and 10, or during the two (2) year period immediately
following his termination in any other circumstances, Xxxxxx
shall not use or disclose to anyone any Confidential Information.
B. Definitions: For purposes of section 11 of this Agreement, the
following definitions shall apply:
i. "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 Xxxxxx'x
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.
ii. "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. In addition, if Quaker
adds to its portfolio a new business or category of products with
annual sales exceeding fifty million dollars ($50,000,000)
worldwide, such product(s) shall be included within this
definition.
iii. "Existing Quaker Employee" means someone: (1) who is
employed by Quaker on or before the date when Xxxxxx'x 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).
iv. "Confidential Information" shall be construed as broadly as
Illinois law permits and shall include all non-public information
Xxxxxx acquired by virtue of his relationship 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 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.
C. Injunctive Relief: In the event of a breach, threatened breach or
situation that creates an inevitable breach by Xxxxxx of any covenant
in section 11(A), 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 covenant in
section 11(A) 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.
D. Other Remedies: In the event Xxxxxx breaches any covenant contained
in section 11(A), Quaker shall have the option of seeking injunctive
relief or cancelling the supplemental separation payments due under
sections 9 and 10 of this Agreement. Quaker's right to terminate
Program benefits is spelled out in the Program, and is not affected
by this provision.
E. Repayment Of Supplemental Separation Benefit: If Xxxxxx breaches any
covenant(s) set forth in section 11(A), then in addition to any
injunctive relief or actual damages awarded by a court, Xxxxxx shall
repay to Quaker an amount equal to the lump sum payment he received
under section 10(A). Xxxxxx shall make this repayment within thirty
(30) days following a final judgment against him. For purposes of
this provision, a judgment shall not be considered final until all
potential appeals are exhausted or waived (expressly or by expiration
of the time for filing an appeal).
F. Recitals: Xxxxxx acknowledges that by virtue of the positions he
will hold, he will acquire Confidential Information, including
without limitation knowledge of financial details and plans,
operational plans, strategic long range plans, new product
development, marketing plans, sales plans, and distribution plans.
Xxxxxx also acknowledges that by virtue of his positions, he will
learn which Existing Quaker Employees are critical to Quaker's
success and will develop relationships he otherwise would not have
had with such employees.
12. Advance Determination Of Permitted/Prohibited Conduct: Xxxxxx 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 any covenant in section 11(A). In that event, and provided that
Xxxxxx 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, if
circumstances materially change after the advance determination is made (e.g.,
if the duties of a job change after Xxxxxx accepts it), the determination may
be reconsidered and revised or reversed upon thirty (30) days advance written
notice to Xxxxxx. Quaker shall treat as confidential any non-public
information that Xxxxxx communicates as part of a request for an advance
determination.
13. Choice Of Law And Forum
A. Law: This Agreement shall be governed by and construed in accordance
with the laws of Illinois, without regard to choice of law
principles.
B. Forum: In any litigation over this Agreement, both parties consent
to submit to the personal jurisdiction of any court, state or
federal, in the State of Illinois. Such courts in Illinois shall be
the exclusive jurisdiction for any litigation over this Agreement or
an alleged breach thereof.
14. Attorney Fees And Other Expenses:
A. For This Agreement: Quaker will pay all reasonable legal fees and
related expenses Xxxxxx incurred in connection with the negotiation
and preparation of this Agreement.
B. Subsequent Litigation: If Xxxxxx and Quaker become involved in
litigation regarding the terms of his employment with Quaker or the
termination thereof, the party which prevails shall be entitled to
reimbursement of all reasonable litigation costs and expenses,
including attorney fees. If each party prevails on one or more
litigated 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 such factors as the significance and
number of the issue(s) on which each party prevailed, the
reasonableness of each party's position(s), and ability to pay.
15. Indemnification: To the fullest extent permitted by law and Quaker's
by-laws, Quaker shall indemnify Xxxxxx (including the advancement of expenses)
for any judgments, fines, amounts paid in settlement and/or reasonable
expenses, including attorneys' fees, incurred by Xxxxxx in connection with the
defense of any lawsuit or other claim to which he is made a party by reason of
being an officer, director or employee of Quaker or any of its subsidiaries.
16. Gross-Up Payment for Golden Parachute Taxes: If it is determined
that any payment Quaker makes to or for the benefit of Xxxxxx, under this
Agreement or otherwise, is subject to the federal excise taxes imposed on
golden parachute payments, then regardless of whether Xxxxxx has declared his
ESA effective, Quaker will make an additional payment to him (a "gross-up"
payment) in accordance with the terms of his ESA (presently Section 8 of the
ESA), as determined by the terms of the ESA on the Effective Date or on the
date of the payment in question, whichever is more favorable to Xxxxxx.
17. Representation By Xxxxxx: Xxxxxx represents that he is not presently
subject to any non-competition agreement or employment agreement that prevents
him from accepting this job with Quaker and performing the duties of Chief
Financial Officer.
18. Scope of Agreement:
A. This Agreement supersedes any other document or oral agreement that
conflicts with it regarding any of the matters set forth herein.
However, it is not intended to pre-empt or supersede other documents,
including plan documents, that provide additional, non-conflicting
rules or terms. Without limitation, nothing in this Agreement shall
eliminate or reduce Xxxxxx'x obligation to comply with Quaker's Code
Of Ethics.
B. No promises or inducements have been made other than those reflected
herein. This Agreement cannot be amended except by a written
agreement signed by both parties, and only Quaker's highest ranking
Human Resources officer or his/her direct superior has authority to
sign such an amendment on behalf of Quaker.
19. 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; in addition, a court may re-write the invalid
provision(s) so as to be consistent with applicable law and still, to the
extent possible, achieve the intended effect of this Agreement.
Date: November 11, 1998 /s/ Xxxxxx X. Xxxxxxxx
The Quaker Oats Company,
by an authorized signing officer
Date: November 11, 1998 /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
