KEEBLER FOODS CO, 424B4, 1998-02-02

KEEBLER FOODS CO
424B4, 1998-02-02
COOKIES & CRACKERS

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<PAGE> 1

11,640,575 Shares

KEEBLER LOGO KEEBLER FOODS COMPANY
Common Stock KEEBLER ELF

------------------

This is an initial public offering of shares of common stock of Keebler
Foods Company. Selling stockholders identified in this prospectus are offering
all of the shares to be sold in the offering. Keebler will not receive any of
the proceeds from the offering. After the offering, Flowers Industries, Inc.
will own approximately 55% of the outstanding shares of common stock. There is
currently no public market for the common stock.

Keebler will list the common stock on the New York Stock Exchange under the
symbol "KBL."

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $24.00 $279,373,800
Underwriting Discounts and Commissions...................... $ 1.44 $ 16,762,428
Proceeds to the Selling Stockholders........................ $22.56 $262,611,372
</TABLE>

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.

MORGAN STANLEY DEAN WITTER

SBC WARBURG DILLON READ INC.

Prospectus dated January 29, 1998

<PAGE> 2
DESCRIPTION OF PICTURES APPEARING ON
INSIDE COVER PAGE:

ERNIE THE ELF

APPEARING BEFORE

A SAMPLE OF KEEBLER PRODUCTS

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements; Certain Defined Terms; Market
Share Data................................................ 10
Dividend Policy............................................. 11
Capitalization.............................................. 12
Unaudited Pro Forma Consolidated Financial Information...... 13
Selected Historical Financial Data.......................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 37
Principal and Selling Stockholders.......................... 45
Certain Related Transactions................................ 46
Description of Certain Indebtedness......................... 49
Description of Capital Stock................................ 51
Certain United States Federal Tax Considerations For
Non-U.S. Holders of Common Stock.......................... 53
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 57
Notice to Canadian Residents................................ 60
Legal Matters............................................... 61
Experts..................................................... 61
Available Information....................................... 61
Index to Financial Statements............................... F-1
</TABLE>

------------------------------------

Keebler's principal executive offices are located at 677 Larch Avenue,
Elmhurst, Illinois 60126, (630) 833-2900.

Unless otherwise stated herein, all information contained in this
prospectus assumes no exercise of the over-allotment option to purchase up to
1,746,086 shares of common stock granted to the underwriters for the U.S.
portion of the offering (the "U.S. Underwriters") and the managers for the
international portion of the offering (the "Managers").

For the definition of certain capitalized terms and an explanation of
certain market share data, see "Forward-Looking Statements; Certain Defined
Terms; Market Share Data."
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the common stock. You should read the entire
prospectus carefully. Keebler's operations are comprised of the Keebler
business, which was acquired in January 1996, and the Sunshine business, which
was acquired in June 1996. Unless stated otherwise, market share information is
based on supermarket sales, measured in pounds, for the fifty-two week period
ended November 30, 1997 as reported by IRI. IRI is a company that provides
Keebler with sales data gathered from scanners in supermarkets with annual sales
of $2.0 million or more. Unless stated otherwise, this IRI data excludes sales
through channels other than supermarkets. Keebler has a lower market share in
these other channels. Therefore, the data may overstate Keebler's share of the
overall cookie and cracker market. All information in this prospectus has been
adjusted to reflect a 57.325-for-1 stock split of the common stock effected on
January 22, 1998.

KEEBLER

Keebler is the second largest cookie and cracker manufacturer in the United
States with annual net sales of $2.0 billion and a 24.2% share of the U.S.
cookie and cracker market. Keebler markets a majority of its products under
well-recognized brands such as Keebler, Cheez-It and Carr's. In the United
States, Keebler is the number two manufacturer of branded cookies and crackers,
the number one manufacturer of private label cookies and the number one
manufacturer of cookies and crackers for the foodservice market. Keebler is the
number one manufacturer of retail branded ice cream cones in the United States.
In addition, Keebler is a major producer of retail branded pie crusts. Keebler
also produces custom-baked products for other marketers of branded food
products.

BRANDED PRODUCTS. Keebler's branded cookie and cracker products accounted
for 81% of its net sales in the first forty weeks of 1997. Keebler produces
eight of the twenty-five best-selling cookies and ten of the twenty-five
best-selling crackers in the United States based on dollar sales. Keebler's
branded cookie and cracker products include, among others, the following:

<TABLE>
<CAPTION>
KEEBLER BRAND CHEEZ-IT BRAND OTHER BRANDS
------------- -------------- ------------
<S> <C> <C>
Chips Deluxe cookies Cheez-It snack crackers Carr's
Pecan Sandies cookies Cheez-It party mix Vienna Fingers
Fudge Shoppe cookies Nacho Cheez-It Hydrox
Town House crackers Sunshine Krispy
Club crackers Hi-Ho
Graham Selects crackers
Wheatables crackers
Zesta crackers
</TABLE>

DSD DISTRIBUTION SYSTEM. Keebler distributes its branded cookie and cracker
products to approximately 30,000 retail locations through its own national
direct to store sales and distribution system, which is known as a "DSD
distribution system". With this DSD distribution system, Keebler services
substantially all supermarkets in the United States. Keebler is one of only two
cookie and cracker companies that owns and operates a national DSD distribution
system. Keebler believes its DSD distribution system provides it with certain
competitive advantages. Sales employees of Keebler's DSD distribution system
visit supermarkets on average 2.8 times each week. These employees stock and
arrange Keebler's products on store shelves and build end-aisle and
free-standing product displays. This frequent presence of Keebler employees in
supermarkets provides Keebler with a high level of control over the availability
and presentation of its products. Keebler believes that this control allows it
to maintain shelf space, better execute in-store promotions and more effectively
introduce new products. In-store promotions are important because Keebler
believes that purchases of cookies and crackers are often impulse driven.

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<PAGE> 5

INDUSTRY OVERVIEW

The U.S. cookie and cracker industry had 1996 retail sales of $8.1 billion,
with cookie sales of $4.8 billion and cracker sales of $3.3 billion. Since 1992,
consumption per person of cookies and crackers in the United States has remained
stable. The cookie and cracker industry is comprised of distinct product
segments. Cookie segments include, among others, sandwich cookies, chocolate
chip cookies and fudge-covered cookies. Cracker segments include, among others,
saltine crackers, graham crackers and snack crackers.

Supermarkets accounted for 78% of 1996 retail sales in the cookie and
cracker industry with mass merchandisers, such as Target; convenience stores;
and drug stores accounting for the balance. Since 1992, U.S. annual dollar
supermarket sales of cookies and crackers have increased an average of 1.5% per
year. Moreover, Keebler believes that non-supermarket channels of distribution
are becoming increasingly important.

Keebler and Nabisco are the two largest national participants in the cookie
and cracker industry. Keebler and Nabisco have a combined market share of 58.4%,
with Keebler having 24.2% and Nabisco having 34.2%. Other participants in the
industry generally operate only in certain regions of the United States or only
participate in a limited number of segments of the industry.

STRATEGY

Since the acquisition of the Keebler business in January 1996, Keebler's
new management began implementing a business strategy designed to capitalize on
its competitive strengths, which include Keebler's strong national brands and
its national DSD distribution system. The acquisition of Sunshine in June 1996
enables Keebler to further develop this business strategy. The key elements of
Keebler's strategy are:

BUILD ON THE KEEBLER BRAND. Keebler is one of the few packaged food brands
that generates over $1 billion in annual sales. The Keebler brand is recognized
in approximately 98% of U.S. households and is used in approximately two-thirds
of U.S. households. This brand awareness has been developed over many years of
marketing "Elfin Magic" imagery and "Uncommonly Good" Keebler products. Keebler
intends to continue to invest in advertising and promoting the Keebler brand.
Keebler's marketing will emphasize the well known images of Ernie and the other
Keebler Elves and Keebler's Hollow Tree.

TAKE ADVANTAGE OF PRODUCT SEGMENTATION AND KEEBLER BRAND STRENGTH ACROSS
PRODUCT SEGMENTS. As described above, the cookie and cracker industry has many
distinct product segments. Keebler believes that many well known cookie and
cracker brands are only associated with one product segment, such as the
chocolate chip cookie segment, making it difficult for these brands to be used
to market products in other segments. In contrast, Keebler believes the strength
of the Keebler brand is its consumer identity across a wide variety of product
segments. Keebler's strategy is to target product segments where it already has
a strong position or that are not dominated by a strong branded product. In
addition, Keebler plans to continue to use the Keebler brand to cost
effectively:

- introduce new products;
- create new product segments; and
- compete in smaller product segments.

EXPAND THE CHEEZ-IT BRAND. Keebler's Cheez-It brand crackers are the number
one selling snack cracker in the United States. Annual retail sales of Cheez-It
brand products exceed $200 million. Keebler began to distribute Cheez-It brand
products through its DSD distribution system in Fall 1996. For the first
forty-eight weeks of 1997, retail sales of Cheez-It brand products increased by
over 30% compared to the first forty-eight weeks of 1996 when they were not
distributed through Keebler's DSD distribution system. The Cheez-It brand has a
distinctive image with consumers. Keebler intends to maintain and build on this
distinctiveness through new products, advertising and packaging.

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<PAGE> 6

EXPAND NON-SUPERMARKET SALES. In 1996, 22% of retail cookie and cracker
sales were through mass merchandisers, convenience stores and drug stores.
Keebler believes that its total share of sales to these and other
non-supermarket channels, including club stores, such as Costco Wholesale, and
vending distributors, is less than half of its share of sales to supermarkets.
Following the acquisition of Keebler in January 1996, Keebler's new management
began focusing resources on non-supermarket channels. Keebler has developed, and
continues to develop, products, packaging and distribution tailored to
non-supermarket channels. As a result of these efforts, Keebler's
non-supermarket sales have grown significantly. For example, Keebler's retail
sales through mass merchandisers increased 30% in the first forty-eight weeks of
1997 compared to the first forty-eight weeks of 1996.

INCREASE THE EFFICIENCY OF ITS OPERATIONS. Since the Keebler acquisition,
Keebler's new management has lowered annual costs by approximately $120 million
principally by closing plants, reducing overhead and combining the Keebler and
Sunshine sales forces. The relocation of production resulting from the closing
of plants increased Keebler's use of capacity at its manufacturing facilities
from 72% to 82%. Keebler intends to continue to increase the efficiency of its
operations and reduce costs. For example, Keebler plans to reduce costs by
making capital expenditures to further automate its facilities. Keebler also is
focusing on moving products more efficiently through its DSD distribution system
and its other distribution systems.

PURSUE ACQUISITIONS. Approximately 27% of cookie and cracker supermarket
sales are attributable to regional or smaller brands, some of which have strong
positions and retail relationships in their core markets. Keebler intends to
pursue acquisitions that complement or provide further opportunities to use its
existing brands, product lines or distribution systems.

RECENT KEEBLER HISTORY

On January 26, 1996, the current controlling stockholders acquired the
Keebler business, which is referred to as the "Keebler acquisition." In June
1996, Keebler acquired Sunshine, the third largest cookie and cracker
manufacturer in the United States, which is referred to as the "Sunshine
acquisition." By the end of 1996, Keebler completed its planned integration of
Sunshine's operations into those of Keebler. The combination of Sunshine and
Keebler allowed Keebler to achieve efficiencies in administration, purchasing,
production, marketing, sales and distribution. In particular, Keebler
incorporated the sales and distribution of Sunshine retail branded products into
Keebler's DSD distribution system which had excess capacity. Filling this excess
capacity with Sunshine products made Keebler's DSD distribution system more
efficient and allowed Keebler to focus its sales and marketing efforts on its
more profitable retail branded products.

Other initiatives that Keebler has implemented since the Keebler
acquisition include:

- refocusing Keebler on its core cookie and cracker business;
- decentralizing management and tying compensation to profitability rather
than sales volume;
- significantly reducing costs; and
- focusing resources in those segments of the cookie and cracker market
where Keebler believes it has a competitive advantage.

In 1996, Artal, Flowers and certain of Keebler's management formed INFLO to
acquire Keebler. Artal is a private investment company. Flowers, a New York
Stock Exchange-listed company, is one of the country's largest manufacturers and
marketers of fresh and frozen baked goods. After the Keebler acquisition,
additional shares and options were issued to Keebler's management. In connection
with the Sunshine acquisition, GFI acquired shares of common stock and warrants
which it later transferred to its parent Bermore. Immediately prior to the
closing of the offering, Flowers will acquire shares of common stock from Artal
and Bermore so that its ownership of the outstanding common stock will increase
from approximately 45% to approximately 55%. Flowers will pay the selling
stockholders an amount per share of common stock equal to approximately 115% of
the price per share to be paid by investors in the offering. See "Certain
Related Transactions -- Flowers Control Purchase."

3
<PAGE> 7

THE OFFERING

Common Stock offered:

U.S. Offering................. 9,312,460 Shares

International Offering........ 2,328,115 Shares

Total(a)................. 11,640,575 Shares

_________

Selling Stockholders............ Artal and Bermore.

Use of Proceeds................. Keebler will not receive any proceeds from
the sale of common stock in the offering.

Dividend Policy................. Keebler currently intends to retain all
future earnings to fund the development and
growth of its business. Therefore, Keebler
does not currently anticipate paying cash
dividends. See "Dividend Policy."

New York Stock Exchange symbol... KBL

- ---------------------------------------------

(a) If the underwriters for the U.S. portion of the offering and the managers
for the international portion of the offering exercise the option granted to
them in connection with the offering to purchase additional shares of common
stock from Artal and Bermore to cover over-allotments, the total number of
shares to be offered would increase by up to 1,746,086 shares.

4
<PAGE> 8

SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The summary unaudited pro forma financial information below has
been derived from the Pro Forma Financial Information, as defined
under "Unaudited Pro Forma Consolidated Financial Information,"
included elsewhere in this prospectus. The operating and other
data give effect to the Acquisitions, as defined under "Unaudited
Pro Forma Consolidated Financial Information," as if they each had
occurred at the beginning of the period presented. The actual
operating and other data for the forty-week period ended October
4, 1997 is included below for comparative purposes only, and does
not include any pro forma adjustments. The summary unaudited pro
forma financial information below does not represent what
Keebler's results of operations would have been if the
Acquisitions had occurred on the date indicated or Keebler's
results of operations for any future period. The information below
should be read together with the Pro Forma Financial Information
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
KEEBLER
--------------------------------------------------
FORTY WEEKS ENDED
FISCAL YEAR ----------------------------------
1996 OCTOBER 5, 1996 OCTOBER 4, 1997
PRO FORMA PRO FORMA ACTUAL
------------ --------------- ---------------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales................................... $1,974.4 $1,500.3 $1,542.2
Gross profit................................ 1,027.9 767.3 873.7
Restructuring charges (gains)............... (9.1) (9.1) --
Income from continuing operations........... 48.7 13.6 96.1
Net income (loss)........................... 2.2 (12.9) 36.4
Net income (loss) per share................. $0.03 $(0.17) $0.45
Weighted average shares outstanding(a)...... 79.4 77.5 81.6
OTHER DATA:
EBITDA, as adjusted(b)...................... $ 99.4 $ 47.9 $ 141.6
Depreciation and amortization (excluding
items related to discontinued
operations)............................... 59.8 43.4 45.5
Capital expenditures (excluding expenditures
related to discontinued operations)....... 35.6 24.2 26.1
</TABLE>

--------------------------------------------------
(a) After giving effect to the issuance of shares upon the
exercise of all outstanding options issued by the Company,
accounted for under the treasury stock method, and the
exercise of warrants to purchase 6,135,781 shares of common
stock held by Bermore upon the closing of the offering, the
number of shares outstanding will be 89,929,176.

(b) EBITDA, as adjusted, is defined as income from continuing
operations before interest, taxes, depreciation, amortization
and restructuring charges (gains). EBITDA, as adjusted, is
presented as additional information because Keebler believes
it to be a useful indicator of a company's ability to meet
debt service and capital expenditure requirements. It is not,
however, intended as an alternative measure of operating
results or cash flow from operations (as determined in
accordance with generally accepted accounting principles).

5
<PAGE> 9

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

The summary consolidated historical financial data below has
been derived from the consolidated financial statements of Keebler
and UB Investments US Inc. (the "Predecessor Company") included
elsewhere in this prospectus, which have been audited by Coopers &
Lybrand L.L.P., independent public accountants. The summary
consolidated historical financial data below of the Predecessor
Company as of and for the fiscal year ended January 1, 1994 has
been derived from the consolidated financial statements of the
Predecessor Company that are not included in this prospectus. The
summary consolidated historical financial data below of Keebler as
of and for the thirty-six weeks ended October 5, 1996 and the
forty-weeks ended October 4, 1997 have been derived from unaudited
financial statements of Keebler included elsewhere in this
prospectus and, in the opinion of Keebler, include all adjustments
(consisting only of normal recurring adjustments) necessary for a
fair presentation thereof. The results of operations below are not
necessarily indicative of results to be expected for any future
period. The information below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY KEEBLER
------------------------------------------------------ ----------------------------------------
YEAR ENDED FOUR FORTY-EIGHT THIRTY-SIX FORTY
---------------------------------------- WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28, OCTOBER 5, OCTOBER 4,
1994 1994 1995 1996 1996(A) 1996(A) 1997
---------- ------------ ------------ ----------- ------------ ----------- -----------
(IN MILLIONS) (IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales...................... $1,650.1 $1,599.7 $1,578.6 $101.7 $1,645.5 $1,171.4 $1,542.2
Gross profit................... 931.5 894.2 831.8 46.8 871.3 610.7 873.7
Nonrecurring charges(b)........ 120.1 -- 86.5 -- -- -- --
Income (loss) from continuing
operations................... (67.6) 46.4 (137.9) (25.5) 70.1 35.0 96.1
Income (loss) from continuing
operations before
extraordinary item and
cumulative effect of
accounting changes........... (126.9) (26.9) (165.7) (25.4) 17.7 2.6 39.1
Discontinued operations(c)..... 0.6 3.4 7.4 18.9 -- -- --
Extraordinary item(d).......... -- -- -- -- 1.9 1.9 2.7
Cumulative effect of accounting
changes, net of tax.......... (20.9) 0.5 -- -- -- -- --
Net income (loss).............. (147.2) (23.0) (158.3) (6.5) 15.8 0.7 36.4
Net income (loss) per share.... -- -- -- -- $ 0.21 $ 0.01 $ 0.45
Weighted average shares
outstanding.................. -- -- -- -- 76.6 75.5 81.6
OTHER DATA:
EBITDA, as adjusted(e)......... $ 98.4 $ 89.5 $ (93.3) $(23.5) $ 119.6 $ 68.1 $ 141.6
Depreciation and amortization
(excluding items related to
discontinued operations)..... 45.9 43.1 44.6 2.0 49.5 33.1 45.5
Capital expenditures (excluding
expenditures related to
discontinued operations)..... 30.6 54.6 54.2 3.2 29.4 18.0 26.1
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
------------------------------------------------------ ----------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28, OCTOBER 5, OCTOBER 4,
1994 1994 1995 1996 1996 1996 1997
---------- ------------ ------------ ----------- ------------ ---------- ----------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 6.4 $ 12.5 $ 3.0 $ 2.1 $ 12.0 $ 4.4 $ 61.1
Total assets.................. 1,043.0 1,001.2 926.9 849.1 1,102.1 1,119.6 1,116.1
Due to affiliate.............. 872.7 551.6 108.0 105.0 -- -- --
Total debt.................... 263.8 333.2 437.6 371.4 457.9 484.0 401.8
Shareholders' equity
(deficit)................... (511.9) (234.9) 51.8 45.3 165.1 149.5 201.5
</TABLE>

(b) Year ended January 1, 1994 includes a restructuring charge of $120.1 million
and year ended December 30, 1995 includes the loss on the impairment of the
Predecessor Company's Salty Snacks business of $86.5 million.

(c) Includes income from operations of the discontinued Frozen Food businesses,
net of tax, of $0.6 million, $3.4 million, and $7.4 million for the years
ended January 1, 1994, December 31, 1994 and December 30, 1995. Includes a
$18.9 million gain on the disposal of the discontinued Frozen Food
businesses, net of tax, for the four weeks ended January 26, 1996.

(d) Extraordinary item relates to losses on the early extinguishment of debt,
net of tax.

(e) EBITDA, as adjusted, is defined as income (loss) from continuing operations
before interest, taxes, depreciation, amortization, and restructuring
charges (gains). EBITDA, as adjusted, is presented as additional information
because Keebler believes it to be a useful indicator of a company's ability
to meet debt service and capital expenditure requirements. It is not,
however, intended as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles).
6
<PAGE> 10

RISK FACTORS

You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of common stock.

ADVERSE EFFECTS OF COMPETITION ON KEEBLER'S PERFORMANCE

The cookie and cracker market and the other markets in which Keebler
operates are mature and highly competitive. Competition in these markets takes
many forms, including the following:

- establishing favorable brand recognition;

- developing products sought by consumers;

- implementing appropriate pricing;

- providing strong marketing support; and

- obtaining access to retail outlets and sufficient shelf space.

In many of Keebler's markets, there are competitors that are larger and
have greater financial resources than Keebler, including Keebler's primary
competitor, Nabisco. Keebler may not be able to compete successfully with such
competitors. Competition could cause Keebler to lose market share, increase
expenditures or reduce pricing which could have a material adverse effect on
Keebler's business or financial results.

INCREASES IN PRICES OF MAIN INGREDIENTS AND OTHER MATERIALS

The main ingredients that Keebler uses to manufacture its products are
flour, sugar, chocolate, shortening and milk. Keebler also uses paper products,
such as corrugated cardboard, as well as films and plastics, to package its
products. The prices of these materials have been, and Keebler expects them to
continue to be, subject to significant volatility. Keebler may not be able to
pass price increases in these materials on to its customers. Although Keebler
has mitigated the effects of such price increases in the past through its
hedging programs, Keebler may not be successful in protecting itself from
increases in the future. See "Business -- Raw Materials."

IMPLEMENTATION OF BUSINESS STRATEGY

Keebler intends to pursue a business strategy of increasing sales and
earnings by fully utilizing its existing brands and distribution systems.
Keebler may not be successful in implementing this strategy. Keebler also may
pursue a business strategy of growth through acquisitions. Keebler may not be
successful in pursuing acquisition opportunities and any businesses acquired may
not perform as well as expected. If Keebler is unable to successfully implement
its business strategy, this inability could have a material adverse effect on
Keebler's business or financial results. See "Business -- Strategy."

DEPENDENCE ON KEY PERSONNEL

Keebler believes that its ability to successfully implement its business
strategy and to operate profitably depends on the continued employment of its
senior management team led by Mr. Sam K. Reed. If Mr. Reed or other members of
the management team become unable or unwilling to continue in their present
positions, Keebler's business and financial results could be materially
adversely affected. See "Management."

MAJORITY CONTROL OF KEEBLER BY A SINGLE STOCKHOLDER; CONSENT RIGHTS

Following the offering, Flowers will own approximately 55% of the
outstanding common stock. Accordingly, Flowers will control Keebler and have the
power to elect a majority of the directors, appoint management and approve
certain actions requiring the approval of a majority of Keebler's stockholders.
Concurrent with the offering, Artal will enter into an agreement which will give
Artal the right to consent to certain actions which could otherwise be approved
by a majority of Keebler's directors or stockholders. For example, Artal will
have the right to consent to any acquisition or disposition by Keebler in excess
of $250 million, to a sale of Keebler or

7
<PAGE> 11

substantially all of its assets other than for cash and, with some exceptions,
to issuances of capital stock by Keebler. The interests of Flowers and/or Artal
could conflict with the interests of the other stockholders of Keebler. See
"Certain Related Transactions -- Flowers Control Purchase."

IMPACT OF GOVERNMENTAL REGULATION ON KEEBLER'S OPERATIONS

Keebler's operations and properties are subject to regulation by various
federal, state and local government entities and agencies. As a producer of food
products, Keebler's operations are subject to stringent production, packaging,
quality, labeling and distribution standards, including the Federal Food and
Drug Act. The operations of Keebler's production and distribution facilities are
subject to various federal, state and local environmental laws and workplace
regulations. These laws and regulations include the Occupational Safety and
Health Act, the Fair Labor Standards Act, the Clean Air Act and the Clean Water
Act. Keebler believes that its current legal and environmental compliance
programs adequately address such concerns and that it is in substantial
compliance with applicable laws and regulations. However, compliance with, or
any violation of, current and future laws or regulations could require material
expenditures by Keebler or otherwise adversely effect Keebler's business or
financial results. See "Business -- Regulation; -- Environmental."

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

Keebler believes that its trademarks and other proprietary rights are
important to its success and its competitive position. Accordingly, Keebler
devotes substantial resources to the establishment and protection of its
trademarks and proprietary rights. However, the actions taken by Keebler to
establish and protect its trademarks and other proprietary rights may be
inadequate to prevent imitation of its products by others or to prevent others
from claiming violations of their trademarks and proprietary rights by Keebler.
In addition, others may assert rights in Keebler's trademarks and other
proprietary rights. See "Business -- Intellectual Property."

PRODUCT LIABILITY; PRODUCT RECALLS

Keebler may be liable if the consumption of any of its products cause
injury, illness or death. Keebler also may be required to recall certain of its
products that become contaminated or are damaged. Keebler's current management
is not aware of any material product liability judgment against Keebler or
product recall by Keebler. However, a product liability judgment against Keebler
or a product recall could have a material adverse effect on Keebler's business
or financial results.

RESTRICTIVE DEBT COVENANTS

Keebler's existing debt agreements, which will remain in effect after the
offering, contain a number of significant covenants. These covenants limit
Keebler's ability to, among other things, borrow additional money, make capital
expenditures and other investments and pay dividends. These covenants also
require Keebler to meet certain financial tests. If Keebler is unable to meet
its debt service obligations or comply with these covenants, there would be a
default under its existing debt agreements. Such a default, if not waived, could
result in acceleration of Keebler's indebtedness and the bankruptcy of Keebler.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness."

REQUIRED OFFER TO PURCHASE SENIOR SUBORDINATED NOTES

The offering will result in a "Change of Control" under Keebler's 10 3/4%
Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes"). Under the
terms of the Senior Subordinated Notes, within 15 days after a Change of
Control, Keebler is required to offer to purchase the Senior Subordinated Notes
at 101% of their principal amount plus accrued interest. Given current trading
prices for the Senior Subordinated Notes, Keebler does not anticipate holders
tendering their Senior Subordinated Notes for purchase by Keebler. However,
circumstances occurring
8
<PAGE> 12

subsequent to the consummation of the offering may cause holders of the Senior
Subordinated Notes to tender them or the holders of Senior Subordinated Notes
may tender them for other reasons. In the event Keebler is required to purchase
any Senior Subordinated Notes, it will obtain the funds to make such purchases
out of internally generated funds or by draws under its existing senior credit
facility.

RESTRICTIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK

Keebler's ability to pay dividends on its common stock is limited under the
terms of its existing debt agreements. Keebler does not currently intend to pay
any cash dividends. See "Dividend Policy" and "Description of Certain
Indebtedness."

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
perception that such sales could occur. These factors also could make it more
difficult for Keebler to raise funds through future offerings of common stock.

There will be 83,730,994 shares of common stock outstanding immediately
after the offering. Of these shares, the shares sold in the offering will be
freely transferable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of Keebler, as
defined in Rule 144 under the Securities Act. The remaining 72,090,419 shares of
common stock outstanding, including the 46,197,466 shares held by Flowers, will
be "restricted securities" as defined in Rule 144. These shares may be sold in
the future without registration under the Securities Act to the extent permitted
by Rule 144 or an exemption under the Securities Act. Artal will also have
registration rights allowing it to cause Keebler to register under the
Securities Act Artal's and, in some circumstances, Bermore's shares for sale.
See "Certain Related Transactions -- Flowers Control Purchase."

In connection with the offering, Keebler, its executive officers and
directors and certain of its stockholders have agreed that, with certain
exceptions, they will not sell any shares of common stock without the consent of
Credit Suisse First Boston Corporation for 180 days after the date of this
prospectus.

LACK OF PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE

There has not been a public market for the common stock. Keebler will list
the common stock for trading on the New York Stock Exchange (the "NYSE").
Keebler does not know the extent to which investor interest in Keebler will lead
to the development of a trading market or how liquid that market might be. The
initial public offering price for the shares of common stock was determined
through negotiations among the Selling Stockholders, the U.S. Underwriters and
the Managers. Investors may not be able to resell their shares at or above the
initial public offering price. See "Underwriting."

CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK

Certain provisions of the Certificate of Incorporation could make it more
difficult for a third party to acquire control of Keebler, even if such change
in control would be beneficial to stockholders. The Certificate of Incorporation
allows Keebler to issue preferred stock without stockholder approval. Such
issuances could make it more difficult for a third party to acquire Keebler. See
"Description of Capital Stock."

9
<PAGE> 13

FORWARD-LOOKING STATEMENTS;
CERTAIN DEFINED TERMS; MARKET SHARE DATA

Certain statements incorporated by reference or made in this prospectus
under the captions "Prospectus Summary," "Risk Factors," "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this prospectus are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). These statements are subject to the safe harbor provisions of the
Reform Act. Such forward-looking statements include, without limitation,
statements about the competitiveness of the cookie and cracker industry, the
future availability and prices of certain materials, potential regulatory
obligations and Keebler's strategies and other statements contained herein that
are not historical facts. When used in this prospectus, the words "anticipate,"
"believe," "estimate" and similar expressions are generally intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements, including but not limited to changes in general
economic and business conditions (including in the cookie and cracker industry),
actions of competitors, Keebler's ability to recover its material costs in the
pricing of its products, the extent to which Keebler is able to develop new
products and markets for its products, the time required for such development,
the level of demand for such products, changes in the Keebler's business
strategies and other factors discussed under "Risk Factors."

-------------------------

As used in this prospectus (this "Prospectus"), unless the context requires
otherwise, (i) "Keebler" or the "Company" means Keebler Foods Company (the
surviving corporation of the merger (the "Merger") between INFLO Holdings
Corporation ("INFLO") and Keebler Corporation, which merger occurred on November
20, 1997) and its predecessors and consolidated subsidiaries and (ii) "Sunshine"
means Sunshine Biscuits, Inc. and its consolidated subsidiaries. As used herein,
"Artal" means Artal Luxembourg S.A.; "Bermore" means Bermore, Limited; "Flowers"
means Flowers Industries, Inc.; "GFI" means G.F. Industries, Inc.; "Nabisco"
means Nabisco, Inc.; "Common Stock" means the common stock, $.01 par value per
share, of Keebler; "Offering" means the offering of Common Stock contemplated by
this Prospectus; "Selling Stockholders" means Artal and Bermore, collectively;
and "Securities Act" means the Securities Act of 1933, as amended.

Unless stated otherwise, market share data included herein is based on
supermarket sales (measured in pounds) for the fifty-two week period ended
November 30, 1997 as reported by Information Resources, Inc. ("IRI"). In those
instances where market share data included herein is stated to be based on
dollar sales, those dollar sales represent supermarket sales for the fifty-two
week period ended November 30, 1997 as reported by IRI. Retail sales data
included herein for the U.S. cookie and cracker industry includes sales through
supermarkets, mass merchandisers, convenience stores and drug stores as reported
by IRI. Sales to club stores and vending distributors are not included in this
data. With respect to ice cream cone sales, market share data included herein is
based on dollar sales for the fifty-two week period ended December 7, 1997 as
reported by IRI. With respect to the foodservice industry, market share data
included herein is based on sales (measured in pounds) for the nine-month period
ended September 30, 1997 as reported by the International Foodservice
Manufacturers Association.

10
<PAGE> 14

DIVIDEND POLICY

Historically, Keebler has not paid dividends on its Common Stock. Keebler
currently intends to retain all future earnings to fund the development and
growth of its business. Therefore, Keebler does not currently anticipate paying
any cash dividends. Additionally, Keebler's existing senior credit facility (the
"Senior Credit Facility") and Senior Subordinated Notes, which will remain
outstanding following the Offering, place limitations on Keebler's ability to
pay dividends or make other distributions on its Common Stock. Upon the
consummation of the Offering, dividends would be permitted to be paid in the
aggregate amount of (i) $25.0 million under the Senior Credit Facility and (ii)
$19.8 million under the Senior Subordinated Notes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness." Any future
determination as to the payment of dividends will be subject to such
limitations, will be at the discretion of the Board of Directors and will depend
on Keebler's results of operations, financial condition, capital requirements
and other factors deemed relevant by the Board of Directors.

11
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of Keebler as of October
4, 1997 and as adjusted to give effect to the Offering and certain transactions
occurring prior to or concurrently with the Offering:

<TABLE>
<CAPTION>
AS OF OCTOBER 4,
1997
--------------------
ACTUAL ADJUSTED
------ --------
(IN MILLIONS)
<S> <C> <C>
Current maturities of long-term debt........... $ 31.3 $ 31.3
Long-term debt:
Senior Credit Facility.................... 200.0 130.0(a)
Senior Subordinated Notes................. 125.0 125.0
Seller note............................... 28.7 --(b)
Other senior debt......................... 16.9 16.9
------ ------
Total debt (including current
maturities)........................ 401.9 303.2
------ ------
Shareholders' equity(c):
Preferred stock, $.01 par value;
100,000,000 shares authorized and none
issued.................................. -- --
Common stock, $.01 par value; 500,000,000
shares authorized and 77,595,213 shares
outstanding............................. 0.8 0.8(d)
Additional paid-in capital................ 148.5 168.3(d)
Retained earnings......................... 52.2 52.2
------ ------
Total shareholders' equity........... 201.5 221.3
------ ------
Total capitalization............ $603.4 $524.5
====== ======
</TABLE>

-------------------------------------------
(a) Reflects prepayments on the term notes under the Senior Credit
Facility of $40.0 million made on November 10, 1997 and $30.0
million made on December 8, 1997.

(b) Reflects the purchase on November 21, 1997 of the note issued
to the seller in connection with the Keebler acquisition.

(c) For a description of Keebler's capital stock and the
beneficial ownership of the outstanding shares thereof, see
"Principal and Selling Stockholders" and "Description of
Capital Stock." Outstanding shares do not include 9,673,594
shares of Common Stock reserved for issuance under Keebler's
1996 Stock Option Plan (as defined) of which options to
purchase 6,852,344 shares of Common Stock were outstanding as
of October 4, 1997. In addition, 6,500,000 shares of Common
Stock will be reserved for issuance under the 1998 Stock
Incentive Plan and up to 300,000 shares of Common Stock will
be reserved for issuance under the Directors' Plan. See
"Management -- 1996 Option Plan," "-- 1998 Omnibus Stock
Incentive Plan" and "-- Non-Employee Director Stock Plan." The
Company has granted 1,983,000 options to purchase shares of
Common Stock pursuant to the 1998 Stock Incentive Plan in
connection with the Offering. Authorized shares reflect an
amendment to the Certificate of Incorporation effected prior
to the Offering.

(d) Reflects the exercise of warrants to purchase 6,135,781 shares
of Common Stock held by Bermore for an aggregate exercise
price of $19.8 million. Bermore will exercise these warrants
concurrent with its sale of shares in the Offering. At October
4, 1997, after giving effect to the issuance of shares of
Common Stock upon exercise of the warrants held by Bermore,
83,730,994 shares of Common Stock would have been outstanding.

12
<PAGE> 16

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information (the
"Pro Forma Financial Information") is based on the historical financial
statements of the Predecessor Company, Keebler and Sunshine during the periods
presented, adjusted to give effect to the Keebler acquisition and the Sunshine
acquisition (together, the "Acquisitions").

The Pro Forma Financial Information for the fiscal year ended December 28,
1996 and for the forty weeks ended October 5, 1996, give effect to the
Acquisitions as if they each had occurred at the beginning of the period
presented. The adjustments are described in the accompanying notes and are based
upon available information and certain assumptions that management believes are
reasonable.

The Pro Forma Financial Information does not purport to represent what
Keebler's results of operations would actually have been had the Acquisitions in
fact occurred on such date or to project Keebler's results of operations for any
future period. The Pro Forma Financial Information should be read in conjunction
with the consolidated financial statements included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------
PREDECESSOR
KEEBLER COMPANY SUNSHINE
FORTY-EIGHT FOUR WEEKS TWENTY-TWO
WEEKS ENDED ENDED WEEKS ENDED
DECEMBER 28, 1996(A) JANUARY 26, 1996(B) JUNE 4, 1996(B)
-------------------- ------------------- ---------------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales........................ $1,645.5 $101.7 $229.8
Costs and expenses:
Cost of sales.................. 774.2 54.9 119.7
Selling, marketing and
administrative
expenses..................... 794.8 71.4 114.9
Restructuring charges
(gains)...................... -- -- (9.1)(c)
Other.......................... 6.4 0.9 --
-------- ------ ------
Income (loss) from continuing
operations..................... 70.1 (25.5) 4.3
Interest expense (income), net... 38.4 (0.1) 3.0
-------- ------ ------
Income (loss) from continuing
operations before income tax
expense (benefit).............. 31.7 (25.4) 1.3
Income tax expense (benefit)..... 14.0 -- 0.6
-------- ------ ------
Net income (loss)................ $ 17.7 $(25.4) $ 0.7
======== ====== ======
Net income per share.............
Weighted average shares
outstanding....................
OTHER DATA:
EBITDA, as adjusted(m)........... $ 119.6 $(23.5) $ 1.2
Depreciation and amortization
(excluding items related to
discontinued operations)....... 49.5 2.0 6.0
Capital expenditures (excluding
expenditures related to
discontinued operations)....... 29.4 3.2 3.0

PRO FORMA ADJUSTMENTS
----------------------------
KEEBLER SUNSHINE
ACQUISITION ACQUISITION PRO FORMA
----------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales........................ $ -- $(2.6)(h) $1,974.4
Costs and expenses:
Cost of sales.................. -- (2.3)(i) 946.5
Selling, marketing and
administrative
expenses..................... 0.3(d) (2.0)(j) 979.4
Restructuring charges
(gains)...................... -- -- (9.1)
Other.......................... 0.2(e) 1.4(k) 8.9
------ ----- --------
Income (loss) from continuing
operations..................... (0.5) 0.3 48.7
Interest expense (income), net... 1.9(f) 1.5(l) 44.7
------ ----- --------
Income (loss) from continuing
operations before income tax
expense (benefit).............. (2.4) (1.2) 4.0
Income tax expense (benefit)..... (12.3)(g) (0.5)(g) 1.8
------ ----- --------
Net income (loss)................ $ 9.9 $(0.7) $ 2.2
====== ===== ========
Net income per share............. $ 0.03
========
Weighted average shares
outstanding.................... 79.4
========
OTHER DATA:
EBITDA, as adjusted(m)........... $ 0.1 $ 2.0 $ 99.4
Depreciation and amortization
(excluding items related to
discontinued operations)....... 0.6 1.7 59.8
Capital expenditures (excluding
expenditures related to
discontinued operations)....... -- -- 35.6
</TABLE>

13
<PAGE> 17

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FORTY WEEKS ENDED OCTOBER 5, 1996
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
PREDECESSOR
KEEBLER COMPANY SUNSHINE
THIRTY-SIX FOUR WEEKS TWENTY-TWO
WEEKS ENDED ENDED WEEKS ENDED
OCTOBER 5, 1996(A) JANUARY 26, 1996(B) JUNE 4, 1996(B)
------------------ ------------------- ---------------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $1,171.4 $101.7 $229.8
Costs and expenses:
Cost of sales.................... 560.7 54.9 119.7
Selling, marketing and
administrative expenses........ 571.3 71.4 114.9
Restructuring charges (gains).... -- -- (9.1)(c)
Other............................ 4.4 0.9 --
-------- ------ ------
Income (loss) from continuing
operations....................... 35.0 (25.5) 4.3
Interest expense (income), net..... 28.7 (0.1) 3.0
-------- ------ ------
Income (loss) from continuing
operations before income tax
expense (benefit)................ 6.3 (25.4) 1.3
Income tax expense (benefit)....... 3.7 -- 0.6
-------- ------ ------
Net income (loss).................. $ 2.6 $(25.4) $ 0.7
======== ====== ======
Net loss per share.................
Weighted average shares
outstanding......................
OTHER DATA:
EBITDA, as adjusted(m)............. $ 68.1 $(23.5) $ 1.2
Depreciation and amortization
(excluding items related to
discontinued operations)......... 33.1 2.0 6.0
Capital expenditures (excluding
expenditures related to
discontinued operations)......... 18.0 3.2 3.0

PRO FORMA ADJUSTMENTS
----------------------------
KEEBLER SUNSHINE
ACQUISITION ACQUISITION PRO FORMA
----------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $ -- $(2.6)(h) $1,500.3
Costs and expenses:
Cost of sales.................... -- (2.3)(i) 733.0
Selling, marketing and
administrative expenses........ 0.3(d) (2.0)(j) 755.9
Restructuring charges (gains).... -- -- (9.1)
Other............................ 0.2(e) 1.4(k) 6.9
------ ----- --------
Income (loss) from continuing
operations....................... (0.5) 0.3 13.6
Interest expense (income), net..... 1.9(f) 1.5(l) 35.0
------ ----- --------
Income (loss) from continuing
operations before income tax
expense (benefit)................ (2.4) (1.2) (21.4)
Income tax expense (benefit)....... (12.3)(g) (0.5)(g) (8.5)
------ ----- --------
Net income (loss).................. $ 9.9 $(0.7) $ (12.9)
====== ===== ========
Net loss per share................. $ (0.17)
========
Weighted average shares
outstanding...................... 77.5
========
OTHER DATA:
EBITDA, as adjusted(m)............. $ 0.1 $ 2.0 $ 47.9
Depreciation and amortization
(excluding items related to
discontinued operations)......... 0.6 1.7 43.4
Capital expenditures (excluding
expenditures related to
discontinued operations)......... -- -- 24.2
</TABLE>

14
<PAGE> 18

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

(a) Includes the results of operations for Sunshine from the acquisition date of
June 4, 1996 through the end of the period presented.

(b) The historical results of operations presented for the Predecessor Company
and Sunshine represent the results of operations for the 1996 periods prior
to the Acquisitions.

(c) Income (loss) from continuing operations of Sunshine for the
twenty-two weeks ended June 4, 1996 include amounts
classified as restructuring gains that relate to:
IN MILLIONS
-----
Gains on the sale of Salerno cookie and cracker
division and related bakery prior to the Sunshine
acquisition........................................... $ 6.2

Income from reducing restructuring cost accrued by
Sunshine prior to the Sunshine acquisition............ 2.9
-----
$ 9.1
=====
(d) Reflects four weeks of additional depreciation of property, plant, and
equipment resulting from the fixed asset valuation ($4.2 million per year).

(e) Reflects four weeks of additional amortization expense
associated with the Keebler acquisition, as follows:

IN MILLIONS
-----
Amortization of trademarks and trade names of $104.0
million over a 40-year amortization period............ $ 0.2
Amortization of organizational expenses of $8.1 million
over a 5-year amortization period..................... 0.1
Elimination of historical goodwill amortization........ (0.1)
-----
$ 0.2
=====
(f) Reflects, with respect to items 1 through 5, additional net interest
expense related to borrowings associated with the Keebler acquisition and,
with respect to items 6 and 7, an adjustment to interest expense as
indicated, as follows:
IN MILLIONS
-----
(1) Borrowings under the Senior Credit Facility of $200.0
million at various rates................................ $ 1.2
(2) Senior Subordinated Notes of $125.0 million at
10 3/4%................................................. 1.0
(3) Other senior debt of $20.3 million at various rates..... 0.1
(4) Amortization of $10.2 million of debt issuance
costs amortized over eight and one half years........... 0.1
(5) Interest expense to support operations*................. 0.1
(6) Elimination of historical interest expense.............. 0.1
(7) Reduction in interest expense from the date of
acquisition to June 25, 1996 as if the Senior
Subordinated Notes were outstanding for that
period.................................................. (0.7)
-----
$ 1.9
=====
-----------------------------------------
* Interest expense associated with incremental borrowings used to
finance working capital requirements calculated at the incremental
borrowing rate of the Senior Credit Facility, associated with the
Keebler acquisition, multiplied by net sales.

(g) The income tax effect of the pro forma adjustments on income (loss) before
income taxes is based on the effective tax rate for fiscal 1996. The
Keebler acquisition pro forma adjustments includes a pro forma income tax
benefit of $11.2 million related to the net loss for the four weeks ended
January 26, 1996.

(h) The adjustment to net sales resulted from the sale of Sunshine's Salerno
cookie and cracker division and related bakery prior to the Sunshine
acquisition.

15
<PAGE> 19
<TABLE>
<CAPTION>
(i) Reflects reduction in cost of sales due to:
IN MILLIONS
-----
Sale of Sunshine's Salerno cookie and cracker division and
related bakery prior to the Sunshine acquisition....... $(1.8)
<S> <C> <C>
Reduction of postretirement benefit expense for the
twenty-two weeks ended June 4, 1996 resulting from the
Sunshine acquisition................................... (0.5)
-----
$(2.3)
=====
(j) Reflects reduction in selling and administrative expenses
due to:

<CAPTION>
IN MILLIONS
-----
<S> <C> <C>
Sale of Sunshine's Salerno cookie and cracker division and
related bakery prior to the Sunshine acquisition....... $(2.3)
Elimination of Sunshine historical goodwill
amortization.............................................. (0.3)
Additional depreciation of property, plant, and equipment
resulting from the fixed asset valuation............... 0.6
-----
$(2.0)
=====
(k) Reflects additional amortization expense associated with the
Sunshine acquisition as follows:
<CAPTION>
IN MILLIONS
-----
<S> <C> <C>
Amortization of goodwill of $48.8 million related to the
Sunshine acquisition over a 40-year amortization
period................................................. $ 0.6
Amortization of trademarks and trade names of $57.0
million over a 40-year amortization period............. 0.8
-----
$ 1.4
=====
(l) The following adjustments to net interest expense reflect
the additional borrowings associated with the Sunshine
acquisition:
<CAPTION>
IN MILLIONS
-----
<S> <C> <C>
Borrowings for an additional twenty-two weeks under the
Senior Credit Facility of $114.0 million at various
interest rates......................................... $ 4.4
Elimination of historical interest expense................ (3.0)
Amortization of debt issuance costs and other............. 0.1
-----
$ 1.5
=====
(m) EBITDA, as adjusted, is defined as income (loss) from
continuing operations before interest, taxes, depreciation,
amortization and restructuring charges (gains). EBITDA, as
adjusted, is presented as additional information because
Keebler believes it to be a useful indicator of a company's
ability to meet debt service and capital expenditure
requirements. It is not, however, intended as an
alternative measure of operating results or cash flow from
operations (as determined in accordance with generally
accepted accounting principles).
</TABLE>

16
<PAGE> 20

SELECTED HISTORICAL FINANCIAL DATA

The selected historical financial data presented below as of and
for the fiscal years ended 1994, 1995 and 1996 have been derived from
the consolidated financial statements of Keebler and the Predecessor
Company included elsewhere in this Prospectus, which have been audited
by Coopers & Lybrand L.L.P., independent public accountants. The
selected historical financial data presented below as of and for the
fiscal year ended January 1, 1994 has been derived from the
consolidated financial statements of the Predecessor Company that are
not included in this Prospectus. The unaudited consolidated financial
data of Keebler as of and for the thirty-six weeks ended October 5,
1996 and the forty weeks ended October 4, 1997 have been derived from
unaudited financial statements of Keebler included elsewhere in this
Prospectus and, in the opinion of Keebler, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results of operations presented below are
not necessarily indicative of results to be expected for any future
period. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY KEEBLER
------------------------------------------------------- ------------------------------------------
YEAR ENDED FOUR FORTY-EIGHT THIRTY-SIX FORTY
---------------------------------------- WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28, OCTOBER 5, OCTOBER 4,
1994 1994 1995 1996 1996(A) 1996(A) 1997
---------- ------------ ------------ ----------- ------------ ----------- -----------
(IN MILLIONS) (IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................. $1,650.1 $1,599.7 $1,578.6 $101.7 $1,645.5 $1,171.4 $1,542.2
Costs and expenses:
Cost of sales............. 718.6 705.5 746.8 54.9 774.2 560.7 668.5
Selling, marketing, and
administrative
expenses................ 878.9 845.7 884.6 71.4 794.8 571.3 770.5
Restructuring charges..... 120.1 -- -- -- -- -- --
Loss on impairment of
Salty Snacks business... -- -- 86.5 -- -- -- --
Other..................... 0.1 2.1 (1.4) 0.9 6.4 4.4 7.1
-------- -------- -------- ------ -------- -------- --------
Income (loss) from
continuing operations..... (67.6) 46.4 (137.9) (25.5) 70.1 35.0 96.1
Interest expense (income),
net....................... 81.6 74.4 28.3 (0.1) 38.4 28.7 28.6
-------- -------- -------- ------ -------- -------- --------
Income (loss) from
continuing operations
before income taxes....... (149.2) (28.0) (166.2) (25.4) 31.7 6.3 67.5
Income tax expense
(benefit)................. (22.3) (1.1) (0.5) -- 14.0 3.7 28.4
-------- -------- -------- ------ -------- -------- --------
Income (loss) from
continuing operations
before extraordinary item
and cumulative effect of
accounting changes........ (126.9) (26.9) (165.7) (25.4) 17.7 2.6 39.1
Discontinued operations:
Income from operations of
discontinued frozen food
businesses, net of
tax..................... 0.6 3.4 7.4 -- -- -- --
Gain on disposal of frozen
food businesses, net of
tax..................... -- -- -- 18.9 -- -- --
-------- -------- -------- ------ -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
accounting changes........ (126.3) (23.5) (158.3) (6.5) 17.7 2.6 39.1
Extraordinary item:
Loss on early
extinguishment of debt,
net of tax.............. -- -- -- -- 1.9 1.9 2.7
-------- -------- -------- ------ -------- -------- --------
Income (loss) before
cumulative effect of
accounting changes........ (126.3) (23.5) (158.3) (6.5) 15.8 0.7 36.4
Cumulative effect of
accounting changes, net
of tax.................. (20.9) 0.5 -- -- -- -- --
-------- -------- -------- ------ -------- -------- --------
Net income (loss).......... $ (147.2) $ (23.0) $ (158.3) $ (6.5) $ 15.8 $ 0.7 $ 36.4
======== ======== ======== ====== ======== ======== ========
Net income per share....... -- -- -- -- $ 0.21 $ 0.01 $ 0.45
======== ======== ========
Weighted average shares
outstanding............... -- -- -- -- 76.6 75.5 81.6
======== ======== ========
OTHER DATA:
EBITDA, as adjusted(b)..... $ 98.4 $ 89.5 $ (93.3) $(23.5) $ 119.6 $ 68.1 $ 141.6
Depreciation and
amortization (excluding
items related to
discontinued
operations)............... 45.9 43.1 44.6 2.0 49.5 33.1 45.5
Capital expenditures
(excluding expenditures
related to discontinued
operations)............... 30.6 54.6 54.2 3.2 29.4 18.0 26.1
CASH FLOW DATA:
Cash provided from (used
by)
Operating activities...... $ 22.0 $ (17.4) $ (61.6) $ (0.4) $ 53.6 $ 14.1 $ 128.1
Investing activities...... (92.1) (45.9) (52.4) 65.2 (130.5) (124.7) (20.8)
Financing activities...... 58.3 69.4 104.4 (65.7) 86.8 112.9 (58.2)
-------- -------- -------- ------ -------- -------- --------
Increase (decrease) in cash
and cash equivalents...... $ (11.8) $ 6.1 $ (9.6) $ (0.9) $ 9.9 $ 2.3 $ 49.1
======== ======== ======== ====== ======== ======== ========
</TABLE>

17
<PAGE> 21

<TABLE>
<CAPTION>
AS OF AS OF
------------------------------------------------------- ------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28, OCTOBER 5, OCTOBER 4,
1994 1994 1995 1996 1996 1996 1997
---------- ------------ ------------ ----------- ------------ ---------- ----------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............... $ 6.4 $ 12.5 $ 3.0 $ 2.1 $ 12.0 $ 4.4 $ 61.1
Total assets............... 1,043.0 1,001.2 926.9 849.1 1,102.1 1,119.6 1,116.1
Due to affiliate........... 872.7 551.6 108.0 105.0 -- -- --
Total debt................. 263.8 333.2 437.6 371.4 457.9 484.0 401.8
Shareholders' equity
(deficit)................. (511.9) (234.9) 51.8 45.3 165.1 149.5 201.5
</TABLE>

Note: Net sales and cost of sales were $1.7 billion and $735 million,
respectively, for the year ended January 2, 1993.
- ------------------------------------
(a) Includes the operating results of Sunshine from the acquisition date of
June 4, 1996 through the end of the period presented. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(b) EBITDA, as adjusted, is defined as income (loss) from continuing operations
before interest, taxes, depreciation, amortization and restructuring
charges (gains). EBITDA, as adjusted, is presented as additional
information because Keebler believes it to be a useful indicator of a
company's ability to meet debt service and capital expenditure
requirements. It is not, however, intended as an alternative measure of
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles).

18
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

General

Keebler sells cookies and crackers, custom-baked products to other
manufacturers of branded food products, pie crusts and ice cream cones. Net
sales are principally affected by product pricing and quality, brand
recognition, new product introductions and product line extensions, marketing
and service. Keebler manages these factors to achieve a sales mix favoring its
higher margin products while driving volume through its DSD distribution system.

The principal elements comprising Keebler's cost of sales are raw and
packaging materials, labor and manufacturing overhead. The major raw materials
used in the manufacture of Keebler's products are flour, sugar, chocolate,
shortening and milk. Keebler also uses paper products, such as corrugated
cardboard, as well as films and plastics to package its products. The prices of
these raw materials have been subject to significant volatility. Keebler has
mitigated the effects of such price increases in the past through its hedging
programs, but may not be successful in protecting itself from increases in the
future. In addition to the foregoing factors, cost of sales are affected by the
efficiency of production methods and manufacturing capacity utilization.

Keebler's selling, marketing and administrative expenses are comprised
mainly of labor and lease costs associated with Keebler's DSD distribution
system, trade and consumer promotion costs, other advertising costs and the cost
of corporate offices. While costs associated with Keebler's DSD distribution
system and the cost of corporate offices are generally fixed, promotion and
other advertising costs are more variable. Promotion and other advertising costs
represent the largest component of Keebler's cost structure other than cost of
sales and are principally influenced by changes in net sales.

Matters Affecting Comparability

For the years ended December 31, 1994 and December 30, 1995, the financial
results of the Predecessor Company include the results of operations of the
Salty Snacks business. The Salty Snacks business was liquidated by prior
management in connection with the Keebler acquisition. The condensed results of
operations of the Salty Snacks business, excluding allocations of the fixed
portions of selling, distribution and general administrative expenses, for these
years were as follows:

<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................... $185.6 $135.7
Income (loss) from operations................ 6.3 (25.6)
</TABLE>

For the years ended December 31, 1994, and December 30, 1995, the financial
results of the Predecessor Company also include the results of operations of the
Frozen Food businesses as a discontinued operation.

Keebler's operating results for the forty-eight weeks ended December 28,
1996 have been combined with the operating results of the Predecessor Company
for the four weeks ended January 26, 1996 to compare the years ended December
28, 1996 and December 30, 1995. Keebler's operating results for the thirty-six
weeks ended October 5, 1996 have been combined with the operating results of the
Predecessor Company for the four weeks ended January 26, 1996 to compare the
forty weeks ended October 4, 1997 and October 5, 1996. Keebler's operating
results for the year ended December 28, 1996 include the operating results of
Sunshine from its

19
<PAGE> 23

acquisition date of June 4, 1996. Keebler's operating results for the forty
weeks ended October 4, 1997 include the operating results of Sunshine whereas
the comparable forty weeks of 1996 only include the operating results of
Sunshine from its acquisition date of June 4, 1996. The operating results of
Keebler have been restated to reflect the Merger as if it had been effective
January 26, 1996. Keebler's results of operations, expressed as a percentage of
net sales, for the last three years ended December 31, 1994, December 30, 1995,
and December 28, 1996 and the forty-week periods ended October 5, 1996 and
October 4, 1997 are set forth below:

<TABLE>
<CAPTION>
YEARS ENDED FORTY WEEKS ENDED
-------------------------------------------- ------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, OCTOBER 5, OCTOBER 4,
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales........................ 44.1 47.3 47.5 48.4 43.3
Selling, marketing and administrative
expenses.......................... 52.9 56.0 49.6 50.5 50.0
Loss on impairment of Salty Snacks
business.......................... -- 5.5 -- --
---
Other................................ 0.1 (0.1) 0.4 0.4 0.5
----- ----- ----- ----- -----
Income (loss) from
operations........................... 2.9 (8.7) 2.5 0.7 6.2
Interest expense, net.................. 4.7 1.8 2.2 2.2 1.8
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes....... (1.8) (10.5) 0.3 (1.5) 4.4
Income tax expense (benefit)......... (0.1) -- 0.8 0.3 1.8
----- ----- ----- ----- -----
Income (loss) from continuing
operations before extraordinary item
and cumulative effect of accounting
changes.............................. (1.7) (10.5) (0.5) (1.8) 2.6
Discontinued operations:
Income from operations of Frozen Food
businesses, net of tax............ 0.2 0.5 -- -- --
Gain on disposal of Frozen Food
businesses, net of tax............ -- -- 1.1 1.5 --
----- ----- ----- ----- -----
Income (loss) before extraordinary item
and cumulative effect of accounting
changes.............................. (1.5) (10.0) 0.6 (0.3) 2.6
Extraordinary item:
Loss on early extinguishment of debt,
net of tax........................ -- -- 0.1 0.2 0.2
----- ----- ----- ----- -----
Income (loss) before cumulative effect
of accounting changes................ (1.5) (10.0) 0.5 (0.5) 2.4
Cumulative effect of accounting
changes, net of tax............... 0.1 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)...................... (1.4)% (10.0)% 0.5% (0.5)% 2.4%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF FIRST FORTY WEEKS OF 1996 AND 1997

Net Sales. For the forty weeks ended October 4, 1997, net sales of $1,542.2
million were 21.1% higher compared to the same period of the prior year. In
1997, Keebler continued to focus on shifting its sales mix to more profitable
branded cookie and cracker products, while discontinuing or repositioning
several less strategic products. Increased net sales resulting from volume
growth in these more profitable branded cookie and cracker products, new
products and

20
<PAGE> 24

line extensions, and selected price increases more than offset revenue losses
associated with discontinued or de-emphasized products. Higher net sales for the
forty weeks ended October 4, 1997 were partially due to the acquisition of the
Sunshine business. Sunshine results in 1996 were only included from its
acquisition date of June 4, 1996 and accounted for 12.7% of Keebler's 1996 net
sales. For the forty weeks ended October 4, 1997, net sales of Sunshine products
were 27.5% of Keebler's total net sales. The 1997 Sunshine net sales include an
additional twenty-four weeks of activity as compared to 1996.

Gross Profit. Gross profit was $216.3 million higher for the forty weeks
ended October 4, 1997 compared to the same period in the prior year. In
addition, gross profit as a percentage of net sales was 5.1% higher than the
comparable period in 1996. The improvement in the gross margin percentage for
1997 resulted largely from both a shift toward higher margin brands and improved
operating efficiencies. In addition, gross profit as a percent of net sales
reflected the benefit of lower commodity prices, particularly for flour. Gross
margins in 1997 also received the full benefit of higher capacity utilization
associated with the streamlining of production facilities which began in 1996.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses were $127.7 million higher for the forty weeks ended
October 4, 1997 compared to the same period in the prior year. Increased
spending was attributed primarily to higher marketing expense in support of new
product introductions. Spending for marketing programs represented 24.2% of net
sales for the first forty weeks of 1997 compared to 22.7% for the same period in
the prior year with the increase due principally to higher national advertising
and consumer promotion expenses. Despite higher spending levels, selling,
marketing and administrative expenses as a percentage of net sales remained
relatively consistent with the comparable period in 1996 as a result of
increased volume and a more efficient fixed cost structure, particularly in the
selling and distribution network.

Other. Other expense for the first forty weeks in 1997 was $1.9 million
higher as compared to the same period in 1996. The increase was mainly
attributed to the amortization of Sunshine intangibles for forty weeks in 1997
versus sixteen weeks in 1996, as well as higher bank service charges.

Income (Loss) from Continuing Operations. Income from continuing operations
of $96.1 million for the forty weeks ended October 4, 1997 was $86.7 million
higher than the same period in 1996. The improvement primarily resulted from
volume growth associated with the change in sales mix, the inclusion of the
Sunshine business, increased gross margins, and a more efficient fixed cost
structure. The total benefits realized more than offset the incremental
marketing, amortization and other expenses.

Interest Expense. Interest expense for the first forty weeks of 1997 of
$28.6 million was $0.1 million lower than the same period in 1996, as the
average debt balance for these periods was comparable. Additional debt incurred
late in the second quarter of 1996 to fund the acquisition of Sunshine was
offset by the benefit associated with the early extinguishment of debt in the
first quarter of 1997, resulting in a comparable average debt balance.

Income Taxes. Income taxes for the forty weeks ended October 4, 1997 were
provided at an effective tax rate of 42%. The effective tax rate exceeded the
statutory rate due to nondeductible expenses, principally amortization of
intangibles, including trademarks, tradenames and goodwill. For the forty weeks
ended October 5, 1996, income taxes were provided at a higher effective tax rate
based on a preliminary estimate of nondeductible expenses.

Discontinued Operations. In 1995, the Predecessor Company adopted plans to
discontinue the operations of the Frozen Food businesses, and in the first four
weeks of 1996, a gain of $18.9 million, net of income taxes, was recognized in
the disposal of the Frozen Food businesses.

21
<PAGE> 25

Extraordinary Item Net of Income Taxes. In the first forty weeks of 1997
and 1996, Keebler recorded extraordinary charges related to the write-off of
unamortized bank fees due to the early extinguishment of debt. The after-tax
extraordinary charges recorded were $2.7 million compared to $1.9 million in
1996. The tax benefits of the extraordinary charges were $1.9 million and $1.3
million, respectively.

Net Income (Loss). Net income of $36.4 million for the first forty weeks of
1997 was $42.2 million higher than the $5.8 million loss for the comparable
period for 1996. The substantial growth in net earnings was primarily attributed
to volume increases associated with certain of Keebler's branded cookie and
cracker products, the inclusion of the Sunshine business, improved gross
margins, and a more efficient fixed cost structure.

COMPARISON OF FISCAL 1996 TO 1995

Net Sales. Net sales in 1996 increased $168.6 million, or 10.7%, over 1995.
Net sales in 1996 included Sunshine revenues of $291.2 million, while net sales
in 1995 included sales of the Salty Snacks business of $135.7 million. After
adjusting for these changes in Keebler's business, the year-on-year sales
increase was up $13.1 million compared to a year ago. Along with achieving this
growth, Keebler also shifted its sales focus to more profitable brands. The new
focus was accomplished through selected price increases on Keebler branded
cookie and cracker products, a more targeted marketing emphasis, new products,
and the discontinuation of weaker products. While volumes in 1996 were
relatively flat compared to volumes in 1995, higher revenues were achieved
through these changes in product mix and selected price increases. Temporary
volume decreases in sales to convenience stores, associated with a change in the
selling organization and product discontinuations, were offset by volume gains
from new products and broadened distribution.

Gross Profit. Gross profit as a percentage of net sales for 1996 was 52.6%
compared to 52.7% in 1995. While gross margins, in the aggregate, were down
slightly year-on-year, this belies the significant improvements that were
achieved. The change in sales mix noted above, resulted in an emphasis on more
profitable volume. However, the value-added products emphasized as part of the
1996 sales strategy carried higher production costs than the products sold in
1995. The impact on gross profit of this change in sales mix along with higher
flour prices contributed to higher cost of sales in 1996 versus 1995. Gross
profit margins in 1996 also reflect the inclusion of Sunshine products, which
historically carried a lower gross margin than Keebler products. The impact of
higher costs was more than fully offset by increasing capacity utilization, cost
reductions at the bakeries, as well as lowering scrap levels and achieving a
more balanced production. In addition, reductions in bakery overhead staffing
and a more efficient balancing of internal and co-packing arrangements achieved
a lower cost of production.

Selling, Marketing and Administrative Expenses. Selling, marketing, and
administrative expenses decreased $18.3 million and improved by 6.4 percentage
points as a percent of net sales in 1996 compared to 1995. Included in 1996
expenses were selling, marketing and administrative expenses of $131.9 million
directly attributable to the Sunshine business; while 1995 included expenses of
$87.4 million directly associated with the Salty Snacks business (excluding
allocation of the fixed portions of selling, distribution, and administrative
expenses). Excluding these influences, selling, marketing and administrative
expenses decreased in 1996 compared to 1995 by $62.8 million. The improvement
was principally accomplished through a targeted marketing plan behind Keebler
products and Keebler's cost reduction program to rationalize the selling and
administrative cost structure. In 1996, Keebler's focus on spending for trade
promotions at the store level resulted in higher trade allowances which were
more than offset by the $49.5 million decrease in national advertising and
consumer promotions. The cost reductions in the selling and administrative
structures were achieved primarily through headcount reductions of approximately
1,740 and changing from a relatively higher cost step-van selling organization
to independent distributors to serve the convenience store channel. A decrease
in research and development
22
<PAGE> 26

costs of $9.6 million was primarily attributed to headcount reductions, more
focused new product programs in 1996 and lower project activity due in part to
the liquidation of the Salty Snacks business prior to the Keebler acquisition.
The cost reductions more than offset increased administrative expenses of
management incentives and increased depreciation as a result of the Keebler and
Sunshine acquisitions.

Other. Other income and expense for 1996 was $7.2 million compared to $1.4
million of income for 1995. Other expense in 1996 consisted of $5.2 million of
amortization resulting from both the Keebler and Sunshine acquisitions and bank
service charges. In 1995, other income and expense consisted of $1.7 million of
amortization expense, $1.4 million of miscellaneous expenses and bank service
charges, and other income of $4.5 million representing the gain on the sale of
interests in certain logos, tradenames, trademarks and service marks registered
or pending registration in Australia, New Zealand, Asia and Europe.

Income (Loss) from Continuing Operations. Income from continuing operations
was $44.7 million in 1996, an improvement of $182.5 million over the loss from
continuing operations for 1995. After adjusting the 1995 net operating loss of
$137.9 million for the $25.6 million loss in the Salty Snacks business and the
impairment write down of $86.5 million associated with that business, the
earnings improvement in 1996 over 1995 was $70.5 million. The turnaround
resulted from improved gross margins on Keebler brands, more efficient marketing
expenditures, and cost savings achieved in sales and distribution and corporate
overhead. The cumulative savings from these initiatives more than offset
incremental depreciation and amortization expense totaling $9.7 million recorded
as a result of the Keebler and Sunshine acquisitions.

Interest Expense. For 1996, net interest expense was $38.4 million compared
to $28.3 million in 1995. The increase was due to the amortization of debt
issuance costs and higher overall borrowings carrying a higher average interest
rate as compared to the prior year.

Income Taxes. Keebler provided for income taxes at an effective tax rate of
44.2% for the forty-eight weeks ended December 28, 1996. The Predecessor Company
did not provide for any income tax expense for the four weeks ended January 26,
1996. The effective tax rate was higher than the statutory rate because of
nondeductible expenses (principally, amortization of intangibles, including
trademarks, tradenames and goodwill). In 1995, there was no provision for income
taxes due to operating losses incurred and the inability to carryback the losses
to recover taxes paid in prior years. As part of the Keebler acquisition,
Keebler adjusted the valuation allowance on deferred taxes by $25.1 million to
reflect the elimination of certain deferred tax assets revalued in the purchase
price allocation. At December 28, 1996, Keebler carried a deferred tax valuation
allowance of $84.4 million to provide for the uncertainty in realizing the
deductibility of deferred tax assets recognized. Pursuant to the terms of the
Keebler acquisition, the Predecessor Company retained the right to use the net
operating losses for potential carrybacks. Any unused operating losses are then
available to Keebler, but are significantly restricted under current tax law.
Therefore, all net operating loss carryforwards have been fully reserved due to
the uncertainty of their realization.

Discontinued Operations. During 1995, the Predecessor Company decided to
dispose of the Frozen Food businesses and, therefore, presented the operations
of those businesses as a discontinued item in the statement of operations. In
the first four weeks of 1996, a gain of $18.9 million net of income taxes on the
disposal of the Frozen Food businesses was recognized.

Extraordinary Item Net of Income Taxes. A before-tax extraordinary loss of
$3.2 million on the early extinguishment of debt was recorded in the second
quarter of 1996. The loss consisted primarily of the write-off of unamortized
bank fees incurred when Keebler replaced the Keebler acquisition bridge loan
with the Senior Subordinated Notes. The tax benefit on the extraordinary loss
was $1.3 million resulting in an after-tax loss of $1.9 million.

23
<PAGE> 27

Net Income (Loss). Net income of $9.3 million for 1996 represented a
substantial improvement over the $158.3 million net loss for the prior year. The
improvement was attributable to operating improvements, the divestiture of the
unprofitable Salty Snacks business, and the recognized gain of $18.9 million on
the disposition of the Frozen Food businesses.

COMPARISON OF FISCAL 1995 TO 1994

Net Sales. The Predecessor Company's net sales in 1995 were $1.58 billion,
a 1.3% decrease from net sales of $1.60 billion in 1994. Net sales, excluding
sales of the Salty Snacks business, in 1995 were $1.44 billion, which
represented an increase of 2.0% over net sales of $1.41 billion in 1994. This
increase resulted from increased private label sales, increased sales of custom
products and price increases on certain Keebler products. Despite more than
thirty new product introductions and increased marketing support, combined
branded cookie and cracker sales were essentially unchanged from sales in 1994.
Sales of branded cookies increased 3.2%, benefiting from price increases for
certain products, new products and line extensions. Branded cracker sales
decreased 2.2% from 1994 because the restaging of both box snack crackers and
graham crackers failed to stimulate sales gains. Private label cookie and
cracker sales increased 7.7% primarily due to both increased account penetration
and expansion of the private label cracker program. Sales of custom products
increased as a result of increased demand by a major customer.

Gross Profit. The Predecessor Company's gross profit decreased to $831.8
million or 52.7% of net sales in 1995 from $894.2 million or 55.9% of net sales
in 1994. Gross profit, excluding gross profit from the Salty Snacks business,
decreased to $770.1 million or 53.4% of net sales in 1995 from $787.8 million or
55.7% of net sales in 1994. Increased raw and packaging material prices in flour
and corrugated cardboard resulted in higher costs to Keebler of approximately
$17.0 million (excluding costs related to the Salty Snacks business), or 1.2% of
net sales, which were not fully passed on to Keebler's customers. The restaging
of box snack crackers and cracker packs, which resulted in a net reduction in
sales price, and a shift to cookie and cracker products with lower margins, such
as private label products and custom-baked products, also reduced gross profits.

Selling, Marketing and Administrative Expenses. The Predecessor Company's
selling, marketing and administrative expenses were $884.6 million or 56.0% of
net sales in 1995 compared to $845.7 million or 52.9% of net sales in 1994.
Selling, marketing and administrative expenses, excluding expenses of the Salty
Snacks business, were $797.2 million or 55.3% of net sales in 1995, compared to
$745.6 million or 52.7% of net sales in 1994. Marketing spending, excluding
spending related to the Salty Snacks business, increased $39.4 million over 1994
expenditures because Keebler followed a marketing plan designed to increase
sales through aggressive advertising and consumer spending to support new
product introductions and through increased trade spending.

Loss on Impairment of Salty Snacks Business. During 1995, the Predecessor
Company recorded an impairment loss related to its anticipated sale and
liquidation of its Salty Snacks business amounting to $86.5 million.

(Loss) Income from Continuing Operations. Loss from continuing operations
was $137.9 million in 1995, compared to income from continuing operations of
$46.4 million in 1994. This decrease primarily resulted from the impairment loss
related to the Salty Snacks business, the decline in gross profit and increased
marketing and selling distribution expenses. (Loss) income from continuing
operations as a percentage of net sales was (8.7)% in 1995 and 2.9% in 1994.

Interest Expense. Net interest expense in 1995 was $28.3 million, compared
to $74.4 million in 1994. This decrease was due to the full year impact of the
recapitalization of $300.0 million in intercompany debt in September 1994, as
well as the recapitalization of an additional $445.0 million of intercompany
debt in February 1995. The benefit of these recapitalizations was partially
offset by increased borrowings to finance operations.

24
<PAGE> 28

Loss from Continuing Operations before Income Taxes and Cumulative Effect
of Accounting Changes. Loss from continuing operations before income taxes and
cumulative effect of accounting changes was $166.1 million in 1995, compared to
a loss of $28.1 million in 1994.

Income Taxes. The income tax benefits recorded in 1995 and 1994 were less
than the benefits computed using the federal and state statutory rates because
the Predecessor Company provided an additional $70.4 million and $9.2 million,
respectively, for the valuation allowance against deferred tax assets as the
realization of these benefits is not likely. All tax net operating loss
carryforwards have been fully reserved due to the uncertainty of their
realization.

Loss from Continuing Operations before Cumulative Effect of Accounting
Changes and Net Loss. Loss before cumulative effect of accounting changes in
1995 was $165.7 million compared to a loss of $26.9 million in 1994. There were
no accounting changes in 1995. In 1994, the cumulative effect of accounting
changes was a net credit of $0.5 million. The net credit consisted of a $2.5
million after-tax charge upon the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," offset by a $3.0 million after-tax
benefit for a change in the method of accounting for spare machinery and
equipment parts. After the cumulative effect of accounting changes, the net loss
was $158.3 million in 1995, compared to a net loss of $23.0 million in 1994.

LIQUIDITY AND CAPITAL RESOURCES

A condensed cash flow statement of Keebler follows:

<TABLE>
<CAPTION>
FORTY WEEKS
YEARS ENDED ENDED
---------------------------- -----------
DECEMBER 30, DECEMBER 28, OCTOBER 4,
1995 1996 1997
------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C>
CASH PROVIDED FROM (USED BY)
Operating activities............ $(61.6) $ 53.2 $128.1
Investing activities............ (52.4) (65.3) (20.8)
Financing activities............ 104.4 21.1 (58.2)
------ ------ ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................ $ (9.6) $ 9.0 $ 49.1
====== ====== ======
</TABLE>

Cash Flow for the Forty Weeks Ended October 4, 1997

During the first forty weeks of 1997, cash provided from operating
activities was $128.1 million. Net earnings of $36.4 million for the forty weeks
ended October 4, 1997 and reduced funding of current liabilities and income
taxes were the primary contributors to the positive cash flow from operations.
The reduced funding of current liabilities was attributable primarily to the
timing of payments while the increase in income taxes payable was attributable
to increased earnings in 1997. An increased investment in inventory, spending on
plant and facility closing costs and severance, and the payment of an
arbitration award partially offset the benefits noted above. The increase in
inventory from year end reflected normal seasonal inventory replenishment.
Spending on plant and facility closing costs and severance relating to exit
costs associated with the Keebler and Sunshine acquisitions, although down from
the prior year, accounted for $14.0 million of cash used by operations for the
forty weeks ended October 4, 1997. In addition, Keebler paid an arbitration
award regarding a contract packaging arrangement, which was entered into by the
Predecessor Company, in the amount of $6.8 million plus legal fees.

Cash used by investing activities of $20.8 million for 1997 was primarily
used to fund capital expenditures. Capital spending of $26.1 million was made
principally to enhance, update or realign the existing production lines, provide
distribution and production efficiencies, and to

25
<PAGE> 29

achieve near-term cost savings. Proceeds received from asset disposals of $5.3
million partially offset capital expenditures. The sale of Keebler's Santa Fe
Springs plant accounted for $3.6 million of the year-to-date proceeds, with the
remainder of the proceeds provided mainly from the sale of trucks and machinery
and equipment. Keebler continues to carry the Atlanta, Georgia manufacturing
facility as an asset held for sale and expects the disposition to occur before
the end of 1998 without a significant gain or loss.

Cash used by financing activities in 1997 was $58.2 million. In 1997,
Keebler entered into an amendment and restatement of the Senior Credit Facility,
proceeds from which were used to extinguish existing term notes under the Senior
Credit Facility of $153.6 million. The extinguishment was funded primarily by a
draw down on the revolving credit facility (the "Revolving Credit Facility") and
of $109.8 million under new term notes, in each case under the Senior Credit
Facility. During 1997, the draw down on the Revolving Credit Facility was
completely repaid and $14.3 million of scheduled principal payments were made on
the term notes and other debt.

Cash Flow for 1996 and 1995

Cash provided from operating activities increased $114.8 million in 1996
over the cash used in operations in 1995. The significant increase reflects the
net earnings improvement along with improved working capital management.
Adjusting the 1995 net loss of $158.3 million by both the $86.5 million loss
recorded on the impairment of the Salty Snacks business and the Salty Snacks
business operating loss of $25.6 million, yields a 1995 net loss of $46.2
million compared to 1996 net income of $9.3 million. The net earnings
improvement of $55.5 million was achieved through increased revenues attributed
to price increases, a more profitable sales volume mix, and cost reductions.
Lower costs resulted from lower fixed overhead, reduced selling, distribution
and administrative expense resulting from headcount reductions, and more
effective marketing spending. The improved cash provided by working capital
resulted from a sustained improvement in cash collections of accounts receivable
and higher accounts payable. The additional cash provided from working capital
more than funded the combined $41.3 million of spending on plant and facility
closing costs and severance, as a result of actions in connection with the
Keebler and Sunshine acquisitions. Keebler believes that spending on plant and
facility closing costs and severance should be substantially completed over the
next two years. Only noncancellable lease obligations are expected to exceed
such two-year time frame.

Cash used by investing activities was $65.3 million in 1996 compared to
$52.4 million in 1995. The cash used in 1996 was directly attributable to the
$142.7 million used to finance the Sunshine acquisition. Offsetting this use of
cash was the receipt of $32.6 million working capital adjustment paid by UB
Investments (Netherlands) B.V. in connection with the Keebler acquisition and a
$67.7 million source of cash received by the Predecessor Company resulting from
the disposition of the Frozen Food businesses. Capital expenditures were $56.0
million and $55.4 million in 1994 and 1995, respectively. In 1996, current
management spent $32.6 million on capital projects mostly designed to generate
near-term cost savings and to complete the investment in improved management
information systems. Capital expenditures were down from the prior years
reflecting the near completion of the installation of the Company's SAP R/3
management information system and tighter restrictions on additional capital
expenditures in 1996 primarily to achieve near-term costs savings and enable new
product developments. Keebler believes that the capital expenditure program will
continue at a level sufficient to support its strategies and operating needs.

Cash flow provided from financing activities decreased $83.3 million in
1996 from 1995. In 1996, the $21.1 million cash provided from financing
activities was comprised of $220.0 million in long-term debt borrowings of which
$95.0 million was used to finance the Sunshine acquisition. An additional $125.0
million of borrowings represents the issuance of the Senior Subordinated Notes
which was done to refinance the bridge loan used to finance the Keebler
acquisition. Draw downs and repayments on the Revolving Credit Facility were
$37.2 million of which $19.0 million
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<PAGE> 30

was used to finance a portion of the Sunshine acquisition. The remaining $18.2
million was used to finance working capital requirements. Offsetting these
sources was $63.3 million paid by the Predecessor Company to settle commercial
paper and revolving credit obligations and $2.4 million of principal payments on
equipment obligations. The cash provided from financing activities of $104.4
million in 1995 was through commercial paper borrowings used to finance
operating losses, capital expenditures, and cash spent on restructuring
initiatives.

Liquidity

Keebler's liquidity in 1997 and 1996 was provided from the Revolving Credit
Facility. In 1996 available borrowings under the Revolving Credit Facility were
$155.0 million which was reduced to $140.0 million in 1997. Borrowings under the
Revolving Credit Facility in 1996 and 1997 were $37.2 million and $32.8 million,
respectively, all of which had been repaid as of December 28, 1996 and October
4, 1997. In 1995, borrowings of Keebler were provided by a $200.0 million
commercial paper program and a revolving credit agreement. Both the commercial
paper program and revolving credit agreement were no longer available after the
Keebler acquisition. Keebler's total debt was $437.6 million, $457.9 million and
$401.8 million as of December 30, 1995, December 28, 1996 and October 4, 1997,
respectively. Current maturities on the total debt outstanding were $286.5
million, $18.6 million and $31.3 million as of such respective dates. Cash and
cash equivalents were $3.0 million, $12.0 million and $61.1 million as of such
respective dates. On November 10, 1997, Keebler made a $40.0 million prepayment,
and on December 8, 1997, Keebler made a $30.0 million prepayment, of principal
on outstanding term notes under the Senior Credit Facility. The prepayments were
funded from available cash and will result in the recognition of an aggregate
fourth quarter 1997 after-tax extraordinary charge of $0.8 million resulting
from the loss on the early extinguishment of this debt. On November 21, 1997,
Keebler purchased the Seller Note for $31.7 million and cancelled it. The
purchase and cancellation of the Seller Note will result in the recognition of a
fourth quarter 1997 after-tax extraordinary charge of $1.5 million resulting
from the loss on the early extinguishment of this debt. The consummation of the
Offering will require Keebler to make an offer to purchase its Senior
Subordinated Notes at 101% of their principal amount. Given current trading
prices, Keebler does not expect holders of Senior Subordinated Notes to tender
for the Senior Subordinated Notes. If Senior Subordinated Notes are tendered,
Keebler would obtain funds to consummate the offer to purchase out of internally
generated funds and from draws under the Revolving Credit Facility. See "Risk
Factors -- Required Offer to Purchase Senior Subordinated Notes." Keebler
believes that available cash as well as existing credit facilities will be
sufficient to meet Keebler's normal operating requirements for the foreseeable
future.

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which is required to be adopted in Keebler's first quarter fiscal 1998
financial statements. This new standard establishes methods for computing and
presenting earnings per share ("EPS") and also simplifies the previous standards
found in APB Opinion No. 15, "Earnings per Share." It requires dual presentation
of basic and diluted EPS on the Statements of Consolidated Earnings. Keebler has
not yet determined the impact this new statement may have on disclosures in the
consolidated financial statements.

In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective in fiscal
year 1999. This new statement revises standards for public companies to report
information about segments of their business and also requires disclosure of
selected segment information in quarterly financial reports. The statement also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Keebler has not yet determined the impact
this new statement may have on disclosures in the consolidated financial
statements.

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<PAGE> 31

The FASB also issued certain other disclosure-related accounting
pronouncements during 1997. While these new statements are effective for future
reporting periods, Keebler does not anticipate they will have any significant
impact on the consolidated financial statements.

SEASONALITY

Keebler's net sales, net income and cash flows are affected by the timing
of new product introductions, promotional activities, price increases, and a
seasonal sales bias toward the second half of the year due to events such as
back-to-school, Thanksgiving and Christmas. The relative mix between cookie and
cracker sales varies throughout the year with stronger cracker sales in the last
quarter of the calendar year.

SELF INSURANCE

Keebler purchases insurance coverage for worker's compensation, general,
product and vehicle liability maintaining certain levels of retained risk
(self-insured portion). Potential losses relating to claims under the
self-insured portion of the policies are accrued in accordance with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 5,
"Accounting for Contingencies." There are no unasserted claims that require a
reserve or disclosure in accordance with SFAS No. 5.

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<PAGE> 32

BUSINESS

THE COMPANY

Branded Products. Keebler's branded cookie and cracker products accounted
for 81% of its net sales in the first forty weeks of 1997. Keebler produces
eight of the twenty-five best-selling cookies and ten of the twenty-five
best-selling crackers in the United States based on dollar sales. Keebler's
branded cookie and cracker products include, among others, the following:

<TABLE>
<CAPTION>
KEEBLER BRAND CHEEZ-IT BRAND OTHER BRANDS
------------- -------------- ------------
<C> <C> <C>
Chips Deluxe cookies Cheez-It snack crackers Carr's
Pecan Sandies cookies Cheez-It party mix Vienna Fingers
Fudge Shoppe cookies Nacho Cheez-It Hydrox
Town House crackers Sunshine Krispy
Club crackers Hi-Ho
Graham Selects crackers
Wheatables crackers
Zesta crackers
</TABLE>

DSD Distribution System. Keebler distributes its branded cookie and cracker
products to approximately 30,000 retail locations through its DSD distribution
system. With this DSD distribution system, Keebler services substantially all
supermarkets in the United States. Keebler is one of only two cookie and cracker
companies that owns and operates a national DSD distribution system. Keebler
believes its DSD distribution system provides it with certain competitive
advantages. Sales employees of Keebler's DSD distribution system visit
supermarkets on average 2.8 times each week. These employees stock and arrange
Keebler's products on store shelves and build end-aisle and free-standing
product displays. This frequent presence of Keebler employees in supermarkets
provides Keebler with a high level of control over the availability and
presentation of its products. Keebler believes that this control allows it to
maintain shelf space, better execute in-store promotions and more effectively
introduce new products. In-store promotions are important because Keebler
believes that purchases of cookies and crackers are often impulse driven.

INDUSTRY OVERVIEW

Supermarkets accounted for 78% of 1996 retail sales in the cookie and
cracker industry with mass merchandisers, such as Target; convenience stores;
and drug stores accounting for the balance. Since 1992, U.S. annual dollar
supermarket sales of cookies and crackers have increased by an average of 1.5%
per year. Keebler believes that non-supermarket channels of distribution are
becoming increasingly important.

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<PAGE> 33

STRATEGY

Build on the Keebler Brand. Keebler is one of the few packaged food brands
that generates over $1 billion in annual sales. The Keebler brand is recognized
in approximately 98% of U.S. households and is used in approximately two-thirds
of U.S. households. This brand awareness has been developed over many years of
marketing "Elfin Magic" imagery and "Uncommonly Good" Keebler products. Keebler
intends to continue to invest in advertising and promoting the Keebler brand.
Keebler's marketing will emphasize the well known images of Ernie and the other
Keebler Elves and Keebler's Hollow Tree.

Take Advantage of Product Segmentation and Keebler Brand Strength Across
Product Segments. As described above, the cookie and cracker industry has many
distinct product segments. Keebler believes that many well known cookie and
cracker brands are only associated with one product segment, such as the
chocolate chip cookie segment, making it difficult for these brands to be used
to market products in other segments. In contrast, Keebler believes the strength
of the Keebler brand is its consumer identity across a wide variety of product
segments. Keebler's strategy is to target product segments where it already has
a strong position or that are not dominated by a strong branded product. In
addition, Keebler plans to continue to use the Keebler brand to cost
effectively:

- introduce new products;
- create new product segments; and
- compete in smaller product segments.

Expand the Cheez-It Brand. Keebler's Cheez-It brand crackers are the number
one selling snack cracker in the United States. Annual retail sales of Cheez-It
brand products exceed $200 million. Keebler began to distribute Cheez-It brand
products through its DSD distribution system in Fall 1996. For the first
forty-eight weeks of 1997, retail sales of Cheez-It brand products increased by
over 30% compared to the first forty-eight weeks of 1996 when they were not
distributed through Keebler's DSD distribution system. The Cheez-It brand has a
distinctive image with consumers. Keebler intends to maintain and build on this
distinctiveness through new products, advertising and packaging.

Expand Non-Supermarket Sales. In 1996, 22% of retail cookie and cracker
sales were through mass merchandisers, convenience stores and drug stores.
Keebler believes that its total share of sales to these and other
non-supermarket channels, including club stores, such as Costco Wholesale, and
vending distributors is less than half of its share of sales to supermarkets.
Following the Keebler acquisition in January 1996, Keebler's new management
began focusing resources on non-supermarket channels. Keebler has developed, and
continues to develop, products, packaging and distribution tailored to
non-supermarket channels. As a result of these efforts, Keebler's
non-supermarket sales have grown significantly. For example, Keebler's retail
sales through mass merchandisers increased 30% in the first forty-eight weeks of
1997 compared to the first forty-eight weeks of 1996.

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<PAGE> 34

Increase the Efficiency of its Operations. Since the Keebler acquisition,
Keebler's new management has lowered annual costs by approximately $120 million
principally by closing plants, reducing overhead and combining the Keebler and
Sunshine sales forces. The relocation of production resulting from the closing
of plants increased Keebler's use of capacity at its manufacturing facilities
from 72% to 82%. Keebler intends to continue to increase the efficiency of its
operations and reduce costs. For example, Keebler plans to reduce costs by
making capital expenditures to further automate its facilities. Keebler also is
focusing on moving products more efficiently through its DSD distribution system
and its other distribution systems.

Pursue Acquisitions. Approximately 27% of cookie and cracker supermarket
sales are attributable to regional or smaller brands, some of which have strong
positions and retail relationships in their core markets. Keebler intends to
pursue acquisitions that complement or provide further opportunities to use its
existing brands, product lines or distribution systems.

KEEBLER HISTORY

Keebler was founded in 1853. In 1974, Keebler was acquired by United
Biscuits plc ("United Biscuits"). In the early 1980s, Keebler introduced salty
snack products and then expanded its distribution system to accommodate them.
After experiencing initial growth, sales of Keebler's salty snack products began
to decline. In response, Keebler embarked on a strategy aimed at increasing the
sales volume of its other products (i.e. cookies and crackers), in part to
increase utilization of its DSD distribution system. As a result of competitive
responses to Keebler's actions, Keebler did not increase its share of the cookie
and cracker market. At the time of the Keebler acquisition in January 1996,
Keebler disposed of its Salty Snacks business.

In June 1996, Keebler acquired Sunshine, the third largest cookie and
cracker manufacturer in the United States. By the end of 1996, Keebler completed
its planned integration of Sunshine's operations into those of Keebler. The
combination of Sunshine and Keebler allowed Keebler to achieve efficiencies in
administration, purchasing, production, marketing, sales and distribution. In
particular, Keebler incorporated the sales and distribution of Sunshine retail
branded products into Keebler's DSD distribution system which had excess
capacity. Filling this excess capacity with Sunshine products made Keebler's DSD
distribution system more efficient and allowed Keebler to focus its sales and
marketing efforts on its more profitable retail branded products.

Other initiatives that Keebler implemented since the Keebler acquisition
include:

PRODUCTS AND MARKETS

Keebler is the second largest cookie and cracker manufacturer in the United
States. Keebler's principal product categories include branded and private label
cookie and cracker products (which are sold in a variety of different flavors,
shapes, fat contents, sizes, weights and packages), pie crusts and ice cream
cones for retail and foodservice markets and custom-baked products for other
marketers of branded food products. Keebler produces and markets eight of the
twenty-five best-selling cookies and ten of the twenty-five best-selling
crackers in the United States based on dollar sales and has a 22.0% share of the
U.S. cookie market and a 27.4% share of the U.S. cracker market.

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<PAGE> 35

Branded Cookies

Net sales of Keebler's retail branded cookies amounted to $373.8 million,
$453.0 million and $440.5 million in 1995, in 1996 and in the first forty weeks
of 1997, respectively. The following table sets forth information with respect
to Keebler's leading branded cookie products:

<TABLE>
<CAPTION>
PRODUCT SEGMENT MARKET POSITION
------- ------- ---------------
(BASED ON DOLLAR SALES)
<S> <C> <C>
Keebler Chips Deluxe Chocolate Chip #2
Keebler Fudge Shoppe Fudge-covered #1
Keebler Sandies Shortbread #1
Vienna Fingers Non-chocolate Sandwich #2
Keebler Vanilla
Wafers Vanilla Wafers #2
Hydrox Chocolate Sandwich #2
</TABLE>

Branded Crackers

Net sales of Keebler's retail branded crackers (including imported crackers
sold under other branded labels) amounted to $405.1 million, $544.8 million and
$477.5 million in 1995, in 1996 and in the first forty weeks of 1997,
respectively. The following table sets forth information with respect to
Keebler's leading branded cracker products:

<TABLE>
<CAPTION>
PRODUCT SEGMENT MARKET POSITION
------- ------- ---------------
(BASED ON DOLLAR SALES)
<S> <C> <C>
Cheez-It Snack #1
Keebler Town House Everyday #2
Keebler Graham Selects Graham #2
Keebler Zesta Saltine #2
Carr's Specialty #1
</TABLE>

Keebler imports and distributes Carr's crackers in the United States under
an exclusive long-term licensing and distribution agreement with United
Biscuits. Carr's crackers are manufactured in the United Kingdom by McVities, a
subsidiary of United Biscuits. Carr's crackers are the best-selling specialty
crackers in the United States. Pursuant to the licensing and distribution
agreement, Keebler has the right to produce new cookie and cracker products
under the Carr's label, which can be marketed throughout the United States.

Pie Crusts

Preformed pie crusts, sold under the Keebler Ready Crust brand name,
accounted for approximately 71% of the U.S. retail shelf stable preformed pie
crust market (measured in dollars). Net sales of pie crusts in 1995, in 1996 and
the first forty weeks of 1997 were $44.0 million, $43.0 million and $27.3
million, respectively. Keebler's dedicated Keebler Ready Crust sales team,
assisted by a national system of independent brokers, markets Keebler Ready
Crust products, which are shipped directly to customers' warehouses.

Ice Cream Cones

Keebler branded ice cream cones are the leading retail branded ice cream
cones in the United States with a 33% market share. Keebler also markets its ice
cream cones through foodservice channels and produces cones for various
restaurants and ice cream retailers, such as McDonald's and TCBY. Net sales for
branded ice cream cones were $18.3 million, $21.3 million and $21.5 million in
1995, in 1996 and in the first forty weeks of 1997, respectively.

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<PAGE> 36

Products for the Foodservice Market

Keebler is the leading supplier of cookies and crackers purchased by the
foodservice market in the United States. Keebler's net sales to the foodservice
market in the first forty weeks of 1997 amounted to $115.9 million. Keebler's
foodservice products are sold by a national sales force dedicated exclusively to
the foodservice market, with the assistance of independent brokers. In the
foodservice market, Keebler generally sells to large distributors who sell these
products to restaurants and institutions.

New Products

Since the Keebler acquisition, Keebler has focused new product
introductions on line extensions within its core segments such as Keebler
Chocolate Chewy Chips Deluxe and Nacho Cheez-It and has introduced into new or
less competitive segments innovative products such as Keebler Cookie Stix and
Keebler Snackin' Grahams. Keebler has also developed new sizes of its leading
products to enable it to expand in non-supermarket channels.

Private Label Products

Keebler manufactures private label products to be sold by retailers under
their own brands. Keebler expanded into the private label cookie and cracker
market in 1993 with its purchase of Bake-Line Products, Inc. ("Bake-Line"), a
producer of private label cookie products. While Bake-Line had historically
concentrated on cookie products, Keebler expanded into the private label cracker
market in 1994. Keebler is the leading manufacturer of private label cookie
products in the United States with net sales of $101.1 million for the first
forty weeks of 1997. Keebler has a 38% share of the private label cookie market.
Keebler's private label cracker net sales were $25.8 million for the first forty
weeks of 1997. Keebler has a 12% share of the private label cracker market.
Keebler serves leading supermarkets in the United States with a variety of
private label products ranging from value-oriented standard products to premium
items that compete with branded alternatives. Keebler's plant in Des Plaines,
Illinois is dedicated to producing private label cookies, and is capable of
producing a wide variety of products with numerous packaging options to meet the
wide-ranging demands of Keebler's private label customers. Keebler's private
label cookies and crackers are shipped via common carrier directly to customer
warehouses and are not distributed through Keebler's DSD distribution system.

Custom-Baked Products for Other Marketers of Branded Food Products

Keebler manufactures a variety of custom-baked products for other marketers
of branded food products. In particular, Keebler has manufactured Pop Tarts for
Kellogg since the product's introduction in 1963. Keebler also has manufactured
a variety of other Kellogg branded products, including Cracklin' Oat Bran and
Nutri-Grain bars. Custom-baked products produced for other marketers of branded
food products include crackers for Oscar Mayer Lunchables and Starkist Charlie
Tuna snack kits, Kraft Handi-Snacks, Gerber Biter biscuits and McDonaldland
cookies. These custom-baked products are packaged under the customers' labels
and shipped from Keebler plants to the customers' regional warehouses or
distribution centers via common carrier.

CUSTOMERS

Keebler's top 10 customers in the first forty weeks of 1997 accounted for
28.1% of Keebler's net sales. No single customer accounted for more than 5% of
net sales.

MANAGEMENT INFORMATION SYSTEM

Keebler has installed the SAP R/3 management information system allowing
the rapid communication of extensive information among its corporate office,
manufacturing facilities, distribution facilities and sales force. This software
system enables Keebler to (i) improve the
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<PAGE> 37

efficiency of its manufacturing and distribution facilities, (ii) service the
diverse needs of its decentralized sales force, (iii) plan production runs and
control inventory and (iv) provide consistent, timely and current information to
management. Further, Keebler believes that this system's capability will
facilitate additional improvements in operating efficiencies.

MANUFACTURING AND DISTRIBUTION

Keebler recognizes that the mass distribution of its consumer food products
is an important element in maintaining sales growth and providing service to its
customers. Keebler attempts to meet the changing demands of its customers by
planning appropriate stock levels and reasonable delivery times consistent with
achieving optimal economics of distribution. In order to achieve these
objectives, Keebler has developed a network of manufacturing plants, shipping
centers and distribution warehouses strategically located throughout the
continental United States to provide high national in-store presence. Keebler
uses a combination of Keebler-owned, public and contract carriers to deliver its
products from its distribution points to its customers.

Keebler owns and operates eleven manufacturing facilities in the United
States. The manufacturing facilities are located in Athens, Georgia; Chicago,
Illinois; Cincinnati, Ohio; Columbus, Georgia; Denver, Colorado; Des Plaines,
Illinois; Florence, Kentucky; Grand Rapids, Michigan; Kansas City, Kansas;
Macon, Georgia; and Sayreville, New Jersey. As a result of capital expenditures
made over the past decade, management believes that Keebler's manufacturing
facilities are modern and efficient. Keebler also owns and operates a dairy in
Fremont, Ohio that produces cheese under a proprietary formula which is used as
an ingredient in Cheez-It crackers.

Keebler's distribution facilities consist of eleven shipping centers
attached to the manufacturing facilities, nine separate shipping centers (two
owned and seven leased) and sixty-seven distribution centers (twelve owned and
fifty-five leased) throughout the United States. Of the sixty-seven distribution
centers, six were subleased and eight were idle at October 4, 1997. These eight
idle facilities were included in the plant and facility closing costs accrued as
part of the cost of the Keebler and Sunshine acquisitions. One of the idle
facilities was sold subsequent to October 4, 1997. Keebler also leases thirty
warehouses and seventeen depots that are located throughout the United States
and are utilized by the sales force in the distribution of Keebler's products.
Management believes it has sufficient manufacturing and distribution capacity to
meet foreseeable needs.

Keebler directly services approximately 30,000 retail accounts through its
DSD distribution system, which system employs more than 3,200 persons. Keebler's
DSD distribution system distributes its retail branded cookie and cracker
products directly to the retail location, where these products are then
merchandised by Keebler's own sales force. Members of Keebler's sales force
visit retail outlets an average of 2.8 times per week per store, meeting
directly with and taking orders from store managers and arranging for extra
in-store display space. Keebler's trucks then deliver the orders directly to
such retail outlets, where members of Keebler's sales force, rather than store
employees, stock and arrange its products on the retailers' shelves and build
end-aisle and free standing displays within the stores. While strengthening
relationships with retailers, the frequent store presence of Keebler's sales
force allows it to oversee and execute Keebler's in-store promotional programs.
In addition, it provides Keebler with the ability to monitor competitors'
in-store product promotions.

Keebler and Nabisco are the only cookie and cracker producers that have
national wholly owned DSD distribution systems, although Pepperidge Farms
operates a national DSD distribution system through independent distributors.

Keebler uses its DSD distribution system exclusively to serve supermarkets
and mass merchandisers. Convenience stores and vending distributors are served
using a network of independent distributors. In the case of club stores and
foodservice distributions, Keebler uses a
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<PAGE> 38

dedicated sales force and ships its products directly to the customers'
warehouses. Keebler intends to further develop certain of these additional
distribution channels. See "-- Strategy."

Keebler uses a warehouse sales and distribution system to sell and
distribute Keebler Ready Crust pie crusts and private label cookies and crackers
to its customers, including retail outlets otherwise served by Keebler's DSD
distribution system. Carr's crackers are sold through a network of independent
specialty distributors.

RAW MATERIALS

The principal raw materials that Keebler uses in its food products consist
of flour, sugar, chocolate, shortening and milk. Keebler also uses paper
products, such as corrugated cardboard, as well as films and plastics to package
its products. Keebler uses hedging techniques to minimize the impact of price
fluctuations and not for speculative or trading purposes. However, such
strategies may not result in a reduction in the Company's raw material costs or
protect the Company from sharp increases in certain raw material costs, which
the Company has experienced in the past. See "Risk Factors -- Increases in
Prices of Main Ingredients and Other Materials."

SEASONALITY

Keebler's net sales, net income and cash flows are affected by the timing
of new product introductions, promotional activities, price increases and a
seasonal sales bias toward the second half of the year due to events such as
back-to-school, Thanksgiving and Christmas. The relative mix between cookie and
cracker sales varies throughout the year with stronger cracker sales in the last
quarter of the calendar year.

EMPLOYEES

Keebler employs approximately 9,700 persons, of which approximately 5,300
are represented by unions. Keebler believes its relations with its employees to
be good.

COMPETITION

The U.S. branded cookie and cracker industry is led by Keebler and Nabisco,
which together account for 58.4% of sales volume. Smaller competitors include
numerous national, regional and local manufacturers of both branded and private
label products. Competition in Keebler's markets takes many forms including the
following:

- establishing favorable brand recognition;
- developing products sought by consumers;
- implementing appropriate pricing;
- providing strong marketing support; and
- obtaining access to retail outlets and sufficient shelf space.

Nabisco is the largest manufacturer in the U.S. cookie and cracker
industry. Keebler has a 24.2% share of the retail cookie and cracker market,
while Nabisco has a 34.2% share. The remaining industry participants primarily
target certain segments of the industry or focus on certain geographical regions
of the United States.

INTELLECTUAL PROPERTY

Keebler owns a number of patents, licenses, trademarks and trade names.
Keebler's principal trademarks and trade names include Keebler, Ernie the
Keebler Elf, the Hollow Tree logo, Cheez-It, Chips Deluxe, Club, Fudge Shoppe,
Graham Selects, Hi-Ho, Hydrox, Sunshine Krispy, Munch'ems, Ready Crust, Sandies,
Soft Batch, Sunshine, Toasteds, Town House, Vienna Fingers, Wheatables, and
Zesta. Keebler is the exclusive licensee of the Carr's brand name in the United
States. Such trademarks and trade names are considered to be of material
importance to the
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<PAGE> 39

business of Keebler since they have the effect of developing brand
identification and maintaining consumer loyalty. Management is not aware of any
fact that would negatively impact the continuing use of any of its patents,
licenses, trademarks or trade names.

REGULATION

As a manufacturer and marketer of food items, Keebler's operations are
subject to regulation by various federal government agencies, including the Food
and Drug Administration, the Department of Agriculture, the Federal Trade
Commission (the "FTC"), the Environmental Protection Agency, and the Department
of Commerce, as well as various state agencies, with respect to production
processes, product quality, packaging, labeling, storage and distribution. Under
various statutes and regulations, such agencies prescribe requirements and
establish standards for quality, purity, and labeling. The finding of a failure
to comply with one or more regulatory requirements can result in a variety of
sanctions, including monetary fines or compulsory withdrawal of products from
store shelves. In addition, advertising of Keebler's businesses is subject to
regulation by the FTC, and Keebler is subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act. See "Risk Factors -- Impact of Government Regulation on Keebler's
Operations."

ENVIRONMENTAL

Keebler's operations and properties are subject to federal, state and local
laws and regulations relating to the storage, handling, emission and discharge
of materials and wastes into the environment. The primary environmental laws
affecting Keebler's operations are the Federal Clean Air Act and Clean Water
Act. Keebler may be required to spend significant sums in order to maintain
compliance with environmental laws, particularly with respect to emission
control equipment, replacement of chlorofluorocarbons (CFCs, i.e.,
ozone-depleting substances) in cooling equipment, and asbestos abatement
projects. Although it is difficult to estimate the cost of complying with
environmental laws, Keebler does not believe that compliance with, or liability
under, any environmental laws individually or in the aggregate will have a
material adverse effect on its results of operations or financial condition. See
"Risk Factors -- Impact of Governmental Regulation on Keebler's Operations."

LITIGATION

Keebler is involved in routine litigation. Keebler believes none of the
pending or threatened litigation would result in an outcome that would have a
material adverse effect on its results of operations or financial condition.

36
<PAGE> 40

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth certain information with respect to the
executive officers and directors of Keebler:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sam K. Reed.............. 51 President, Chief Executive Officer and
Director

David B. Vermylen........ 47 President - Keebler Brands

E. Nichol McCully........ 43 Chief Financial Officer and Senior Vice
President - Finance

Jack M. Lotker........... 54 President - Specialty Products

James T. Willard......... 57 Senior Vice President - Operations

Thomas E. O'Neill........ 42 Vice President, Secretary and General Counsel

Harry J. Walsh........... 42 Vice President - Corporate Planning and
Development

Robert P. Crozer......... 50 Director

Raymond Debbane.......... 42 Director

Sacha Lainovic........... 41 Director

Amos R. McMullian........ 60 Director

Christopher J. Sobecki... 39 Director

C. Martin Wood III....... 54 Director
</TABLE>

It is anticipated that following the Offering, one director designated by
Artal will resign and five new directors will be elected to the Board of
Directors, two of whom will be independent. See "Certain Related Transactions --
Flowers Control Purchase." The Board of Directors is divided into three classes
serving staggered three year terms. See "Description of Capital Stock -- Certain
Provisions of the Certificate of Incorporation and By-laws."

Sam K. Reed. Mr. Reed has been the President, Chief Executive Officer and
Director of Keebler since the Keebler acquisition in January 1996. Mr. Reed has
24 years of experience in the snack and baking industries. From January 1994 to
January 1995 he served as Chief Executive Officer of Specialty Foods
Corporation's $450 million Western Bakery Group division. Prior to that, he was
President and Chief Executive Officer of Mother's Cake and Cookie Co. from 1991
to 1994, and held Executive Vice President positions at Wyndham Bakery Products
from 1988 to 1990 and Murray Bakery Products from 1985 to 1988. Mr. Reed managed
a natural foods company from 1984 to 1985, which later became The Quaker Oats
Company's rice cake division. He started his career in 1974 with Oroweat Foods
Company where he spent 10 years in finance, manufacturing and general
management. Mr. Reed received a B.A. from Rice University and an M.B.A. from
Stanford University.

David B. Vermylen. Mr. Vermylen has been the President-Keebler Brands since
the Keebler acquisition in January 1996. Mr. Vermylen manages Keebler's branded
biscuits, pie crust and imported products sector. He has 23 years experience in
marketing consumer packaged goods including cookies, cereals, beverages and
convenience foods. He served as Vice President-Marketing at Mother's Cake and
Cookie Co. from 1991 to 1993 and then President and Chief Operating Officer from
1994 to 1995. In 1995, he served as Chairman, President and Chief Executive
Officer of Brothers Gourmet Coffee, a publicly traded specialty beverage
manufacturer and retailer. Mr. Vermylen spent 14 years in product management at
General Foods from 1974 to 1988 managing a variety of businesses, including
serving as Vice President of Marketing for Post Cereals. Mr. Vermylen was also a
founding partner of a consulting firm specializing in food marketing and grocery
distribution. He holds a B.A. in economics from Georgetown University and an
M.B.A. from New York University.
37
<PAGE> 41

E. Nichol McCully. Mr. McCully has been the Chief Financial Officer and
Senior Vice President-Finance of Keebler since the Keebler acquisition in
January 1996. Mr. McCully has over 10 years experience as a senior financial
executive in the food industry, most recently as group Chief Financial Officer
for the Western Bakery Group division of Specialty Foods Corporation from 1993
to 1995. Mr. McCully was Vice President-Finance for Mother's Cake and Cookie Co.
from 1991 until its acquisition by Specialty Foods Corporation in 1993. From
1990 to 1991, he was Vice President-Finance, and from 1988 to 1990, he was
Controller for Spreckels Sugar Co. Prior to entering the food industry, Mr.
McCully held financial management positions with Triad Systems Corporation and
Wells Fargo Leasing Corporation, and he has auditing experience with Arthur
Andersen & Co. Mr. McCully received a B.A. from the University of California at
Berkeley and an M.B.A. from the University of California at Los Angeles.

Jack M. Lotker. Mr. Lotker has been President-Specialty Products of Keebler
since the Keebler acquisition in January 1996. Mr. Lotker has worked in the food
industry for 21 years, most recently at Homeland Stores of Oklahoma from 1988 to
1995. His experience in the baking industry and with DSD distribution systems
includes two years at CPC International as Vice President of Dry Products from
1986 to 1988 and eight years at Arnold Food Company as Vice President and Group
Executive from 1978 to 1986. Mr. Lotker headed the American Bakers Association
Industrial Relations Committee from 1983 to 1986 and has an extensive knowledge
of the interaction among food retailing, wholesale bakery distribution and
unionized bakery operations. Mr. Lotker received his B.A. from Queens College
and his M.B.A. from Long Island University.

James T. Willard. Mr. Willard has been Senior Vice President-Operations of
Keebler since July 1996. With 33 years experience in the food industry, Mr.
Willard most recently was Senior Vice President at Nabisco from 1993 to 1996 and
Senior Vice President-Operations and Technical Services at Nabisco Specialty
Products Division from 1991 to 1993. From 1988 to 1991, Mr. Willard was Senior
Vice President-Operations at ALPO Pet Foods, Inc., and Mr. Willard was Senior
Vice President-North American Operations at Cadbury Schweppes, Inc. from 1986 to
1988. Prior to those assignments, Mr. Willard held various positions at Nestle
Foods Corporation from 1964 to 1986. These positions were Vice President-U.S.
Chocolate Manufacturing (1983 to 1986), General Manager-Chocolate Manufacturing
(1980 to 1983 and 1975 to 1978), General Manager-Fruits, Tomatoes & Meats (1978
to 1980), Division Manager-Manufacturing (1971 to 1975), Assistant
Manager-Quality Control (1970 to 1972) and Microbiologist and Chemist-Regional
Laboratory (1964 to 1970). Mr. Willard received a B.S. from Capital University
and an M.S. from Ohio State University.

Thomas E. O'Neill. Mr. O'Neill has been Vice President, Secretary and
General Counsel of Keebler since December 1996. Mr. O'Neill has spent more than
12 years in the food industry, most recently serving as Vice President and
Division Counsel for the Worldwide Beverage Division of The Quaker Oats Company
from December 1994 to December 1996. In that position, Mr. O'Neill was
responsible for all legal matters in both domestic and international markets
concerning the $2 billion division. Mr. O'Neill was Vice President and Division
Counsel of the Gatorade Worldwide Division of The Quaker Oats Company from 1991
through 1994. Prior to joining Quaker Oats in 1985, Mr. O'Neill spent three
years with Winston & Strawn, a law firm based in Chicago. Mr. O'Neill received
both his B.A. and J.D. from the University of Notre Dame. He also completed
additional work in the executive management program at Harvard University's
Graduate School of Business.

Harry J. Walsh. Mr. Walsh has been Vice President-Corporate Planning and
Development of Keebler since January 1997 and was the Chief Operating Officer of
Sunshine from June 1996 to January 1997. Mr. Walsh has 16 years of experience
with baking and snack food companies with DSD systems, most recently as Vice
President for G.F. Industries, Inc. from 1995 to 1996. From 1994 to 1995, he was
President and Chief Operating Officer, and from 1993 to 1994, Chief Financial
Officer for Granny Goose Foods, Inc. Mr. Walsh served as Vice
President-Operations
38
<PAGE> 42

for Bell Carter Distributing Company from 1992 to 1993, Chief Financial Officer
for San Francisco French Bread Co. from 1991 to 1992 and Vice President-Finance
for Mother's Cake and Cookie Co. from 1985 to 1991. From 1983 to 1985, he was
Vice President-Finance, and from 1981 to 1983, Controller for Salerno Megowen
Biscuit Company. Prior to entering the food industry, Mr. Walsh was an auditor
with Arthur Andersen & Co. Mr. Walsh received a B.A. from the University of
Notre Dame.

Robert P. Crozer. Mr. Crozer has been a Director of Keebler since March
1996. Mr. Crozer has served as Vice Chairman of the Board of Directors of
Flowers since 1989. He joined Flowers in 1973 and has been a director of Flowers
since 1979. Mr. Crozer served as Director of Marketing and Planning of Flowers
from 1979 to 1985, President and Chief Operating Officer, Convenience Products
Group of Flowers from 1979 to 1989 and Vice President-Marketing of Flowers from
1985 to 1989.

Raymond Debbane. Mr. Debbane has been a Director of Keebler since May 1996.
Mr. Debbane has served as the President of The Invus Group, Ltd. ("Invus"), the
U.S. investment advisor for Artal, since 1985. From 1982 to 1985, Mr. Debbane
was a Manager in the Paris office of The Boston Consulting Group, where he was
employed since 1979. Since May 1997, Mr. Debbane has been a director of Artal
Group S.A., a privately-held Luxembourg company and the parent company of Artal
("Artal Group").

Sacha Lainovic. Mr. Lainovic has been a Director of Keebler since March
1996. Mr. Lainovic has served as an Executive Vice President of Invus since
1985. Mr. Lainovic was a Manager in the Paris office of The Boston Consulting
Group from 1984 to 1985, where he was employed since 1981.

Amos R. McMullian. Mr. McMullian has been a Director of Keebler since March
1996. Mr. McMullian has served as Chief Executive Officer of Flowers since April
1981 and Chairman of the Board of Directors of Flowers since January 1985. Since
joining Flowers in 1963, Mr. McMullian has also served as assistant controller,
data processing coordinator, assistant plant manager, plant manager, plant
president, regional vice president and President of the Bakery and Snack Groups.
In 1976, he was appointed President and Chief Operating Officer of Flowers and
was elected to the Board of Directors of Flowers. He served as Vice Chairman of
the Board of Directors of Flowers from 1984 to 1985.

Christopher J. Sobecki. Mr. Sobecki has been a Director of Keebler since
March 1996. Mr. Sobecki joined Invus in 1989 and has served as a Managing
Director since 1993.

C. Martin Wood III. Mr. Wood has been a Director of Keebler since March
1996. Mr. Wood has served as Senior Vice President and Chief Financial Officer
of Flowers since September 1978. Mr. Wood joined Flowers in 1970 as Director of
New Product Development. He was appointed Director of Marketing Services of
Flowers the following year, Director of Finance in 1973, and Vice
President-Finance in 1976. Mr. Wood has been a Director of Flowers since 1975.

All executive officers serve at the pleasure of the Board of Directors.

There is no family relationship between any of the executive officers of
Keebler. Messrs. Crozer and Wood are brothers-in-law.

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee is responsible for reviewing the Company's accounting
controls and recommending to the Board of Directors the engagement of Keebler's
outside auditors. The members of the Audit Committee are Messrs. Crozer and
Sobecki. Upon consummation of the Offering, the composition of the current Audit
Committee will be changed. See "Certain Related Transactions -- Flowers Control
Purchase."

The Compensation Committee is responsible for reviewing and approving the
amount and type of consideration to be paid to senior management. The members of
Keebler's Compensation Committee

39
<PAGE> 43

are Messrs. Crozer, Debbane and Reed. Upon consummation of the Offering, the
composition of the current Compensation Committee will be changed. See "Certain
Related Transactions -- Flowers Control Purchase."

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation that was paid to the
top five executive officers of Keebler in 1996 and 1997 (the "Named Executive
Officers") and the number of shares of the Common Stock underlying options to
purchase shares of the Common Stock issued pursuant to the 1996 Stock Purchase
and Option Plan for Key Employees of INFLO Holdings Corporation and
Subsidiaries, as amended (the "1996 Stock Option Plan"), that have been granted
to date for services in all capacities to be rendered to the Company. Keebler
paid no remuneration to its current executive officers prior to the Keebler
acquisition.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- -------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL
SALARY ANNUAL STOCK OPTIONS/ LTIP OTHER
YEAR (1) BONUS COMPENSATION(4) AWARDS SARS(#) PAYOUTS COMPENSATION
---- -------- -------- ---------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sam K. Reed............. 1997 $650,000 (2) (3) -- -- -- --
President and Chief 1996 $650,000 $845,000 $167,818 -- 1,289,813 -- --
Executive Officer
David B. Vermylen....... 1997 $341,302 (2) (3) -- -- -- --
President - Keebler 1996 $325,000 $300,000 $ 66,545 -- 300,956 -- --
Brands
E. Nichol McCully....... 1997 $270,010 (2) (3) -- -- -- --
Senior Vice 1996 $240,000 $250,000 $ 77,029 -- 300,956 -- --
President - Finance
and
Chief Financial
Officer
Jack M. Lotker.......... 1997 $260,000 (2) (3) -- -- -- --
President - Specialty 1996 $240,000 $211,200 $ 87,650 -- 300,956 -- --
Products
James T. Willard........ 1997 $294,008 (2) (3) -- -- -- --
Senior Vice 1996 $280,000 $271,581 $121,565 -- 300,956 -- --
President - Operations
</TABLE>

- ------------------------------------
(1) Amounts listed for the Named Executive Officers are annual base salaries,
including amounts to be deferred in accordance with any deferred salary
option plan of Keebler.

(2) 1997 bonus amounts not yet determined.

(3) Perquisites and other personal benefits, securities and property in the
aggregate do not exceed the threshold reporting level of the lesser of
$50,000 or 10% of total salary and bonus reported for the Named Executive
Officers.

(4) Includes amounts reimbursed during the fiscal year for the payment of taxes
related to relocation reimbursements. For 1996 the amounts are: Mr. Reed,
$140,515; Mr. Vermylen, $42,330; Mr. McCully, $53,604; Mr. Lotker, $63,496;
and Mr. Willard, $95,964.

40
<PAGE> 44
The table below sets forth certain information with respect to the value of
unexercised options held by the Named Executive Officers at 1997 fiscal year
end. No options were granted to or exercised by the Named Executive Officers in
fiscal 1997.

OPTION VALUES AT JANUARY 3, 1998

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END(#) AT FY-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Sam K. Reed....................................... 300,957/988,856 6,699,303/22,011,934
David B. Vermylen................................. 70,223/230,733 1,563,164/5,136,117
E. Nichol McCully................................. 70,223/230,733 1,563,164/5,136,117
Jack M. Lotker.................................... 70,223/230,733 1,563,164/5,136,117
James T. Willard.................................. 70,223/230,733 1,563,164/5,136,117
</TABLE>

RETIREMENT PLANS

Keebler's principal non-contributory defined benefit plan covers qualifying
salaried and certain hourly-paid employees who have completed twelve months of
service. The Named Executive Officers participate in this plan on the same basis
as do approximately 14,300 other eligible participants. Benefit amounts are
based on years of service and average monthly compensation for the five highest
consecutive years out of the last fifteen years of employment for salaried
employees and some hourly employees. Certain hourly groups can have different
benefit schedules than salaried participants. The following table illustrates
the estimated annual benefits to be paid upon normal retirement at age 65 to
individuals in specified compensation and years of service classifications. The
table does not reflect benefit limitations contained in the Internal Revenue
Code. Pursuant to a separate plan (the "Excess Plan"), supplemental payments in
excess of those limitations will be made to participants in order to maintain
benefits upon retirement at the levels provided under the defined benefit plan's
formula. In addition to the plans noted above, Keebler also maintains an
unfunded supplemental retirement plan for certain former executives. No current
Named Executive Officers are covered by the supplemental plan.

<TABLE>
<CAPTION>
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS
----------------------------------------------------------------------------
YEARS OF SERVICE AT NORMAL RETIREMENT(A)
COMPENSATION(B) 10 15 20 25 30 35 40
- --------------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 400,000.............. $ 58,000 $ 87,000 $116,000 $145,000 $174,000 $203,000 $ 232,000
600,000.............. 88,000 132,000 176,000 220,000 264,000 308,000 352,000
800,000.............. 118,000 177,000 236,000 295,000 354,000 413,000 472,000
1,000,000.............. 148,000 222,000 296,000 370,000 444,000 518,000 592,000
1,200,000.............. 178,000 267,000 356,000 445,000 534,000 623,000 712,000
1,400,000.............. 208,000 312,000 416,000 520,000 624,000 728,000 832,000
1,600,000.............. 238,000 357,000 476,000 595,000 714,000 833,000 952,000
1,800,000.............. 268,000 402,000 536,000 670,000 804,000 938,000 1,072,000
</TABLE>

- ------------------------------------
(a) Years of service as of January 3, 1998 for the Named Executive Officers were
as follows: Mr. Reed, Mr. Vermylen, Mr. McCully, and Mr. Lotker,
approximately 2.0 years, and Mr. Willard, approximately 1.5 years. In
addition, a separate agreement between Mr. Willard and Keebler provides a
minimum level of benefit to Mr. Willard based on what he could have been
entitled to under his previous employ.

(b) Compensation includes all amounts shown under the columns entitled "Annual
Compensation" in the Summary Compensation Table.

41
<PAGE> 45

1996 STOCK OPTION PLAN

Keebler adopted the 1996 Stock Option Plan pursuant to which management
employees are eligible to receive awards of stock options. The Compensation
Committee of the Board of Directors administers the 1996 Stock Option Plan.
Subject to the terms of the 1996 Stock Option Plan, the Compensation Committee
selects the management employees eligible to receive awards under the 1996 Stock
Option Plan, determines the size of the awards granted thereunder and
administers and interprets the plan.

Executives have been awarded options to purchase 6,852,344 shares of Common
Stock, net of forfeitures, under the 1996 Stock Option Plan pursuant to
Non-Qualified Stock Option Agreements (the "1996 Option Agreements") and up to
2,821,250 additional shares of Common Stock are reserved for issuance under the
1996 Stock Option Plan. The Company intends that any additional options granted
under the 1996 Stock Option Plan will be exercisable at a price per share not
less than the fair market value of the Common Stock at the date of the grant.
The 1996 Option Agreements provide for options that vest based on the period of
employment ("Time Options") and options that vest based on the attainment of
specified performance objectives ("Performance Options"). The 1996 Option
Agreements will be amended prior to the Offering to (i) accelerate by
approximately one year the Time Options that would otherwise have vested in
fiscal years prior to 2000; and (ii) accelerate the percentage of Performance
Options that would otherwise have vested in fiscal years prior to 2000, subject
to the satisfaction of the performance criteria applicable to each such fiscal
year.

1998 OMNIBUS STOCK INCENTIVE PLAN

Keebler has adopted the 1998 Omnibus Stock Incentive Plan (the "1998 Stock
Incentive Plan") pursuant to which employees will be eligible to receive awards
of stock options, performance shares, restricted stock, stock appreciation
rights or other stock-based awards. Up to 6,500,000 shares of Common Stock will
be reserved for issuance under the 1998 Stock Incentive Plan. The Compensation
Committee of the Board of Directors will administer the 1998 Stock Incentive
Plan. Subject to the final terms of the 1998 Stock Incentive Plan, the
Compensation Committee will select the employees eligible to receive awards
under the 1998 Stock Incentive Plan, will determine the size of the awards
granted thereunder and will administer and interpret the plan. The Company has
granted 1,983,000 options to purchase shares of Common Stock under the 1998
Stock Incentive Plan in connection with the Offering. The Company intends that
options granted under the 1998 Stock Incentive Plan will be exercisable at a
price per share not less than the fair market value of the Common Stock at the
date of the grant.

NON-EMPLOYEE DIRECTOR STOCK PLAN

Keebler also has adopted a Non-Employee Director Stock Plan (the
"Directors' Plan") pursuant to which options for a maximum of 300,000 shares of
Common Stock may be awarded under the Directors' Plan. The participants in the
Directors' Plan will be independent directors of the Company. No options have
been granted under the Directors' Plan. No determination has been made with
respect to options that may be granted under the Directors' Plan. In addition to
outright grants of options, participating Directors may elect to defer future
cash retainer payments and convert them into options.

1998 KEEBLER INCENTIVE PROGRAM

Keebler anticipates adopting the 1998 Keebler Incentive Program (KIP) (the
"1998 Incentive Program") pursuant to which certain management and professional
employees will be eligible to receive incentive bonuses based on individual
performance and Keebler's results of operations. The 1998 Incentive Program
specifies a minimum, maximum and target award level based on achievement of
Keebler's financial performance goals. The 1998 Incentive Program will

42
<PAGE> 46

be administered by the Compensation Committee of the Board of Directors. The
Compensation Committee and the President and Chief Executive Officer will
approve incentive awards and schedules under the 1998 Incentive Program
annually. Cash bonuses, if any, would be paid annually in the first quarter of
Keebler's next fiscal year.

EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS

The Company intends to enter into an employment agreement with Mr. Sam K.
Reed prior to the Offering which will provide for Mr. Reed's continued
employment as Keebler's President and Chief Executive Officer, and continued
service as a director. Mr. Reed's employment agreement will have severance terms
identical to those for the seven executive officers set forth below.
Additionally, the agreement will provide that Mr. Reed's cash compensation and
future participation in management incentive and option plans will be set by the
Compensation Committee of the Board of Directors, and will be based on the
compensation of other chief executive officers of branded food companies
comparable to Keebler. The Compensation Committee will be charged with creating
or maintaining a package for Mr. Reed which ranks in the third highest quartile
for chief executives of such companies but in no event will his cash
compensation be less than its current levels. Mr. Reed's employment agreement
will terminate according to the provisions for termination of the Employment and
Severance Agreements in general, as set forth below.

Seven other executive officers of Keebler (including the Named Executive
Officers other than Mr. Reed) will become, effective upon the Offering, a party
to a termination of employment and change of control agreement (the "Employment
and Severance Agreements"). Each such Employment and Severance Agreement will
provide for the continuing employment of the executive after the Offering for
three years on terms and conditions no less favorable than those in effect
before the Offering. If Keebler terminates the executive's employment without
"cause" or if the executive terminates his own employment for "good reason"
(each as defined in the Employment and Severance Agreements), at any time during
the term, the executive is entitled to receive continued benefits equal to such
employee's annual compensation (including bonus) and continuation of certain
benefits for the remainder of the term of the Employment and Severance
Agreement, but in no event less than 12 months or, if such termination occurs
within two years after a "change of control" (as defined in the Employment and
Severance Agreements), in no event less than 24 months. In addition, amendments
to their 1996 Option Agreements will provide that in the event of (i) the death,
normal retirement or disability of the participant or (ii) termination of the
executive's employment with Keebler without "cause" or for "good reason" (each
as defined in the Employment and Severance Agreements), all remaining unvested
options under the 1996 Stock Option Plan will immediately vest with the
employee. Each Employment and Severance Agreement also provides that at the
option of Keebler, the employee may not compete for a period of up to one year
following termination, but if termination is without "cause" or the employee
terminates his own employment for "good reason," Keebler must continue to pay
the employee's annual compensation during such period, counting the payments
above. Except for Keebler's obligations to make payments to the executive upon a
change of control, all obligations under the Employment and Severance Agreements
will terminate after three years, including the non-competition agreement of the
executive.

Nineteen additional executives of Keebler will become, effective upon the
Offering, the beneficiaries of a company policy (a "Change of Control Policy").
Such Change of Control Policy will provide that if the employee is terminated
within two years after a "change of control" other than if termination is
without "cause" or the employee terminates his own employment for "good reason,"
the employee will be entitled to receive continued benefits equal to such
employee's annual compensation (including bonus) and continuation of certain
benefits for 12 months. In addition, amendments to their 1996 Option Agreements
will provide that regardless of a "Change of Control," in the event of (i) the
death, normal retirement or disability of the executive or (ii) termination of
such executive's employment with Keebler without "cause" or for "good

43
<PAGE> 47

reason," all remaining unvested options under the 1996 Stock Option Plan will
immediately vest with the executive.

Effective upon the Offering, the above-referenced 26 executives and Mr.
Reed will be parties to a liquidity arrangement with Keebler and Flowers. The
arrangement will provide that Keebler or Flowers has a right of first refusal to
purchase any shares of Common Stock a member of management wishes to sell.
Keebler or Flowers will have to exercise such right by the end of the next
succeeding business day following receipt of notice of such sale. The purchase
price for the shares will be the average of the closing price of the Common
Stock on the date notice was delivered to Keebler and the closing price on the
next succeeding business day on which Keebler or Flowers has to elect to
purchase the shares. If Keebler or Flowers does not elect to purchase the shares
of Common Stock, the selling executive may sell such shares at any time into the
market for the next 30 days.

Additionally, the seven senior executives and Mr. Reed will be parties to
an arrangement which, subject to certain limitations, will provide them certain
rights to require Keebler to repurchase their shares of Common Stock in the
event such executives are restricted from selling any shares in the public
market due to contractual "holdbacks" in a pending underwritten public offering
which is pursuant to a demand registration by Artal. The maximum aggregate
amount which Keebler can be required to buy during all such holdback periods is
the greater of (i) 1% of all shares of Common Stock outstanding or (ii) an
aggregate purchase obligation of $25,000,000.

Certain employees of Keebler (including the seven senior executives and Mr.
Reed) are also parties to management stockholder's agreements which grant such
employees limited "piggyback" registration rights relating to registered
offerings of Common Stock by Keebler.

COMPENSATION OF DIRECTORS

No director of Keebler who is also an employee of Keebler or of Flowers, or
who is nominated by Artal, will receive remuneration for serving as a director.
It is anticipated that the remaining directors to be elected following the
consummation of the Offering will receive compensation for serving as directors
at levels customary for publicly-held companies similar to Keebler.

44
<PAGE> 48

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of January 22, 1998, and as adjusted to reflect the
sale of the Common Stock offered hereby, by (i) all persons known by Keebler to
own beneficially 5% or more of the Common Stock, (ii) each Director of Keebler,
(iii) the Chief Executive Officer and each of the other Named Executive
Officers, (iv) each Selling Stockholder and (v) all Directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares of Common Stock
beneficially owned by such stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING(1) SHARES OFFERING(2)(3)
--------------------- BEING ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------------------- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Flowers Industries, Inc.(4)................. 34,999,606 45.1% -- 46,197,466 55.2%
1919 Flowers Circle
Thomasville, Georgia 31757
Artal Luxembourg S.A.(5).................... 34,999,606 45.1% 7,121,485 18,296,952 21.9%
39 Boulevard Royal
Luxembourg City, Luxembourg 2449
Bermore, Limited(6)......................... 11,811,414 14.1% 4,519,090 5,675,633 6.8%
c/o G.F. Industries, Inc.
999 Baker Way, Suite 200
San Mateo, California 94404
Sam K. Reed(7).............................. 1,476,119 1.9% -- 1,476,119 1.7%
David B. Vermylen(8)........................ 310,987 0.4% -- 310,987 0.4%
E. Nichol McCully(8)........................ 310,987 0.4% -- 310,987 0.4%
Jack M. Lotker(8)........................... 310,987 0.4% -- 310,987 0.4%
James T. Willard(8)......................... 310,987 0.4% -- 310,987 0.4%
All Directors and executive
officers as a group (consisting of 13
persons).................................. 2,986,627 3.8% -- 2,986,627 3.5%
</TABLE>

- ------------------------------------
(1) Shares beneficially owned and percentage of ownership are based on
77,595,213 shares of Common Stock outstanding before the Offering.

(2) Shares beneficially owned and percentage of ownership are based on
83,730,994 shares of Common Stock which include 6,135,781 shares of Common
Stock issued upon exercise of warrants held by Bermore concurrent with the
Offering.

(3) After giving effect to the purchase by Flowers of 11,197,860 shares of
Common Stock from Artal and Bermore, concurrent with the Offering. See
"Certain Related Transactions -- Flowers Control Purchase."

(4) Flowers is currently subject to the periodic reporting and other information
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Flowers' common stock is listed on the NYSE.

(5) The parent entity of Artal Luxembourg S.A. ("Artal") is Artal Group. The
address of Artal Group is the same as the address of Artal. Invus serves as
Artal's U.S. investment advisor and receives compensation from Artal that is
based in part on the performance of Artal's U.S. investments. Since 1985,
Artal has completed more than twenty-five acquisitions in the United States
with Invus' advice.

(6) Bermore is a privately held Bermuda limited company and the parent of GFI.
"Shares Beneficially Owned Prior to the Offering" include 6,135,781 shares
of Common Stock issued upon exercise of warrants held by Bermore.

(7) Includes 902,869 shares subject to stock options that are currently
exercisable; excludes 386,944 shares subject to stock options that are not
exercisable within 60 days.

(8) Includes 210,669 shares subject to stock options that are currently
exercisable; excludes 90,287 shares subject to stock options that are not
exercisable within 60 days.

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<PAGE> 49

CERTAIN RELATED TRANSACTIONS

The summaries of the Artal Stock Purchase Agreement and the Bermore Stock
Purchase Agreement set forth below do not purport to be complete and are
qualified in their entirety by reference to all the provisions of the Artal
Stock Purchase Agreement and the Bermore Stock Purchase Agreement, respectively,
copies of which will be filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

FLOWERS CONTROL PURCHASE

Simultaneously with and conditioned upon the closing of the Offering (the
"Closing"), Flowers will purchase 9,581,169 shares of Common Stock from Artal
and 1,616,691 shares of Common Stock from Bermore. Following the Closing and the
purchase of Common Stock from Artal and Bermore by Flowers, Flowers will own
approximately 55% of the outstanding Common Stock (46,197,466 shares), Artal
will own approximately 22% of the outstanding Common Stock (18,296,952 shares)
and Bermore will own approximately 7% of the outstanding Common Stock (5,675,633
shares). See "Principal and Selling Stockholders." The price per share to be
paid to Artal and Bermore by Flowers will be equal to 110% of the per share
"price to public" listed on the cover page of this Prospectus, without giving
effect to any underwriters' discounts or commissions (the "IPO Price") plus 5%
of the IPO Price (which 5% shall not exceed $13,000,000 in the aggregate).

The sale of Common Stock by Artal to Flowers will be made pursuant to a
stock purchase agreement to be executed prior to the Closing by Artal, Flowers
and Keebler (the "Artal Stock Purchase Agreement"), and the sale of Common Stock
by Bermore to Flowers will be made pursuant to a stock purchase and
stockholders' agreement to be executed prior to the Closing by Artal, Flowers,
Bermore and Keebler (the "Bermore Stock Purchase Agreement"). Each of the
Stockholders' Agreement dated as of January 26, 1996 among Artal, Flowers and
Keebler and the GFI Stockholder's Agreement dated as of June 4, 1996 among
Artal, Flowers, GFI and Keebler will terminate and be of no further effect upon
the Closing (except for certain indemnification and other obligations which by
their terms remain in effect after an offering of Common Stock pursuant to such
agreements).

ARTAL STOCK PURCHASE AGREEMENT

The Artal Stock Purchase Agreement will provide that after the Closing,
Artal will be entitled to elect (i) two directors to Keebler's Board of
Directors as long as it owns at least 6,879,000 shares of the Common Stock, (ii)
one director when it owns less than 6,879,000 shares of the Common Stock but no
less than 2,866,250 shares of the Common Stock and (iii) no directors when it
owns less than 2,866,250 shares of the Common Stock. In addition, at least one
of the Artal board designees will be entitled to serve on each committee of the
Board of Directors, subject to applicable rules and regulations of any
securities exchange or other regulatory authority. See "Principal and Selling
Stockholders." Also, Artal has agreed to refrain from participating in certain
third party proxy solicitations that are opposed by Keebler's Board of
Directors.

Until the earlier of (i) the third anniversary of the end of the 180 day
lockup period (as such period may be shortened with the consent of Credit Suisse
First Boston Corporation, the "Lockup Period") more fully described under
"Underwriting" or (ii) the date on which Artal owns less than 4,586,000 shares
of the Common Stock (the "Consent Period"), the following actions by Keebler
will require Artal's prior written consent: (i) mergers, consolidations, similar
business combinations, or sales of substantially all of Keebler's assets, if any
non-cash consideration is received by Keebler's stockholders in connection with
any such transaction; (ii) any acquisition or disposition by Keebler in excess
of $250 million (other than sales of goods in the ordinary course of business);
(iii) issuances of capital stock by Keebler, other than (A) issuances in
connection with acquisitions with an aggregate fair market value not to exceed
$75 million and (B) issuances

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<PAGE> 50

of Common Stock in connection with Keebler's management equity plans not to
exceed approximately 4% (on a fully diluted basis), in the aggregate, of the
Common Stock as of the Closing and (iv) certain material changes in Keebler's
management equity plans. Also, until three years after the Closing, the
termination of Keebler's Chief Executive Officer or the hiring of a Chief
Executive Officer other than Mr. Sam K. Reed will require the prior written
consent of at least one of the Artal board designees.

In addition, (i) amendments to Keebler's Certificate of Incorporation or
By-laws (or certain other corporate actions, such as (A) adoption of "poison
pill" or rights plans or (B) impediments or restrictions on the ability of Artal
or any potential acquirer of Common Stock from Artal to own, vote or dispose of
Common Stock) which are inconsistent with or would adversely affect Artal's
rights under the Artal Stock Purchase Agreement and (ii) any related party
transactions involving Keebler, other than ordinary course, arms-length
transactions, will require Artal's prior written consent until such time as
Artal owns less than 2,293,000 shares of the Common Stock. Flowers and Keebler
also have agreed to take, prior to Closing, all actions necessary for Keebler to
"opt out" of Section 203 of the General Corporation Law of the State of Delaware
(the "Delaware Law"). See "Description of Capital Stock -- Certain Provisions of
the Certificate of Incorporation and By-laws."

During the Consent Period, market purchases of Common Stock by Flowers and
Keebler will be limited, in the aggregate, to approximately 15% of the Common
Stock's public market float, except that (i) Flowers will be entitled to effect
market purchases of any amount to maintain ownership of not less than 51% of the
Common Stock on a fully-diluted basis and (ii) Flowers and Keebler will be
entitled to purchase Common Stock that is not part of the public market float
from Artal, from members of the Company's management or pursuant to the Bermore
Stock Purchase Agreement. In addition, Flowers will be entitled to sell Common
Stock only through private placements undertaken in connection with certain
strategic joint ventures and other similar transactions over which Flowers has
economic and voting control. Also, Flowers will have a limited right of first
refusal with respect to certain sales of Common Stock by Artal.

Artal will be granted four demand registration rights to effect sales of
its remaining shares of Common Stock after the expiration of the Lockup Period.
With one of its four demands, Artal will be entitled to cause Keebler to
maintain effective for up to two years (or, if earlier, until the third
anniversary of the end of the Lockup Period) a shelf registration statement
covering the sale of all of Artal's shares of Common Stock (whether through
block trades, market sales, underwritten offerings or otherwise). Each demand by
Artal must request registration of at least (i) one-third of the number of
shares of Common Stock owned by Artal at the time of such demand and (ii) at
least $75 million worth of Common Stock except that, notwithstanding clauses (i)
and (ii), the fourth demand, if exercised, will request registration of all of
the shares of Common Stock owned by Artal at the time of such demand. Keebler
will have the right to suspend sales of the Common Stock by Artal pursuant to
any such registration statement under certain circumstances relating to material
corporate events and any such suspensions will result in increases in the
effectiveness period of the related registration statement and, under certain
circumstances, the Consent Period.

Keebler will also grant Artal certain "piggyback" registration rights
relating to registered offerings of Common Stock by Keebler, and will agree not
to grant registration rights to other persons unless such rights are
subordinated to Artal's registration rights. Keebler will bear all expenses
relating to all registration procedures contemplated by the Artal Stock Purchase
Agreement, except that Artal will bear any underwriting discounts in respect of
its shares and the expenses of its counsel.

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<PAGE> 51

BERMORE STOCK PURCHASE AGREEMENT

Pursuant to the Bermore Stock Purchase Agreement, Bermore will be
prohibited from selling any Common Stock (other than shares acquired by Bermore
after the Closing) without Artal's prior written consent until the earlier of
(i) the end of the Consent Period and (ii) the termination of Artal's demand
registration rights under the Artal Stock Purchase Agreement (the "Restricted
Period"). This transfer restriction will be subject to certain limited
exceptions, including exceptions for affiliate transfers and transfers of up to
85,987 shares per month after the expiration of the Lockup Period.

During the Restricted Period, Bermore will have the right to participate
(pro rata based on Bermore's and Artal's relative share ownership upon Closing)
in (i) underwritten offerings of Common Stock which include Common Stock owned
by Artal and (ii) sales of Common Stock by Artal to either Flowers or Keebler.
Bermore may also be required to participate in any such sale to Flowers or
Keebler, on the same terms and conditions. In addition, in certain other limited
circumstances, Bermore will mandatorily participate in sales of Common Stock by
Artal (other than the sales contemplated by clauses (i) and (ii)).

Keebler will bear all expenses relating to all registration procedures
contemplated by the Bermore Stock Purchase Agreement, except that Bermore will
bear any underwriting discounts in respect of its shares and the expenses of its
counsel.

OTHER

In connection with the sale of 1,791,406 shares of Common Stock to members
of management on May 10, 1996, Keebler repurchased from each of Artal and
Flowers 541,893 shares of Common Stock at $1.74 per share, the original purchase
price paid by Artal and Flowers to Keebler.

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<PAGE> 52

DESCRIPTION OF CERTAIN INDEBTEDNESS

The summaries of the Senior Credit Facility and the Senior Subordinated
Notes set forth below do not purport to be complete and are qualified in their
entirety by reference to all the provisions of the agreements governing the
Senior Credit Facility (the "Credit Documents") and the Senior Subordinated
Notes, copies of which have been filed as exhibits to the Registration Statement
of which this Prospectus forms a part.

SENIOR CREDIT FACILITY

The Senior Credit Facility is provided by a syndicate of banks and other
financial institutions led by the Bank of Nova Scotia, as administrative agent.
The Senior Credit Facility currently provides for $300 million in available
borrowings, consisting of a $160 million term loan (the "Term Loan") and the
$140 million Revolving Credit Facility, which includes borrowing capacity
available for letters of credit of up to $45.0 million and for a swing-line
facility of up to $20.0 million. The Term Loan matures on April 7, 2003 and the
Revolving Credit Facility commitments terminate no later than April 7, 2003.
Capitalized terms used in this description of the Senior Credit Facility but not
otherwise defined herein shall have the meanings set forth in the Credit
Documents.

The Lenders have received guarantees from all direct and indirect domestic
subsidiaries of Keebler. The Senior Credit Facility is also secured by a first
priority pledge of 100% of the capital stock of Keebler's domestic subsidiaries
(whether direct or indirect), in addition to a first priority pledge of all
notes evidencing intercompany indebtedness of Keebler's subsidiaries.

The Senior Credit Facility contains certain negative covenants that
restrict, among other things, Keebler's ability to (i) incur additional debt
(including subordinated debt), sale leasebacks and contingent liabilities; (ii)
make dividends or similar distributions or pay management or consulting fees;
(iii) repurchase capital stock; (iv) incur liens or other encumbrances; (v) sell
assets or make similar transfers, other than inventory in the ordinary course of
business or unless net proceeds from such asset sales are used to repay
borrowings under the Senior Credit Facility, in the manner described therein;
(vi) make investments or acquisitions; or (vii) merge, consolidate and or
similarly combine or change its business conduct.

The Senior Credit Facility contains certain financial covenants that
require Keebler, among other things, to (i) maintain a minimum net worth; (ii)
maintain a maximum ratio of total funded debt to EBITDA; (iii) maintain a
minimum ratio of EBITDA to interest expense; (iv) maintain a minimum ratio of
EBITDA minus capital expenditures to the sum of cash taxes, cash interest and
mandatory amortization of indebtedness; and (v) limit capital expenditures.

Events of default under the Senior Credit Facility include, among other
things: (i) failure of Keebler to pay principal thereunder or reimbursement
obligations or deposit cash for collateral when due, or to pay interest or any
other amount due within three business days after the date due; (ii) material
inaccuracies in any representations, warranties or other statements in the
credit documents; (iii) default in the performance of any covenants after the
applicable grace period, if any; (iv) default under certain other agreements
governing indebtedness; (v) certain events of bankruptcy or insolvency; (vi)
failure to satisfy certain material ERISA requirements; (vii) unfavorable
judgments; (viii) certain events with respect to Keebler's pension plans; and
(ix) the occurrence of a Change of Control.

SENIOR SUBORDINATED NOTES

Keebler issued the Senior Subordinated Notes to refinance indebtedness
incurred in connection with the Keebler acquisition. The Senior Subordinated
Notes were issued under an indenture dated June 15, 1996 (the "Indenture")
between Keebler, the Restricted Subsidiaries, and the United States Trust
Company of New York, as trustee. Capitalized terms used in this description

49
<PAGE> 53

of the Senior Subordinated Notes but not otherwise defined herein shall have the
meanings set forth in the Indenture.

The Indenture limits, among other things: (i) the making of any Restricted
Payment; (ii) the incurrence of additional indebtedness with certain exceptions,
including among other things, the indebtedness under the Senior Credit Facility;
(iii) the creation of liens; (iv) the incurrence of payment restrictions
affecting Restricted Subsidiaries; (v) entering into transactions with
stockholders and affiliates; (vi) the sale or issuance of capital stock of
Restricted Subsidiaries; (vii) the sale of assets and subsidiary stock; and
(viii) the merger, consolidation or sale of substantially all of the assets of
Keebler.

"Restricted Payments" are generally not permitted unless after giving
effect to the proposed Restricted Payment (i) no Default or Event of Default
shall have occurred and is continuing and will not cause or constitute a Default
or Event of Default; (ii) immediately before and immediately after giving effect
to such Restricted Payment, Keebler could incur $1.00 of additional Indebtedness
pursuant to the general indebtedness test of the Indenture; and (iii) the
aggregate amount of all Restricted Payments declared or made after June 25, 1996
does not exceed the sum of (a) 50% of Consolidated Net Income (or in the case
such Consolidated Net Income shall be a loss, minus 100% of such loss), during
the period (on a cumulative basis) from the fiscal quarter that first begins
after June 25, 1996 to the end of Keebler's most recently ended fiscal quarter;
(b) the Net Cash Proceeds received after June 25, 1996 by Keebler from (1) the
issuance or sale of its shares of Capital Stock (other than Disqualified Capital
Stock), (2) Indebtedness or Disqualified Capital Stock which has been converted
into or exchanged for Capital Stock or options, warrants or rights to purchase
such Capital Stock, and (3) the sale or exercise of any options, warrants or
rights to purchase shares of Capital Stock or other cash contributions to its
capital; and (c) to the extent not included in Consolidated Net Income, the net
reduction in Investments made by Keebler since June 25, 1996.

The Senior Subordinated Notes mature on July 1, 2006 and are subject to
redemption at any time on or after July 1, 2001, at the option of the Company,
in whole or in part, on not less than 30 nor more than 60 days prior notice at
the redemption prices set forth therein. In addition, at any time or from time
to time prior to July 1, 1999, Keebler may redeem Senior Subordinated Notes
having a principal amount of up to 35% of the original aggregate principal
amount of the Senior Subordinated Notes within 60 days following one or more
Public Equity Offerings with the net proceeds of such offerings at a redemption
price equal to 110% of the principal amount thereof, together with the accrued
and unpaid interest thereon, if any, to the date of redemption; provided that
immediately after giving effect to each such redemption, at least 65% of the
original aggregate principal amount of the Senior Subordinated Notes remains
outstanding.

The Senior Subordinated Notes also require that upon a Change of Control,
Keebler make an offer to purchase (a "Change of Control Offer") the outstanding
Senior Subordinated Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of purchase. The Offering will result in a
Change of Control for purposes of the Indenture, and Keebler will make a Change
of Control Offer. See "Risk Factors -- Required Offer to Purchase Senior
Subordinated Notes."

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<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

Following the Offering, the authorized capital stock of Keebler will
consist of 500,000,000 shares of Common Stock, par value $0.01 per share, and
100,000,000 shares of preferred stock, par value $0.01 per share ("Preferred
Stock").

COMMON STOCK

Following the Offering, 83,730,994 shares of Common Stock will be issued
and outstanding. Holders of Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Because holders of Common
Stock do not have cumulative voting rights, the holders of a majority of the
shares of Common Stock can elect all of the members of the Board of Directors
standing for election. Subject to preferences of any Preferred Stock that may be
issued in the future, the holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors. Keebler's ability to pay
dividends is limited under the terms of the Senior Credit Facility and the
Senior Subordinated Notes. See "Description of Certain Indebtedness" and "Risk
Factors -- Restrictions on Payment of Dividends on Common Stock." The Common
Stock is entitled to receive pro rata all of the assets of Keebler available for
distribution to its stockholders. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable.

PREFERRED STOCK

Subject to the provisions of the Certificate of Incorporation and
limitations prescribed by law, the Board of Directors has the authority to issue
up to 100,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, which may be superior to those of
the Common Stock, without further vote or action by the stockholders. There will
be no shares of Preferred Stock outstanding upon the closing of the Offering and
Keebler has no present plans to issue any Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of Keebler by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of Keebler's management. The
issuance of shares of the Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by Keebler may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock or may otherwise adversely affect the market price of
the Common Stock.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS

Pursuant to the terms of the Certificate of Incorporation, Keebler's
stockholders have "opted-out" of the provisions of Section 203 of the Delaware
Law ("Section 203"). Section 203 generally provides that a person who, together
with affiliates and associates owns, or within three years did own, 15% or more
of the outstanding voting stock of a corporation (an "Interested Stockholder")
may not engage in certain business combinations with the corporation for a
period of three years after the date on which the person became an Interested
Stockholder, subject to certain exceptions. Section 203 defines the term
"business combination" to encompass a wide variety of transactions with or
caused by an Interested Stockholder including mergers, asset sales and other
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders. Since Keebler's
stockholders have "opted-out" of the

51
<PAGE> 55

provisions of Section 203, business combinations with Interested Stockholders of
Keebler will not be limited as described above.

The Certificate of Incorporation provides that the Board of Directors of
Keebler will be divided into three classes serving staggered three-year terms.
Directors can be removed from office only by the affirmative vote of the holders
of a majority of the then-outstanding shares of capital stock entitled to vote
generally in an election of directors. As a result of this classification of
directors, no stockholder or group of stockholders generally would be able to
elect a majority of the Board of Directors at any single meeting for the
election of directors.

The Certificate of Incorporation provides that no director shall be
personally liable to Keebler or its stockholders for monetary damages for breach
of duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Keebler or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware Law or (iv) for any
transaction from which the Director derived an improper personal benefit. The
effect of these provisions is to eliminate the rights of Keebler and its
stockholders (through stockholders' derivative suits on behalf of Keebler) to
recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above.

The By-laws provide that special meetings of stockholders must be called by
the Chairman or the Secretary of Keebler at the request in writing of a majority
of the Board of Directors or at the request in writing of stockholders owning at
least 45% of the capital stock of Keebler issued and outstanding and entitled to
vote. The By-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors as well as for other stockholder proposals to be
considered at meetings of stockholders. In general, notice of intent to nominate
a director must be received by the secretary of Keebler not less than 60 nor
more than 90 days prior to the date of a stockholders meeting, and must contain
certain specified information concerning the person to be nominated. Notice of
intent to raise business at an annual meeting must be received by the Secretary
of Keebler not less than 120 nor more than 150 days prior to the first
anniversary of the date of Keebler's consent solicitation or proxy statement
released in connection with the previous year's annual meeting. These procedures
may operate to limit the ability of stockholders to bring business before a
stockholders meeting, including with respect to the nomination of directors.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Harris Trust &
Savings Bank located in Chicago, Illinois.

LISTING

Keebler will list the Common Stock on the NYSE under the symbol "KBL."

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<PAGE> 56

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
holder that is not a "U.S. person" (a "non-U.S. holder"). A "U.S. person" is a
person or entity that, for U.S. federal income tax purposes, is a citizen or
resident of the United States, a corporation, partnership or other entity
taxable as a corporation for U.S. federal income tax purposes, created or
organized in the United States or under the laws of the United States or of any
political subdivision thereof, an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or a trust
subject to the supervision of a court within the United States and the control
of a United States fiduciary as described in Section 7701(a)(30) of Internal
Revenue Code of 1986, as amended (the "Code"). An individual will be deemed to
be a resident of the United States for U.S. federal income tax purposes if: (1)
such individual is a lawful permanent resident of the United States at any time
during the taxable year; (2) such individual makes an election to be treated as
a resident pursuant to the provisions of the Code; or (3) such individual is
present in the United States for an aggregate of 183 days or more during the
calendar year. In addition, an individual will be presumed to be a resident of
the United States for U.S. federal income tax purposes if such individual is
present in the United States on at least 31 days in the current calendar year
and for an aggregate of 183 days during the three-year period ending with the
current calendar year (counting, for such purposes all of the days present in
the United States during the current year, one-third of the days present during
the immediately preceding year and one-sixth of the days present during the
second preceding year). This presumption of residence may be rebutted if an
individual is present in the United States for fewer than 183 days during the
current year and it is established that such individual has a "tax home" in a
foreign country and a "closer connection" to such foreign country than to the
United States, with such terms being defined in the Code. Furthermore, the
determination of residence under the Code may be rebutted by application of an
applicable tax treaty or convention between the United States and an appropriate
foreign country that may also treat such individual as a tax resident of such
country. A special definition of U.S. resident applies for U.S. federal estate
tax purposes. Resident aliens are subject to U.S. federal tax as if they were
U.S. citizens.

This discussion is based on the provisions of the Code and administrative
and judicial interpretations as of the date hereof, all of which may be changed
either retroactively or prospectively. This discussion does not address all the
aspects of U.S. federal income and estate taxation that may be relevant to
non-U.S. holders in light of their particular circumstances, nor does it address
tax consequences under the laws of any U.S. state, municipality or other taxing
jurisdiction or under the laws of any jurisdiction other than the United States.

The following discussion is merely a summary of the principal Federal
income and estate tax consequences of the ownership and disposition of Common
Stock by non-U.S. Holders. Thus, all investors are urged to consult their own
tax advisors with respect to the application and effect of the Federal income
and estate tax consequences (current and prospective) of the ownership and
disposition of the Common Stock, as well as the application and effect of the
laws of any state, local, foreign, or other taxing jurisdiction.

DIVIDENDS

In the event that dividends are paid to a non-U.S. holder, such dividends
will be subject to United States federal withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Under current
U.S. Treasury regulations, dividends paid to an address outside the United
States are presumed to be paid to a resident of the country of address (unless
the payor has knowledge to the contrary) for purposes of the withholding tax.
For dividends paid prior to 1999, the same presumption generally applies to
determine the applicability of a reduced rate of withholding under a U.S. tax
treaty (the "address system"). Thus,
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<PAGE> 57

non-U.S. holders receiving dividends at addresses outside the United States
generally are not yet required to file tax forms to obtain the benefit of an
applicable treaty rate. Under U.S. Treasury regulations that were recently
finalized, the address system for claiming treaty benefits is eliminated for
payments made after December 31, 1998. Rather, to claim the benefits of a tax
treaty with respect to such dividends, a non-U.S. holder of Common Stock must
file certain forms attesting to the holder's eligibility to claim such treaty
benefits. If there is excess withholding on a person eligible for a treaty
benefit, the person can file for a refund with the U.S. Internal Revenue Service
(the "IRS").

Generally, upon the filing of a Form 4224 with Keebler, there is no
withholding tax on dividends that are effectively connected with the non-U.S.
holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends are subject to the U.S. federal income tax on
net income applicable to U.S. persons. Effectively connected dividends received
by a foreign corporation may be subject to an additional "branch profits tax" at
a 30% rate (or a lower rate under an applicable income tax treaty) when such
dividends are deemed repatriated from the United States.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with the conduct of a trade or business of the
non-U.S. holder (or of a partnership that holds the Common Stock in which the
non-U.S. holder is a member) in the United States, (ii) in the case of a non-
U.S. holder who is an individual and holds the Common Stock as a capital asset
(or is a member in a partnership that holds the Common Stock as a capital
asset), such holder is present in the United States for 183 or more days in the
taxable year of the disposition and either (x) has a "tax home" in the United
States (as specially defined for U.S. federal income tax purposes) or (y)
maintains an office or other fixed place of business in the United States and
the income from the sale of the stock is attributable to such office or other
fixed place of business, (iii) the non-U.S. holder is subject to tax pursuant to
the provision of U.S. tax law applicable to certain U.S. expatriates or (iv)
Keebler is or has been a "U.S. real property holding corporation" for federal
income tax purposes. Keebler is not currently, has not been and does not
anticipate becoming a "U.S. real property holding corporation" for U.S. federal
income tax purposes. Even if Keebler were to become a U.S. real property holding
corporation, any gain recognized by a non-U.S. Holder, on the disposition of the
Common Stock, still would not be subject to U.S. tax if the shares were
considered to be "regularly traded" (as per the meaning of the applicable U.S.
Treasury regulations) on an established securities market (e.g., NYSE) and the
non-U.S. Holder did not own, actually, constructively, directly, or indirectly,
at any time during the five year period ending on the date of the disposition,
more than five percent (5%) of the Common Stock.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Pursuant to U.S. Treasury regulations, Keebler must report annually to the
IRS and to each non-U.S. holder the amount of dividends paid to, and the tax
withheld with respect to, such holder, regardless of whether tax was actually
withheld. That information may also be made available to the tax authorities of
the country in which the non-U.S. holder resides.

United States federal backup withholding (which generally is withholding
imposed at the rate of 31% on certain payments to persons not otherwise exempt
who fail to furnish certain identifying information to the IRS) will generally
not apply to dividends paid to a non-U.S. holder that are subject to withholding
at the 30% rate (or would be so subject but for a reduced rate under an
applicable treaty). In addition, for dividends paid prior to 1999, the payor of
dividends may rely on the payee's foreign address in determining that the payee
is exempt from backup withholding, unless the payor has knowledge that the payee
is a U.S. person. However, U.S. Treasury regulations that were recently
finalized eliminate this address system for payments made after
54
<PAGE> 58

December 31, 1998 and require a payee to furnish certain documentation to the
payor so as to be able to claim such exemption from backup withholding.

The backup withholding and information reporting requirements also apply to
the gross proceeds paid to a non-U.S. holder upon the disposition of Common
Stock by or through a U.S. office of a U.S. or foreign broker, unless the holder
certifies to the broker under penalty of perjury as to its name, address and
status as a non-U.S. holder or the holder otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will apply to a
payment of the proceeds of a disposition of Common Stock by or through a foreign
office of (i) a U.S. broker, (ii) a foreign broker 50% or more of whose gross
income for certain periods is effectively connected with the conduct of a trade
or business in the United States or (iii) a foreign broker that is a "controlled
foreign corporation" for U.S. federal income tax purposes, unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither backup withholding nor information reporting will generally
apply to a payment of the proceeds of a disposition of Common Stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.

Any amounts withheld under the backup withholding rules will be refunded or
credited against the non-U.S. holder's United States federal income tax
liability, provided that required information is furnished to the IRS.

FEDERAL ESTATE TAXES

Common Stock owned or treated as being owned by an individual who is
neither a citizen nor a resident of the United States for federal estate tax
purposes at the date of death will be included in such individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax unless an applicable estate tax treaty provides otherwise. Estates of
nonresident aliens are generally allowed a statutory credit for U.S. federal
estate tax purposes. Estate tax treaties may permit a larger credit. A special
definition of U.S. resident applies for U.S. federal estate purposes.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offering,
there will be 83,730,994 shares of Common Stock outstanding. Of these shares,
the 11,640,575 shares expected to be sold in the U.S. Offering and the
International Offering (as defined) will be freely transferable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" of Keebler,
as that term is defined in Rule 144 under the Securities Act ("Rule 144"). The
remaining 72,090,419 shares of Common Stock outstanding will be "restricted
securities," as that term is defined in Rule 144, and may in the future be sold
without registration under the Securities Act to the extent permitted by Rule
144 or any applicable exemption under the Securities Act. Artal will also have
registration rights allowing it to cause Keebler to register under the
Securities Act Artal's and, in some circumstances, Bermore's shares of Common
Stock for sale. See "Certain Related Transactions -- Flowers Control Purchase."
In connection with the Offering, Keebler, its executive officers and directors
and certain of its stockholders have agreed that, subject to certain exceptions,
they will not sell, offer or contract to sell any shares of Common Stock without
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this Prospectus.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
"restricted securities" for at least
55
<PAGE> 59

one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the number of shares of
Common Stock then outstanding (which will equal approximately 837,310 shares
immediately after the Offering) or (ii) the average weekly trading volume of the
Common Stock on the NYSE during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice and availability of current public
information about Keebler. Under Rule 144(k), a person who is not deemed to have
been an affiliate of Keebler at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

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<PAGE> 60

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated January 28, 1998 (the "U.S. Underwriting Agreement"), among
Keebler, the Selling Stockholders and the underwriters named below (the "U.S.
Underwriters"), for whom Credit Suisse First Boston Corporation, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and SBC
Warburg Dillon Read Inc. are acting as representatives (the "Representatives"),
the U.S. Underwriters have severally but not jointly agreed to purchase from the
Selling Stockholders the following respective numbers of U.S. Shares (as defined
below):

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation.................... 1,740,615
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 1,740,615
Morgan Stanley & Co. Incorporated......................... 1,740,615
SBC Warburg Dillon Read Inc. ............................. 1,740,615
A.G. Edwards & Sons, Inc. ................................ 100,000
BT Alex. Brown Incorporated............................... 100,000
Burnham Securities Inc. .................................. 100,000
Charles Schwab & Co., Inc. ............................... 100,000
Deutsche Morgan Grenfell Inc. ............................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation....... 100,000
Goldman, Sachs & Co. ..................................... 100,000
Invemed Associates, Inc. ................................. 100,000
Janney Montgomery Scott Inc. ............................. 100,000
J.P. Morgan Securities Inc. .............................. 100,000
Lehman Brothers Inc. ..................................... 100,000
NationsBanc Montgomery Securities LLC..................... 100,000
Prudential Securities Incorporated........................ 100,000
Schroder & Co. Inc. ...................................... 100,000
Smith Barney Inc. ........................................ 100,000
The Robinson-Humphrey Company, LLC........................ 100,000
Wasserstein Perella Securities, Inc. ..................... 100,000
Davenport & Company LLC................................... 50,000
Edward D. Jones & Co., L.P. .............................. 50,000
Everen Securities, Inc. .................................. 50,000
J.C. Bradford & Co. ...................................... 50,000
Morgan Keegan & Company, Inc. ............................ 50,000
Nesbitt Burns Securities Inc. ............................ 50,000
Raymond James & Associates, Inc. ......................... 50,000
Sanford C. Bernstein & Co., Inc. ......................... 50,000
Scotia Capital Markets (USA) Inc. ........................ 50,000
Shields & Company......................................... 50,000
Stifel, Nicolaus & Company, Incorporated.................. 50,000
Wheat, First Securities, Inc. ............................ 50,000
William Blair & Company, L.L.C. .......................... 50,000
---------
Total................................................ 9,312,460
=========
</TABLE>

Of the 11,640,575 shares of Common Stock being offered, 9,312,460 shares
(the "U.S. Shares") are initially being offered by the U.S. Underwriters in the
United States and Canada (the "U.S. Offering") and 2,328,115 shares (the
"International Shares") are initially being concurrently offered by the Managers
(the "Managers") outside the United States and Canada (the "International
Offering").

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<PAGE> 61

The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.

Keebler and the Selling Stockholders have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering providing for the concurrent offer and sale of the International Shares
outside the United States and Canada. The closing of the U.S. Offering is a
condition to the closing of the International Offering and vice versa.

The Selling Stockholders have granted to the U.S. Underwriters and the
Managers an option, exercisable by Credit Suisse First Boston Corporation, on
behalf of the U.S. Underwriters and the Managers, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
1,746,086 additional shares of Common Stock at the initial public offering
price, less the underwriting discounts and commissions. Such option may be
exercised only to cover over-allotments, if any, in the sale of the shares of
Common Stock offered hereby. To the extent that this option to purchase is
exercised, each U.S. Underwriter and each Manager will become obligated, subject
to certain conditions, to purchase approximately the same percentage of
additional shares being sold to the U.S. Underwriters and the Managers as the
number of U.S. Shares set forth next to such U.S. Underwriter's name in the
preceding table and as the number set forth next to such Manager's name in the
corresponding table in the Prospectus relating to the International Offering
bears to the total number of shares of Common Stock in such tables.

Keebler intends to reserve for purchase from the U.S. Underwriters up to 5%
of the shares of Common Stock to be sold in the U.S. Offering and the
International Offering which may be purchased by employees and friends of
Keebler through a directed share program. Such sales will be at the initial
public offering price. The number of shares of Common Stock available to the
general public will be reduced to the extent these persons purchase the reserved
shares.

Keebler and the Selling Stockholders have been advised by the
Representatives that the U.S. Underwriters propose to offer the U.S. Shares in
the United States to the public and in Canada on a private placement basis
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Representatives, to certain dealers at such price
less a concession of $0.86 per share, and that the U.S. Underwriters and such
dealers may allow a discount of $0.10 per share on sales to certain other
dealers. After the Offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.

The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, concession and discount to dealers will be made only upon the
mutual agreement of Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, and Credit Suisse First Boston (Europe) Limited ("CSFBL"), on
behalf of the Managers.

Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or
58
<PAGE> 62

distribute any prospectus relating to Common Stock in the United States or
Canada or to any other dealer who does not so agree. The foregoing limitations
do not apply to stabilization transactions or to transactions between the U.S.
Underwriters and the Managers pursuant to the Intersyndicate Agreement. As used
herein, "United States" means the United States of America (including the States
and the District of Columbia), its territories, possessions and other areas
subject to its jurisdiction. "Canada" means Canada, its provinces, territories,
possessions and other areas subject to its jurisdiction, and an offer or sale
shall be in the United States or Canada if it is made to (i) any individual
resident in the United States or Canada or (ii) a corporation, partnership,
pension, profit-sharing or other trust or other entity (including any such
entity acting as an investment adviser with discretionary authority) whose
office most directly involved with the purchase is located in the United States
or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold shall be the public
offering price, less such amount as may be mutually agreed upon by Credit Suisse
First Boston Corporation, as Representative of the U.S. Underwriters, and CSFBL,
on behalf of the Managers, but not exceeding the selling concession applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
Managers may be more or less than the amount appearing on the cover page of this
Prospectus. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold shares of Common Stock.

Keebler, its officers, directors and the Selling Stockholders have agreed
that, for a period of 180 days after the date of this Prospectus, they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any additional shares of Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of Common Stock, or disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written consent of Credit Suisse
First Boston Corporation, except, in the case of the Company, issuances pursuant
to Keebler's 1996 Stock Option Plan, the 1998 Stock Incentive Plan and the
Directors' Plan.

Keebler and each of the Selling Stockholders have agreed to indemnify the
U.S. Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments which the
U.S. Underwriters and the Managers may be required to make in respect thereof.

Application has been made to list the shares of Common Stock on the NYSE
under the Symbol "KBL." In order to meet one of the requirements for listing the
shares of Common Stock on the NYSE, the U.S. Underwriters and the Managers have
undertaken to sell (i) lots of 100 or more shares to a minimum of 2,000
beneficial holders, (ii) a minimum of 1.1 million shares and (iii) shares with a
minimum aggregate market value of $40.0 million.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation among the Selling Stockholders and the Representatives, and does not
necessarily reflect the market price of the Common Stock following the Offering.
Among the principal factors considered in determining the initial public
offering price were market conditions for initial public offerings, the history
of and prospects for Keebler's business, Keebler's past and present operations,
its past and present earnings and current financial position, an assessment of
Keebler's management, the market of securities of companies in businesses
similar to those of Keebler, the general condition of the securities markets and
other relevant factors. There can be no assurance that the initial public
offering price will correspond to the price at which the Common Stock will trade
in the public

59
<PAGE> 63

market subsequent to the Offering or that an active trading market for the
Common Stock will develop and continue after the Offering.

Credit Suisse First Boston Corporation, on behalf of the U.S. Underwriters
and the Managers, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit Credit Suisse First Boston Corporation to reclaim a selling
concession from a syndicate member when Common Stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.

The Representatives have informed Keebler that they do not expect
discretionary sales by the U.S. Underwriters and the Managers to exceed 5% of
the number of shares being offered in the Offering.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that Keebler and the Selling
Shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Common Stock are effected.
Accordingly, any resale of the Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to Keebler, the Selling Shareholders
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions".

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

60
<PAGE> 64

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein and the Selling Shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as result, it may not be possible to satisfy a judgment against the
issuer or such persons in Canada or to enforce a judgment obtained in Canadian
courts against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Keebler. Only one such
report must be filed in respect of Common Stock acquired on the same date and
under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock in their particular circumstances and with respect to the
eligibility of the Common Stock for investment by the purchaser under relevant
Canadian Legislation.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for Keebler by Winston & Strawn, Chicago, Illinois.
Certain legal matters will be passed upon for the U.S. Underwriters and the
Managers by Cravath, Swaine & Moore, New York,
New York.

EXPERTS

The consolidated balance sheets of Keebler and the Predecessor Company, as
of December 30, 1995 and December 28, 1996, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the periods presented, constituting the three fiscal years ended
December 28, 1996, included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

The financial statements of Sunshine included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

Keebler files annual, quarterly and current reports, proxy statements and
other information with the Commission. You may read and copy any reports,
statements or other information on file at the Commission's public reference
room in Washington, D.C. You can request copies of those documents, upon payment
of a duplicating fee, by writing to the Commission.
61
<PAGE> 65

Keebler has filed a Registration Statement on Form S-1 with the Commission.
This Prospectus, which forms a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this Prospectus to any contract
or other document of Keebler, such references are not necessarily complete and
you should refer to the exhibits attached to the Registration Statement for
copies of the actual contract or document. You may review a copy of the
Registration Statement at the Commission's public reference room in Washington,
D.C, and at the Commission's regional offices in Chicago, Illinois and New York,
New York. Please call the Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Keebler's Commission filings and
the Registration Statement can also be reviewed by accessing the Commission's
Internet site at http://www.sec.gov.

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<PAGE> 66

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Keebler Foods Company
Consolidated Balance Sheets at December 28, 1996 and
October 4, 1997 (Unaudited)............................ F-2
Consolidated Statements of Operations for the four weeks
ended January 26, 1996, the twelve and thirty-six weeks
ended October 5, 1996, and the twelve and forty weeks
ended October 4, 1997 (Unaudited)...................... F-4
Consolidated Statements of Cash Flows for the four weeks
ended January 26, 1996, the thirty-six weeks ended
October 5, 1996, and the forty weeks ended October 4,
1997 (Unaudited)....................................... F-5
Notes to Consolidated Financial Statements (Unaudited).... F-6
Report of Independent Accountants dated December 5,
1997................................................... F-9
Consolidated Balance Sheets at December 30, 1995 and
December 28, 1996...................................... F-10
Consolidated Statements of Operations for the years ended
December 31, 1994, December 30, 1995, the four weeks
ended January 26, 1996, and the forty-eight weeks ended
December 28, 1996...................................... F-11
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1994, December 30,
1995, the four weeks ended January 26, 1996, and the
forty-eight weeks ended December 28, 1996.............. F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 30, 1995, the four weeks
ended January 26, 1996, and the forty-eight weeks ended
December 28, 1996...................................... F-13
Notes to Consolidated Financial Statements................ F-14
Sunshine Biscuits, Inc.
Independent Auditors' Report dated May 15, 1996........... F-34
Balance Sheets -- March 31, 1995 and 1996.............. F-35
Statements of Operations -- Years ended March 31, 1994,
1995 and 1996......................................... F-36
Statements of Stockholder's Equity -- Years ended March
31, 1994, 1995 and 1996............................... F-37
Statements of Cash Flows -- Years ended March 31, 1994,
1995 and 1996......................................... F-38
Notes to Financial Statements -- Years ended March 31,
1994, 1995 and 1996................................... F-39
</TABLE>

Note: The financial statements listed in the above index for Keebler Foods
Company (the "Company") include the financial statements of the
Predecessor Company for all periods and dates through January 26, 1996,
the date the Company was acquired by INFLO, and the Company for all
periods and dates subsequent to January 26, 1996. The Company's operating
results have been restated as of and for the forty-eight weeks ended
December 28, 1996 to reflect the merger of Keebler Corporation and INFLO
Holdings Corporation, as if it had been effective January 26, 1996. This
distinction between predecessor/successor financial statements has been
made by inserting a double line between such financial statements.

F-1
<PAGE> 67

KEEBLER FOODS COMPANY

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 28, OCTOBER 4,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,954 $ 61,077
Trade accounts and notes receivable, net.................. 137,150 129,785
Inventories, net:
Raw materials.......................................... 25,296 23,006
Package materials...................................... 9,842 10,949
Finished goods......................................... 76,054 86,902
Other.................................................. 1,473 2,107
---------- ----------
112,665 122,964
Deferred income taxes..................................... 55,929 44,052
Other..................................................... 19,337 22,741
---------- ----------
Total current assets.............................. 337,035 380,619
PROPERTY, PLANT, AND EQUIPMENT, NET......................... 486,080 470,795
TRADEMARKS AND TRADENAMES, NET.............................. 158,033 155,043
GOODWILL, NET............................................... 48,280 47,341
PREPAID PENSION............................................. 43,359 42,421
ASSETS HELD FOR SALE........................................ 6,785 3,178
OTHER ASSETS................................................ 22,502 16,685
---------- ----------
Total assets...................................... $1,102,074 $1,116,082
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-2
<PAGE> 68

KEEBLER FOODS COMPANY

CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 28, OCTOBER 4,
1996 1997
------------ ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 18,570 $ 31,265
Trade accounts payable.................................... 96,754 97,815
Other liabilities and accruals............................ 186,893 228,434
Income taxes payable...................................... -- 22,381
Plant and facility closing costs and severance............ 19,860 10,309
---------- ----------
Total current liabilities......................... 322,077 390,204
LONG-TERM DEBT.............................................. 439,369 370,582
OTHER LIABILITIES:
Deferred income taxes..................................... 64,068 49,226
Postretirement/postemployment obligations................. 56,382 59,138
Plant and facility closing costs and severance............ 16,124 11,602
Deferred compensation..................................... 18,205 17,075
Other..................................................... 20,708 16,756
---------- ----------
Total other liabilities........................... 175,487 153,797
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value; 100,000,000 shares
authorized and none issued)............................ -- --
Common stock ($.01 par value; 500,000,000 shares
authorized and 77,638,206 and 77,595,213 shares issued,
respectively).......................................... 776 776
Additional paid-in capital................................ 148,613 148,538
Retained earnings......................................... 15,752 52,185
---------- ----------
Total shareholders' equity........................ 165,141 201,499
---------- ----------
Total liabilities and shareholders' equity........ $1,102,074 $1,116,082
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 69

KEEBLER FOODS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
UBIUS COMPANY COMPANY
---------------- --------------------------------- ---------------------------------
FOUR THIRTY-SIX FORTY TWELVE TWELVE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 26, 1996 OCTOBER 5, 1996 OCTOBER 4, 1997 OCTOBER 5, 1996 OCTOBER 4, 1997
---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET SALES..................... $101,656 $1,171,354 $1,542,157 $452,329 $485,295
COSTS AND EXPENSES:
Cost of sales............... 54,870 560,719 668,446 217,348 208,345
Selling, marketing, and
administrative expenses... 71,427 571,310 770,442 220,197 234,775
Other....................... 857 4,366 7,115 1,844 2,369
-------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.................. (25,498) 34,959 96,154 12,940 39,806
Interest (income) from
affiliates................ (875) -- -- -- --
Interest (income)........... (3) (399) (710) -- (382)
Interest expense to
affiliates................ 664 -- -- -- --
Interest expense............ 98 29,055 29,312 10,995 8,179
-------- ---------- ---------- -------- --------
INTEREST EXPENSE (INCOME),
NET......................... (116) 28,656 28,602 10,995 7,797
-------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
EXPENSE..................... (25,382) 6,303 67,552 1,945 32,009
Income tax expense.......... -- 3,723 28,427 1,143 13,461
-------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY
ITEM........................ (25,382) 2,580 39,125 802 18,548
DISCONTINUED OPERATIONS:
Gain on disposal of the
Frozen Food businesses,
net of tax................ 18,910 -- -- -- --
-------- ---------- ---------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM.......... (6,472) 2,580 39,125 802 18,548
EXTRAORDINARY ITEM:
Loss on early extinguishment
of debt, net of tax....... -- 1,925 2,692 -- --
-------- ---------- ---------- -------- --------
NET INCOME (LOSS)............. $ (6,472) $ 655 $ 36,433 $ 802 $ 18,548
======== ========== ========== ======== ========
PRIMARY NET INCOME
PER SHARE:
Continuing operations....... $ 0.03 $ 0.48 $ 0.01 $ 0.22
Extraordinary item.......... 0.02 0.03 -- --
---------- ---------- -------- --------
Net income.................. $ 0.01 $ 0.45 $ 0.01 $ 0.22
========== ========== ======== ========
Weighted average shares
outstanding............... 75,502 81,593 80,122 83,696
========== ========== ======== ========
FULLY DILUTED NET INCOME PER
SHARE:
Continuing operations....... $ 0.03 $ 0.46 $ 0.01 $ 0.22
Extraordinary item.......... 0.02 0.03 -- --
---------- ---------- -------- --------
Net income.................. $ 0.01 $ 0.43 $ 0.01 $ 0.22
========== ========== ======== ========
Weighted average shares
outstanding............... 76,067 84,179 80,122 84,195
========== ========== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 70

KEEBLER FOODS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
UBIUS COMPANY
---------------- ---------------------------------
FOUR THIRTY-SIX FORTY
WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 26, 1996 OCTOBER 5, 1996 OCTOBER 4, 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED BY) OPERATING
ACTIVITIES
Net income (loss)................................. $ (6,472) $ 655 $ 36,433
Adjustments to reconcile net income (loss) to cash
from operating activities:
Depreciation and amortization.................. 1,973 33,140 45,523
Deferred income taxes.......................... -- -- (2,965)
Accretion on Seller Note....................... -- 1,665 2,028
Gain on the disposal of the Frozen Food
businesses, net of tax....................... (18,910) -- --
Loss on early extinguishment of debt, net of
tax.......................................... -- 1,925 2,692
(Gain) loss on sale of property, plant, and
equipment.................................... -- (26) (422)
Changes in assets and liabilities:
Trade accounts and notes receivable, net....... 22,068 22,264 7,365
Accounts receivable/payable from affiliates,
net.......................................... (1,941) -- --
Inventories, net............................... 4,353 (34,255) (10,299)
Recoverable income taxes and income taxes
payable...................................... 25 2,886 24,331
Other current assets........................... 1,192 (6,353) (3,404)
Deferred debt issue costs...................... -- (6,123) (1,250)
Trade accounts payable and other current
liabilities.................................. 11,550 21,773 42,417
Restructuring reserves......................... (14,469) -- --
Plant and facility closing costs and
severance.................................... -- (32,994) (14,027)
Other, net........................................ 246 9,554 (313)
-------- --------- ---------
Cash provided from (used by) operating
activities................................ (385) 14,111 128,109
CASH FLOWS (USED BY) PROVIDED FROM INVESTING
ACTIVITIES
Capital expenditures.............................. (3,228) (17,989) (26,097)
Proceeds from property disposals.................. 677 3,389 5,306
Disposition of the Frozen Food businesses......... 67,749 -- --
Purchase of Sunshine Biscuits, Inc., net of cash
acquired....................................... -- (142,670) --
Working capital adjustment paid by UB Investment
(Netherlands) B.V. ............................ -- 32,609 --
-------- --------- ---------
Cash (used by) provided from investing
activities................................ 65,198 (124,661) (20,791)
CASH FLOWS (USED BY) PROVIDED FROM FINANCING
ACTIVITIES
Capital contributions............................. -- 234 (75)
Long-term debt borrowings......................... -- 220,000 109,750
Long-term debt repayments......................... (2,377) (130,987) (167,870)
Revolving Loan facility, net...................... (63,300) 23,600 --
-------- --------- ---------
Cash (used by) provided from financing
activities................................ (65,677) 112,847 (58,195)
-------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................... (864) 2,297 49,123
Cash and cash equivalents at beginning of
period.................................... 2,978 2,115 11,954
-------- --------- ---------
Cash and cash equivalents at end of period... $ 2,114 $ 4,412 $ 61,077
======== ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 71

KEEBLER FOODS COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The consolidated financial statements of Keebler Foods Company (the
"Company", "Keebler", "successor company") include the financial statements of
UB Investments US Inc. ("UBIUS"), the predecessor company, for the four weeks
ended January 26, 1996, the date the Company was acquired by INFLO Holdings
Corporation ("INFLO"), and the successor company for the forty weeks ended
October 4, 1997 and the thirty-six weeks ended October 5, 1996. The distinction
between the predecessor company's and the successor company's consolidated
financial statements has been made by inserting a double line between such
consolidated financial statements. The consolidated financial statements for the
four weeks ended January 26, 1996 include "the Frozen Food businesses", defined
as Bernardi Italian Foods Co., The Original Chili Bowl, Inc., and Chinese Food
Processing Corporation, all of which were wholly owned subsidiaries of UBIUS
prior to their sale on December 31, 1995.

1. BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements included herein
were prepared pursuant to the rules and regulations for interim reporting under
the Securities Exchange Act of 1934. Accordingly, certain information and
footnote disclosures normally accompanying the annual financial statements were
omitted. The interim consolidated financial statements and notes should be read
in conjunction with the annual audited consolidated financial statements and
notes thereto. The accompanying unaudited interim consolidated financial
statements contain all adjustments, consisting only of normal and necessary
adjustments, which in the opinion of management were necessary for a fair
statement of the results for the interim periods. Results for the interim
periods are not necessarily indicative of results for the full year.

On November 20, 1997, INFLO was merged into Keebler Corporation ("the
Merger"), which subsequently changed its name to Keebler Foods Company. The
financial statements for all periods after January 26, 1996 have been restated
to reflect the Merger as if it had been effective January 26, 1996. INFLO was
legally established as of November 2, 1995, but did not have any operating
activity, assets or liabilities until the Keebler acquisition on January 26,
1996.

FISCAL PERIODS PRESENTED

The Company's fiscal year consists of thirteen four-week periods (52 or 53
weeks) and ends on the Saturday nearest December 31. The first quarter consists
of four four-week periods. In 1996, the Keebler acquisition closed on the last
day of the first four-week period. The 1996 year-to-date information can be
derived from the sum of the thirty-six weeks ended October 5, 1996 of the
Company and the four weeks ended January 26, 1996 of UBIUS.

RECLASSIFICATIONS

Certain reclassifications of prior period data have been made to conform
with the current period reporting.

2. ASSETS HELD FOR SALE

Subsequent to the acquisition of Sunshine Biscuits, Inc. ("Sunshine"),
management decided to close and sell the production plant in Santa Fe Springs,
California. The land and buildings, which were valued at a fair market value of
$3.6 million as of the date of acquisition, were sold on March 27, 1997. No gain
or loss was recognized from the sale of the idle facility. The Company is
currently seeking a buyer for the manufacturing facility in Atlanta, Georgia
which has been held for sale since June 1996. Disposition of the facility is
expected to occur before the end of 1998 without a significant gain or loss.

F-6
<PAGE> 72

KEEBLER FOODS COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

3. DEBT COMMITMENTS

Long-term debt consisted of the following at October 4, 1997:

<TABLE>
<CAPTION>
INTEREST RATE FINAL MATURITY OCTOBER 4, 1997
------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving Loans.......................... Floating April 7, 2003 $ --
Term Note................................ 6.938% April 7, 2003 230,000
Senior Subordinated Notes................ 10.750% June 15, 2006 125,000
Seller Note.............................. 10.000% January 26, 2007 28,692
Other Senior Debt........................ various 2001-2005 18,155
--------
401,847
Less: Current maturities................. (31,265)
--------
$370,582
========
</TABLE>

On April 8, 1997, the Company amended the primary credit financing facility
in order to obtain more favorable terms, fees, and interest rates. The Second
Amended and Restated Credit Agreement ("Credit Agreement") specifically provides
for available borrowings of $380.0 million consisting of a $140.0 million
Revolving Loan facility and a $240.0 million Term Note. Any unused borrowings
under the Revolving Loan facility are subject to a commitment fee. The current
commitment fee will vary from 0.125%-0.375% based on the relationship of debt to
adjusted earnings.

In conjunction with the amendment to the Credit Agreement, Term Notes B and
C were extinguished by using $40.0 million of borrowings under the Revolving
Loan facility, $109.8 million of increased borrowings against Term Note A, and
$3.8 million from cash resources. The Company recorded a before-tax
extraordinary charge of $4.6 million related primarily to expensing certain bank
fees which were being amortized and which were incurred at the time Term Notes B
and C were issued. The related after-tax charge was $2.7 million.

On November 10, 1997, the Company made a $40.0 million pre-payment of
principal on the Term Note. The pre-payment resulted in the recognition of a
$0.5 million after-tax extraordinary charge related to the expensing of certain
unamortized bank fees which were incurred at the time the Term Note was issued.

4. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

As part of acquiring Keebler and Sunshine, management adopted and began
executing a plan to reduce costs and inefficiencies. Certain exit costs totaling
$77.4 million were provided for in the allocation of the purchase price of both
the Keebler and Sunshine acquisitions. Spending against the reserves totaled
$14.1 million for the forty weeks ended October 4, 1997 resulting in a remaining
balance of $21.9 million, detailed as follows:

<TABLE>
<CAPTION>
STAFF FACILITY INFORMATION LEASE
REDUCTION CLOSURE SYSTEM TERMINATION
COSTS COSTS EXIT COSTS COSTS TOTAL
--------- -------- ----------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 28, 1996...... $ 6,219 $ 3,209 $ 3,771 $22,785 $ 35,984
Charges........................... (6,219) (1,271) (1,537) (5,046) (14,073)
------- ------- ------- ------- --------
Balance at October 4, 1997........ $ -- $ 1,938 $ 2,234 $17,739 $ 21,911
======= ======= ======= ======= ========
</TABLE>

The plans initiated by management are expected to be completed prior to the
end of 1998. Only noncancellable contractual lease obligations are expected to
extend beyond 1998, to be paid out over the next eight years concluding in 2004.

F-7
<PAGE> 73

KEEBLER FOODS COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

5. SUBSEQUENT EVENT

The consolidated financial statements reflect the Company's 57.325-for-1
stock split of its Common Stock ("Stock Split") effective January 22, 1998. The
Stock Split was effected in the form of a stock dividend. Accordingly, all
references in the consolidated financial statements to number of shares, average
number of shares outstanding and related prices, per share amounts and common
stock option and warrant data have been restated to reflect such changes.

F-8
<PAGE> 74

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders of Keebler Foods Company

We have audited the accompanying consolidated balance sheet of UB
Investments US Inc. and Subsidiaries as of December 30, 1995 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the fifty-two week periods ended December 31, 1994 and December 30,
1995 and the four-week period ended January 26, 1996. We have also audited the
accompanying consolidated balance sheet of Keebler Foods Company and
Subsidiaries as of December 28, 1996 and, the related consolidated statement of
operations, shareholders' equity and cash flows for the forty-eight week period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of UB Investments
US Inc. and Subsidiaries at December 30, 1995 and of Keebler Foods Company and
Subsidiaries at December 28, 1996 and the consolidated results of operations and
cash flows of UB Investments US Inc. for the fifty-two week periods ended
December 31, 1994 and December 30, 1995 and the four week period ended January
26, 1996 and the consolidated results of operations and cash flows of Keebler
Foods Company for the forty-eight week period ended December 28, 1996 in
conformity with generally accepted accounting principles.

As described in the notes to the consolidated financial statements, in 1994
UB Investments US Inc. changed its method of accounting for postemployment
benefits and spare machinery and equipment parts.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
December 5, 1997, except for Note 23,
as to which the date is January 22, 1998.

F-9
<PAGE> 75

KEEBLER FOODS COMPANY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
UBIUS COMPANY
DECEMBER 30, DECEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,978 $ 11,954
Trade accounts and notes receivable, net.................. 117,293 137,150
Recoverable income taxes.................................. 1,791 --
Receivables from affiliates............................... 8,073 --
Inventories, net:
Raw materials........................................... 10,646 25,296
Package materials....................................... 11,053 9,842
Finished goods.......................................... 45,517 76,054
Other................................................... 892 1,473
--------- ----------
68,108 112,665
Deferred income taxes..................................... 35,694 55,929
Other..................................................... 33,417 19,337
--------- ----------
Total current assets............................... 267,354 337,035
PROPERTY, PLANT, AND EQUIPMENT, NET......................... 392,727 486,080
TRADEMARKS AND TRADENAMES, NET.............................. -- 158,033
GOODWILL, NET............................................... 74,977 48,280
PREPAID PENSION............................................. 23,836 43,359
NOTES RECEIVABLE FROM AFFILIATE............................. 125,000 --
ASSETS HELD FOR SALE........................................ 38,950 6,785
OTHER ASSETS................................................ 4,042 22,502
--------- ----------
Total assets....................................... $ 926,886 $1,102,074
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Commercial paper and revolving credit facilities.......... $ 284,000 $ --
Current maturities of long-term debt...................... 2,475 18,570
Trade accounts payable.................................... 51,877 96,754
Other liabilities and accruals............................ 123,719 186,893
Restructuring reserves.................................... 38,168 --
Plant and facility closing costs and severance............ -- 19,860
Accounts payable to affiliate............................. 3,016 --
--------- ----------
Total current liabilities.......................... 503,255 322,077
LONG-TERM DEBT.............................................. 151,153 439,369
NOTES PAYABLE TO AFFILIATE.................................. 105,000 --
OTHER LIABILITIES:
Deferred income taxes..................................... 43,806 64,068
Postretirement/postemployment obligations................. 44,603 56,382
Plant and facility closing costs and severance............ -- 16,124
Deferred compensation..................................... 16,281 18,205
Other..................................................... 11,031 20,708
--------- ----------
Total other liabilities............................ 115,721 175,487
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value; 100,000,000 shares
authorized and none issued)............................. -- --
Common stock ($.01 par value; 500,000,000 shares
authorized and 77,638,206 shares issued)................ 1,000 776
Additional paid-in capital................................ 745,000 148,613
Retained earnings (deficit)............................... (694,243) 15,752
--------- ----------
Total shareholders' equity......................... 51,757 165,141
--------- ----------
Total liabilities and shareholders' equity......... $ 926,886 $1,102,074
========= ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-10
<PAGE> 76

KEEBLER FOODS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
UBIUS COMPANY
----------------------------------------- ------------
FIFTY-TWO FIFTY-TWO FOUR FORTY-EIGHT
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Sales...................................... $1,599,675 $1,578,601 $101,656 $1,645,532
COSTS AND EXPENSES:
Cost of sales................................ 705,464 746,754 54,870 774,198
Selling, marketing, and administrative
expenses.................................. 845,704 884,591 71,427 794,837
Loss on impairment of Salty Snacks
business.................................. -- 86,516 -- --
Other........................................ 2,115 (1,363) 857 6,347
---------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS.................. 46,392 (137,897) (25,498) 70,150
Interest (income) from affiliates............ (11,385) (11,376) (875) --
Interest (income)............................ (118) (151) (3) (450)
Interest expense to affiliates............... 65,195 11,802 664 --
Interest expense............................. 20,751 27,976 98 38,921
---------- ---------- -------- ----------
INTEREST EXPENSE (INCOME), NET................. 74,443 28,251 (116) 38,471
---------- ---------- -------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE (BENEFIT)................. (28,051) (166,148) (25,382) 31,679
Income tax expense (benefit)................. (1,134) (459) -- 14,002
---------- ---------- -------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES........................... (26,917) (165,689) (25,382) 17,677
DISCONTINUED OPERATIONS:
Income from operations of discontinued Frozen
Food businesses, net of tax............... 3,362 7,344 -- --
Gain on disposal of Frozen Food businesses,
net of tax................................ -- -- 18,910 --
---------- ---------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES...... (23,555) (158,345) (6,472) 17,677
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
tax....................................... -- -- -- 1,925
---------- ---------- -------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES........................... (23,555) (158,345) (6,472) 15,752
Cumulative effect of accounting changes, net
of tax.................................... 535 -- -- --
---------- ---------- -------- ----------
NET INCOME (LOSS).............................. $ (23,020) $ (158,345) $ (6,472) $ 15,752
========== ========== ======== ==========
NET INCOME PER SHARE:
Continuing operations........................ $ 0.23
Extraordinary item........................... 0.02
----------
Net income................................... $ 0.21
==========
WEIGHTED AVERAGE SHARES OUTSTANDING............ 76,621
==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-11
<PAGE> 77

KEEBLER FOODS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------- ---------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 (UBIUS).................. $ 1,000 $ -- $(512,878) $(511,878)
Net loss.......................................... -- -- (23,020) (23,020)
Capital contribution from UB Investments
(Netherlands) B.V.............................. -- 300,000 -- 300,000
------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994 (UBIUS)................ 1,000 300,000 (535,898) (234,898)
Net loss.......................................... -- -- (158,345) (158,345)
Capital contribution from UB Investments
(Netherlands) B.V.............................. -- 445,000 -- 445,000
------- --------- --------- ---------
BALANCE AT DECEMBER 30, 1995 (UBIUS)................ 1,000 745,000 (694,243) 51,757
Net loss for the four weeks....................... -- -- (6,472) (6,472)
------- --------- --------- ---------
BALANCE AT JANUARY 26, 1996 (UBIUS)................. 1,000 745,000 (700,715) 45,285
Write-off of Predecessor Company equity........... (1,000) (745,000) 700,715 (45,285)
Purchase of the Company by INFLO Holdings
Corporation effective January 26, 1996......... 717 124,284 -- 125,001
Issuance of common stock and warrants to GFI...... 57 23,543 -- 23,600
Management investment............................. 2 786 -- 788
Net income for the forty-eight weeks.............. -- -- 15,752 15,752
------- --------- --------- ---------
BALANCE AT DECEMBER 28, 1996 (COMPANY).............. $ 776 $ 148,613 $ 15,752 $ 165,141
======= ========= ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-12
<PAGE> 78

KEEBLER FOODS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
UBIUS COMPANY
----------------------------------------- ------------
FIFTY-TWO FIFTY-TWO FOUR FORTY-EIGHT
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED BY) OPERATING
ACTIVITIES
Net income (loss)................................. $ (23,020) $ (158,345) $ (6,472) $ 15,752
Adjustments to reconcile net income (loss) to cash
from operating activities:
Depreciation and amortization................... 46,642 47,361 1,973 49,461
Deferred income taxes........................... 2,057 (1,985) -- 12,254
Accretion on Seller Note........................ -- -- -- 2,246
Loss on impairment of the Salty Snacks business,
net of tax................................... -- 86,516 -- --
Gain on the disposal of the Frozen Food
businesses, net of tax....................... -- -- (18,910) --
Loss on early extinguishment of debt, net of
tax.......................................... -- -- -- 1,925
Cumulative effect of accounting changes, net of
tax.......................................... (535) -- -- --
Changes in assets and liabilities:
Trade accounts and notes receivable, net........ 6,673 (11,716) 22,068 3,842
Accounts receivable/payable from affiliates,
net.......................................... (20,303) (4,737) (1,941) --
Inventories, net................................ (4,389) 6,605 4,353 (9,809)
Recoverable income taxes and income taxes
payable...................................... 22,137 (1,304) 25 --
Other current assets............................ (4,693) 3,772 1,192 1,644
Deferred debt issue costs....................... -- -- -- (8,032)
Trade accounts payable and other current
liabilities.................................. (2,200) (13,304) 11,550 26,105
Restructuring reserves.......................... (42,262) (24,122) (14,469) --
Plant and facility closing costs and
severance.................................... -- -- -- (41,279)
Other, net........................................ 2,525 9,702 246 (553)
---------- ---------- -------- ----------
Cash provided from (used by) operating
activities............................... (17,368) (61,557) (385) 53,556
CASH FLOWS (USED BY) PROVIDED FROM INVESTING
ACTIVITIES
Capital expenditures.............................. (56,016) (55,386) (3,228) (29,352)
Proceeds from property disposals.................. 8,928 2,956 677 8,908
Disposition of Frozen Food businesses............. -- -- 67,749 --
Working capital adjustment paid by UB Investment
(Netherlands) B.V............................... -- -- -- 32,609
Purchase of Sunshine Biscuits, Inc., net of cash
acquired........................................ -- -- -- (142,670)
Other............................................. 1,204 -- -- --
---------- ---------- -------- ----------
Cash (used by) provided from investing
activities............................... (45,884) (52,430) 65,198 (130,505)
CASH FLOWS (USED BY) PROVIDED FROM FINANCING
ACTIVITIES
Capital contributions............................. 300,000 445,000 -- 788
Reduction of notes payable to affiliate........... (300,000) (445,000) -- --
Long-term debt borrowings......................... -- -- -- 220,000
Long-term debt repayments......................... (6,894) (30,078) (2,377) (134,000)
Commercial paper and revolving credit facilities,
net............................................. 76,300 134,500 (63,300) --
---------- ---------- -------- ----------
Cash (used by) provided from financing
activities................................... 69,406 104,422 (65,677) 86,788
---------- ---------- -------- ----------
Increase (decrease) in cash and cash
equivalents.................................. 6,154 (9,565) (864) 9,839
Cash and cash equivalents at beginning of
period....................................... 6,389 12,543 2,978 2,115
---------- ---------- -------- ----------
Cash and cash equivalents at end of period...... $ 12,543 $ 2,978 $ 2,114 $ 11,954
========== ========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-13
<PAGE> 79

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of the Company include the financial
statements of the predecessor company for the years ended December 31, 1994 and
December 30, 1995 and the four week period ended January 26, 1996, the date on
which UBIUS was acquired by INFLO, and the successor company for the forty-eight
week period ended December 28, 1996. The distinction between the predecessor
company and successor company consolidated financial statements has been made by
inserting a double line between such consolidated financial statements and
related footnotes.

1. BASIS OF PRESENTATION

BUSINESS AND OWNERSHIP

Keebler Foods Company (the "Company", "Keebler", "successor company"), a
manufacturer and distributor of food products was acquired by INFLO Holdings
Corporation ("INFLO") on January 26, 1996. INFLO is owned by Artal Luxembourg S.
A. ("Artal"), a private investment company, Flowers Industries, Inc.
("Flowers"), a New York Stock Exchange-listed company, Bermore, Limited, a
privately held corporation and the parent of G.F. Industries, Inc. ("GFI"), and
certain members of the Company's current management. On November 20, 1997, INFLO
was merged into Keebler Corporation ("the Merger"), which subsequently changed
its name to Keebler Foods Company. The financial statements as of and for the
forty-eight weeks ended December 28, 1996 of the Company have been restated to
reflect the Merger as if it had been effective January 26, 1996. INFLO was
legally established as of November 2, 1995, but did not have any operating
activity, assets or liabilities until the Keebler acquisition on January 26,
1996. The Company is comprised of primarily the following wholly-owned
subsidiaries: Keebler Company, Shaffer, Clarke & Co., Inc., Bake-Line Products,
Inc., Johnston's Ready Crust Company, Sunshine Biscuits, Inc., and Keebler
Leasing Corp.

The Company, formerly UB Investments US Inc. ("UBIUS", "predecessor
company"), had previously been owned by UB Investments (Netherlands) B.V., a
Dutch Company (See Note 4). UB Investments (Netherlands) B.V. is a member of the
worldwide group of affiliated companies owned by United Biscuits (Holdings)
plc., a publicly held company in the United Kingdom.

FISCAL YEAR

The Company's fiscal year consists of thirteen four week periods (52 or 53
weeks) and ends on the Saturday nearest December 31. The Keebler acquisition
closed on the last day of the first four week period. As a result of the
acquisition, the 1996 fiscal year consists of the forty-eight weeks ended
December 28, 1996. The 1994 and 1995 fiscal years of the predecessor company
were comprised of 52 weeks.

PRINCIPLES OF CONSOLIDATION

All subsidiaries are wholly-owned and included in the consolidated
financial statements of the Company. Intercompany accounts and transactions have
been eliminated.

GUARANTEES OF NOTES

The subsidiaries of the Company that are not Guarantors of the Senior
Subordinated Notes are inconsequential (which means that the total assets,
revenues, income or equity of such non-guarantors, both individually and on a
combined basis, is less than 3% of the Company's consolidated assets, revenues,
income or equity), individually and in the aggregate, to the consolidated
financial statements of the Company. The Guarantees are full, unconditional, and
joint and several. Separate financial statements of the Guarantors are not
presented because management has determined that they would not be material to
investors in the Senior Subordinated Notes.

RECLASSIFICATIONS

Certain reclassifications of prior years' data have been made to conform
with the current year reporting.

F-14
<PAGE> 80

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACQUISITION OF KEEBLER FOODS COMPANY BY INFLO HOLDINGS CORPORATION

On January 26, 1996, UB Investments (Netherlands) B.V. sold all the stock
of UBIUS to INFLO. Subsequent to the acquisition, UBIUS changed its name to
Keebler Corporation. On November 20, 1997, INFLO was merged into Keebler
Corporation which subsequently changed its name to Keebler Foods Company. The
sale specifically excluded the stock of the Frozen Food businesses as well as
the Salty Snacks business conducted by Keebler Company and other subsidiaries of
UBIUS, as well as the UBIUS finance companies of U.B.H.C., Inc. and U.B.F.C.,
Inc., also wholly-owned subsidiaries (See Note 4).

The aggregate gross purchase price of $487.5 million (excluding fees and
expenses paid at closing of approximately $15.3 million) was financed by $125
million in equity from INFLO, $200 million in Senior Term Notes, $125 million in
Increasing Rate Notes, the assumption of $20.3 million in existing senior
indebtedness of the Company and a note payable ("Seller Note") by INFLO to UB
Investments (Netherlands) B.V. for $32.5 million. The Seller Note does not bear
interest until January 26, 1999, and has been accounted for at a discounted
value of $24.4 million. In addition, the Company, subsequent to the purchase by
INFLO, received a working capital adjustment of $32.6 million from United
Biscuits (Netherlands) B.V. pursuant to the terms of the stock purchase
agreement between INFLO and United Biscuits (Netherlands) B.V.

The Keebler acquisition has been accounted for as a purchase. The total
purchase price and the fair value of liabilities assumed have been allocated to
the tangible and intangible assets of the Company based on the respective fair
values.

The following provides an allocation of the purchase price:

<TABLE>
<CAPTION>
(In Millions)
<S> <C> <C>
Purchase Price.............................................. $487.5
Less: Net book value of assets acquired..................... 329.5
Less: Asset purchase price allocation
- Working capital receivable from UB (Netherlands)
B.V. .................................................. $ 32.6
- Inventories............................................. 4.4
- Deferred income taxes................................... 11.4
- Property, plant and equipment........................... 45.7
- Prepaid pension......................................... 33.1
- Other assets............................................ (14.2)
- Trademarks and tradenames............................... 104.0 217.0
------
Plus: Liability purchase price allocation
- Other current liabilities and accruals.................. 1.1
- Plant and facility closing costs and severance.......... 55.3
- Deferred income taxes................................... 13.8
- Postretirement/postemployment obligations............... (17.5)
- Other................................................... 6.3 59.0
------ ------
Unallocated excess purchase price over fair value of net
assets acquired........................................... $ 0.0
======
</TABLE>

See Note 3 for the unaudited pro forma consolidated results of operations
of the Keebler acquisition.

3. ACQUISITION OF SUNSHINE BISCUITS, INC.

On June 4, 1996, the Company acquired Sunshine Biscuits, Inc. ("Sunshine")
from GFI for an aggregate consideration of $171.7 million (excluding related
fees and expenses paid at closing of approximately $2.2 million). The
acquisition of Sunshine was funded by $150.3 million in cash, of which $36.3
million was provided by the Company's existing cash sources and $114 million in
borrowings under the

F-15
<PAGE> 81

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITION OF SUNSHINE BISCUITS, INC. (CONTINUED)
Amended and Restated Credit Agreement (See Note 10). In addition, approximately
$23.6 million of common stock and warrants were issued to GFI. Subsequent to the
Merger, the stock and warrants held by GFI were transferred to Bermore, Limited
and reissued for the same value in the name of the Company. These shares and
warrants represent 13.1% of the Company's common stock on a fully diluted basis.

The acquisition of Sunshine by the Company has been accounted for as a
purchase. The total purchase price and the fair value of liabilities assumed
have been allocated to the tangible and intangible assets of Sunshine based on
the respective fair values. The acquisition resulted in goodwill of $48.8
million, which is being amortized over a 40-year period.

The following provides an allocation of the purchase price:

<TABLE>
<CAPTION>
(In Millions)
<S> <C> <C>
Purchase Price.............................................. $171.7
Less: Net book value of assets acquired..................... 92.8
Less: Asset purchase price allocation
- Trade accounts receivable............................... $ 0.3
- Inventories............................................. 3.6
- Deferred income taxes................................... 8.4
- Property, plant, and equipment.......................... 9.5
- Other assets............................................ (3.8)
- Trademarks and tradenames............................... 57.0 75.0
-----
Plus: Liability purchase price allocation
- Other current liabilities and accruals.................. 8.4
- Plant and facility closing costs and severance.......... 22.1
- Deferred income taxes................................... (8.3)
- Pension obligation...................................... 5.0
- Postretirement/postemployment obligations............... 17.8
- Other................................................... (0.1) 44.9
----- ------
Unallocated excess purchase price over fair value of net
assets acquired........................................... $ 48.8
======
</TABLE>

Results of operations for Sunshine from June 4, 1996 to December 28, 1996
have been included in the consolidated statements of operations. The following
unaudited pro forma information has been prepared assuming the acquisition had
taken place at January 1, 1995. The unaudited pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation of the property, plant, and equipment
acquired, and amortization of the trademarks, tradenames, and goodwill arising
from the acquisition. The unaudited pro forma consolidated results of operations
are not necessarily indicative of the results that would have been had the
Keebler and Sunshine acquisitions been effected on the assumed date.

<TABLE>
<CAPTION>
UNAUDITED
FOR THE YEAR ENDED
---------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $2,213,574 $1,979,105
Loss from continuing operations before income taxes......... $ (241,323) $ (8,652)
Net loss.................................................... $ (253,924) $ (5,440)
</TABLE>

F-16
<PAGE> 82

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PREDECESSOR COMPANY

UBIUS, the predecessor company to Keebler Foods Company, was formed in 1992
as a result of the legal restructuring of United Biscuit (Holdings) plc.'s
operations in the United States. UBIUS received the stock of the subsidiaries in
exchange for the $850 million in debt with UB Investments (Netherlands) B.V. as
well as all of the capital stock of UBIUS.

On May 20, 1995, the predecessor company adopted plans to sell the Salty
Snacks business. On January 24, 1996, the predecessor company sold to Kelly Food
Products, Inc. selected assets of the Salty Snacks business including the
production plant in Bluffton, Indiana, trademarks and other intangibles related
to the business, inventory and property, plant and equipment including selected
assets related to the convenience sales division.

During July, 1995, the predecessor company adopted plans to discontinue the
operations of its Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the assets and stock of Bernardi Italian Foods Co., The
Original Chili Bowl, Inc., Chinese Food Processing Corporation (wholly-owned
subsidiaries collectively known as the Frozen Food businesses) and certain
assets of Keebler Company to Windsor Food Company Ltd. The sale was effective as
of December 31, 1995.

On December 5, 1995, Shaffer, Clarke & Co., Inc. ("Shaffer, Clarke"), a
wholly-owned subsidiary, sold certain assets related to Shaffer, Clarke's KA-ME
business to Liberty Richter, Inc. for a gain of $2.6 million. These assets
included inventory, contractual rights, and other intellectual property.

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

All highly liquid instruments purchased with an original maturity of three
months or less are classified as cash equivalents. The carrying amount of cash
equivalents approximates fair value due to the relatively short maturity of
these investments.

TRADE ACCOUNTS RECEIVABLE

Substantially all of the Company's trade accounts receivable are from
retail dealers and wholesale distributors. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade accounts receivable, as shown on the consolidated balance
sheets, were net of allowances of $3.6 million as of December 30, 1995 and $5.4
million as of December 28, 1996.

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
principally by the last-in, first-out ("LIFO") method. Inventories stated under
the LIFO method represent approximately 84% of total inventories in 1995 and 91%
of total inventories in 1996. Because the Company has adopted a natural business
unit single pool approach to determining LIFO inventory cost, classification of
the LIFO reserve by inventory component is impractical. The excess of the
current production cost of inventories over LIFO cost was approximately $17.6
million at December 30, 1995. There was no reserve required at December 28, 1996
to state inventory on a LIFO basis.

At December 30, 1995 and December 28, 1996, inventories are shown net of an
allowance for slow-moving and aged inventory of $0.6 million and $5.5 million,
respectively.

F-17
<PAGE> 83

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost at December 30, 1995.
Property, plant and equipment was adjusted to fair market value due to the
Keebler and Sunshine acquisitions. Depreciation expense is computed using the
straight-line method based on the estimated useful lives of the depreciable
assets. Certain facilities and equipment held under capital leases are
classified as property, plant, and equipment and amortized using the
straight-line method over the lease terms, and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense.

TRADEMARKS AND TRADENAMES

Trademarks and tradenames are amortized on a straight-line basis over a
period of 40 years. Accumulated amortization of trademarks and tradenames was
$0.1 million and $3.1 million as of December 30, 1995 and December 28, 1996,
respectively.

GOODWILL

Goodwill shown in the consolidated financial statements at December 30,
1995 related to the excess cost over the fair value of tangible net assets
acquired in the purchases of Johnson Ready Crust, Bake-Line Products, Inc., and
the Frozen Food businesses. At December 28, 1996, goodwill reflects the excess
cost over the fair value of the tangible net assets acquired from the Sunshine
purchase. Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization of goodwill was $31.4 million and $0.5 million
as of December 30, 1995 and December 28, 1996, respectively.

RESEARCH AND DEVELOPMENT

Activities related to new product development and major improvements to
existing products and processes are expensed as incurred and were $15.1 million
in 1994, $14.5 million in 1995, $0.6 million for the four weeks ended January
26, 1996 and $4.3 million for the forty-eight weeks ended December 28, 1996.

ADVERTISING AND CONSUMER PROMOTION

Advertising and consumer promotion costs are generally expensed when
incurred. Production costs for advertising are deferred until the first run of
the advertisement. There were no deferred advertising costs at December 30, 1995
and December 28, 1996. Advertising and consumer promotion expense was $72.3
million in 1994, $87.9 million in 1995, $5.1 million for the four weeks ended
January 26, 1996 and $33.3 million for the forty-eight weeks ended December 28,
1996.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into derivative financial transactions to hedge existing
or future exposures to changes in commodity prices. The Company does not enter
into derivative transactions for speculative purposes. Gains and losses on
commodity futures and options transactions are deferred until the contracts are
liquidated (See Note 21).

INCOME TAXES

The consolidated financial statements reflect the application of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting For Income
Taxes". The Company files a consolidated federal income tax return.

F-18
<PAGE> 84

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE

On July 29, 1997, the Board of Directors of the Company approved a 1 for 10
reverse stock split. All per share and related amounts contained in these
financial statements and notes have been adjusted to reflect this stock split.

Net income (loss) per common share is calculated using the weighted average
number of common and common equivalent shares outstanding during each period.
The common equivalent shares relate to the 1996 Stock Option Plan and the
warrant issued in connection with the Sunshine acquisition and are calculated
using the treasury stock method.

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.

6. CHANGES IN ACCOUNTING POLICIES

Effective January 2, 1994, the predecessor company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". The predecessor company
recorded a $4 million pre-tax obligation as a cumulative effect of accounting
change, resulting in an after-tax charge of $2.5 million. Prior to this date,
these expenses were recognized on a pay-as-you-go basis.

As of December 31, 1994, the predecessor company adopted a policy of
capitalizing spare machinery and equipment parts. Previously, spare machinery
and equipment parts were expensed when purchased. The new policy was adopted in
order to bring the predecessor company in conformity with the predecessor
company guidelines and to match the cost with the associated benefit of these
supplies. Expense is recognized as the parts are used. Adoption of the new
policy resulted in a pre-tax benefit of $5 million, $3 million net of income
tax.

7. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment, including related accumulated
depreciation follows:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 12,899 $ 16,344
Buildings................................................... 156,200 126,824
Machinery and equipment..................................... 531,007 301,588
Office furniture and fixtures............................... 49,620 54,985
Delivery equipment.......................................... 6,150 6,785
Construction in progress.................................... 37,264 23,980
--------- --------
793,140 530,506
Accumulated depreciation.................................... (400,413) (44,426)
--------- --------
$ 392,727 $486,080
========= ========
</TABLE>

F-19
<PAGE> 85

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Property, plant and equipment is depreciated on a straight-line basis over
the estimated useful lives of the depreciable assets. Buildings are depreciated
over a useful life of ten to forty years. Machinery and equipment is depreciated
over a useful life of eight to twenty-five years. Office furniture and fixtures
are depreciated over useful lives of five to fifteen years. Delivery equipment
is depreciated over a twelve year life.

8. ASSETS HELD FOR SALE

During 1995, the predecessor company adopted plans to sell the Salty Snacks
business. The decision to sell the Salty Snacks business was based on the
overcapacity in a highly competitive industry. Late in 1995, it was determined
that the predecessor company would not be able to sell the three operating Salty
Snack plants as a single unit. A buyer was found for selected assets, which
included the production plant in Bluffton, Indiana. The remaining production
plants were closed down. The aggregate carrying amount of the net assets held
for sale was $116.5 million. The assets held for sale primarily included
inventory and property, plant, and equipment. The predecessor company recorded
an impairment loss of $86.5 million for the expected costs associated with
exiting the Salty Snacks business. The charge was comprised of $77.6 million
related to the write-down of the net assets to their net realizable value of
$38.9 million. In addition, $8.9 million was recorded for the estimated
severance and other costs associated with the liquidation of the Salty Snacks
business. The $38.9 million of Salty Snack assets held for sale were not
included in the net assets acquired by the Company as part of the acquisition.

Since the Keebler acquisition, management has executed a strategic plan to
reduce inefficiencies. In June 1996, the Company, in an effort to reduce excess
capacity, closed the manufacturing facility in Atlanta, Georgia. At December 28,
1996, the estimated fair value of land and buildings held for sale was $3.2
million, net of $0.3 million for selling costs. Similarly, after the acquisition
of Sunshine, management decided to close the production plant in Santa Fe
Springs, California due to overcapacity. The fair market value of land and
buildings held for sale at December 28, 1996 was $3.6 million. The Santa Fe
Springs, California facility was subsequently sold on March 27, 1997.
Disposition of the Atlanta, Georgia manufacturing facility is expected to occur
before the end of 1998 without a significant gain or loss.

9. OTHER CURRENT LIABILITIES AND ACCRUALS

Other current liabilities and accruals consisted of the following at
December 30, 1995 and December 28, 1996:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Self insurance reserves..................................... $ 53,737 $ 58,527
Employee compensation....................................... 28,364 42,555
Marketing and consumer promotions........................... 28,618 45,892
Taxes, other than income.................................... 7,196 10,555
Interest.................................................... 2,751 9,887
Postretirement/Postemployment benefit obligation............ 2,816 5,523
Reclamations................................................ -- 4,321
Other....................................................... 237 9,633
-------- --------
$123,719 $186,893
======== ========
</TABLE>

The Company obtains insurance to manage potential losses and liabilities
related to workers' compensation, health and welfare claims, and general product
and vehicle liability. The Company has elected to retain a significant portion
of the expected losses through the use of deductibles and stop-loss limitations.
Provisions

F-20
<PAGE> 86

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. OTHER CURRENT LIABILITIES AND ACCRUALS (CONTINUED)
for losses expected under these programs are recorded based on the Company's
estimates of aggregate liability for claims incurred. These estimates utilize
the Company's prior experience and actuarial assumptions provided by the
Company's insurance carrier. The total estimated liability for these losses at
December 30, 1995 and December 28, 1996 was $53.7 million and $58.5 million,
respectively, and is included in other current liabilities and accruals. The
Company has collateralized its liability for potential workers' compensation
claims in several states by obtaining standby letters of credit which aggregate
to approximately $17 million.

10. DEBT AND LEASE COMMITMENTS

Long-term debt consisted of the following at December 30, 1995 and December
28, 1996:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
INTEREST RATE FINAL MATURITY 1995 1996
------------- ---------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Term-A Loans................... 7.380-7.875% January 31, 2002 $ -- $132,875
Term-B Loans................... 7.880-8.375 July 31, 2003 -- 89,400
Term-C Loans................... 8.130-8.625 July 31, 2004 -- 64,575
Senior Subordinated Notes...... 10.750 July 1, 2006 -- 125,000
Seller Note.................... 10.000 January 26, 2007 -- 26,664
Other Senior Debt.............. various 2001-2005 16,416 14,290
Private Placement Notes........ 9.000 May 1, 2001 125,000 --
Capital Lease Obligations...... various 1997-2008 6,800 5,135
Other.......................... 5,412 --
-------- --------
153,628 457,939
Less: Current maturities....... 2,475 18,570
-------- --------
$151,153 $439,369
======== ========
</TABLE>

The Company's primary credit financing as of December 28, 1996 was provided
by a $447.9 million Amended and Restated Credit Agreement ("Credit Agreement")
consisting of a $155 million Revolving Loan facility and three Term Loans (Term
Loans A, B and C) of which the current outstanding balance aggregates to $286.9
million. Interest on the Revolving Loans and Term Loans is calculated based on a
Base Rate plus applicable margin. The Base Rate can, at the Company's option, be
1) the higher of the base domestic lending rate as established by the
Administrative Agent for the Lenders under the Credit Agreement, or the Federal
Funds Rate plus one-half of one-percent, or 2) a reserve percentage adjusted
LIBO Rate as offered by the Administrative Agent's office in London. Base Rate
loan interest rates fluctuate immediately based upon a change in the established
Base Rate by the Administrative Agent. The Credit Agreement requires the Company
to meet certain financial covenants including net worth; earnings before
interest, taxes, depreciation and amortization; and cash flow and interest
coverage ratios.

As of December 28, 1996, the Company had a Revolving Loan facility with an
available balance of $155 million. Actual available borrowings under the
Revolving Loan facility can be reduced by the level of qualifying working
capital as defined in the Company's Amended and Restated Credit Agreement. This
gross available balance is further reduced by certain letters of credit totaling
$10.9 million and outstanding borrowings. There were no amounts outstanding
under this facility as of December 28, 1996.

Any unused borrowings under the Revolving Loan facility are subject to a
commitment fee, which will vary from 0.25%-0.5% based on the relationship of
debt to adjusted earnings.

F-21
<PAGE> 87

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. DEBT AND LEASE COMMITMENTS (CONTINUED)
On January 30, 1996, the Company entered into a swap transaction with the
Bank of Nova Scotia, who also serves as the Administrative Agent for the Lenders
under the Credit Agreement. The swap transaction had the effect of converting
the base rate on $170 million of the Term Loans to a fixed rate obligation of
5.0185% plus applicable margin through February 1, 1999. The maturity date on
the swap transaction can be extended to February 1, 2001 at the option of the
Bank of Nova Scotia on January 28, 1999.

The Increasing Rate Notes issued to finance the Keebler acquisition were
repaid in June 1996 with the proceeds from a private placement offering for new
10.75% Senior Subordinated Notes due 2006 ("the Private Notes"). The Company
recorded a before-tax extraordinary loss of $3.2 million on the early
extinguishment of the Increasing Rate Notes. The loss consists primarily of bank
fees incurred at the time the Increasing Rate Notes were issued. The after-tax
loss was $1.9 million.

On October 23, 1996, pursuant to an exchange and registration rights
agreement, the Company registered its 10.75% Senior Subordinated Notes due 2006
("the Notes") under the Securities Act of 1933 in exchange for the Private
Notes. The Notes were issued under an indenture dated June 15, 1996 between the
Company, the Company's Restricted Subsidiaries (as defined in the indenture),
and the U.S. Trust Company of New York, as trustee. The Notes are unsecured
senior subordinated obligations of the Company guaranteed by the Restricted
Subsidiaries. Interest on the Notes will be paid semi-annually on January 1 and
July 1 of each year, commencing January 1, 1997. At the Company's option, up to
35.0% of the aggregate original principal of the Notes can be redeemed at a
redemption price of 110.0% on or prior to July 1, 1999 following a public equity
offering.

In addition, the Company's ability to pay dividends or make other
distributions on its Common Stock is limited by the terms of the indenture
governing the Notes to an amount equal to 50% of the consolidated net income of
the Company for the relevant period, subject to other limitations.

As a result of the Merger, the Company assumed the $32.5 million Seller
Note previously held by INFLO. The Seller Note does not bear interest until
January 26, 1999 and was recorded at a discounted value of $24.4 million on
January 26, 1996. The discount is being amortized over three years at an
effective interest rate of 10.0%.

In 1995, the predecessor company maintained a commercial paper program in
the United States supported by a line of credit agreement which was guaranteed
by United Biscuits (Holdings) plc. The line of credit agreement totaled $200
million as of December 30, 1995. The agreement could be canceled at any time.
The commercial paper had a weighted average interest rate of 5.9% during 1995.
The interest rate was 6.1% for year-end 1995. The predecessor company had $184
million of outstanding borrowings under this program as of December 30, 1995.

Furthermore, during 1995, the predecessor company, along with other United
Biscuits (Holdings) plc. affiliated companies, had access to a revolving credit
agreement in Europe which was guaranteed by United Biscuits (Holdings) plc.
Available borrowings under this agreement were limited by total United Biscuits
(Holdings) plc. borrowings. Maximum borrowings available under this agreement
were $300 million as of year-end 1995. This agreement had a weighted average
interest rate of 6.2% during 1995. The interest rate at year-end was 6.0% for
1995. The predecessor company had $100 million of outstanding borrowings under
this program as of December 30, 1995.

During 1995, the predecessor company prepaid $25.1 million of long-term
debt.

Interest of $111.1 million, $37.6 million, $3.8 million, and $25.2 million
was paid on debt, including notes payable to affiliates (see Note 11), for the
years ended December 31, 1994 and December 30, 1995, the four weeks ended
January 26, 1996, and the forty-eight weeks ended December 28, 1996,
respectively.

F-22
<PAGE> 88

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. DEBT AND LEASE COMMITMENTS (CONTINUED)
Aggregate scheduled annual maturities of long-term debt as of December 28,
1996 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 18,570
1998........................................................ 22,940
1999........................................................ 29,175
2000........................................................ 33,865
2001........................................................ 42,255
2002 and thereafter......................................... 311,134
--------
$457,939
========
</TABLE>

Assets recorded under capitalized lease agreements and equipment purchase
obligations included in property, plant, and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,246 $ 1,209
Buildings................................................... 8,700 2,881
Machinery and equipment..................................... 21,424 6,361
Other leased assets......................................... 1,213 259
-------- -------
32,583 10,710
Accumulated amortization.................................... (21,397) (1,000)
-------- -------
$ 11,186 $ 9,710
======== =======
</TABLE>

Future minimum lease payments under scheduled capital and operating leases
that have initial or remaining noncancellable terms in excess of one year are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997........................................................ $ 238 $ 23,858
1998........................................................ 258 19,375
1999........................................................ 278 16,567
2000........................................................ 349 14,523
2001........................................................ 366 11,924
2002 and thereafter......................................... 5,813 30,753
------- --------
Total minimum payments...................................... 7,302 $117,000
========
Amount representing interest................................ (2,167)
-------
Obligations under capital lease............................. 5,135
Obligations due within one year............................. (25)
-------
Long-term obligations under capital leases.................. $ 5,110
=======
</TABLE>

Rent expense for all operating leases was $38.8 million, $37.4 million,
$2.7 million and $30.1 million for the years ended December 31, 1994 and
December 30, 1995, the four weeks ended January 26, 1996, and the forty-eight
weeks ended December 28, 1996, respectively.

F-23
<PAGE> 89

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. NOTES RECEIVABLE AND PAYABLE TO AFFILIATE

At December 31, 1995, U.B.H.C., Inc. held $125 million in notes receivable
from UB Investments plc., an affiliated entity of United Biscuits (Holdings)
plc. These notes, which carried an interest rate of 9%, represented unsecured
obligations of UB Investments plc. and were due May 1, 2001. The note receivable
was settled as of the Keebler acquisition.

As part of the 1992 reorganization of United Biscuits (Holdings) plc.
operations in the United States, UBIUS had received the stock of its
subsidiaries in exchange for two notes payable. There was a $300 million note
payable to UB Investments, plc. which carried an interest rate of 9.75% due on
September 20, 2002 and a $550 million note payable due to UB Investments, plc.
with a 8.24% rate of interest due in seven annual installments with the final
installment due on September 20, 1999.

On September 7, 1994, the predecessor company received a capital
contribution of $300 million from U.B. Investments (Netherlands) B.V. and used
the capital contribution to repay the $300 million note. On February 1, 1995,
the predecessor company received a capital contribution of $445 million from
U.B. Investments (Netherlands) B.V. which was used by the predecessor company to
make payments against the $550 million note which would have been due in years
1995, 1996, 1997, 1998 and a portion of the payment due in 1999 leaving one
payment for the balance of $105 million note due September 1999. The remaining
note payable balance was settled as of the Keebler acquisition.

12. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

As part of acquiring Keebler and Sunshine, management adopted and began
executing a plan to reduce costs and inefficiencies. Certain exit costs totaling
$77.4 million were provided for in the allocation of the purchase price of both
the Keebler and Sunshine acquisitions. Management's plan included company-wide
staff reductions, the closure of manufacturing, distribution, and sales force
facilities, and information system exit costs.

Severance, outplacement, and other related costs associated with staff
reductions were estimated at $30.7 million. Costs incurred related to closing
the Atlanta, Georgia and Santa Fe Springs, California manufacturing facilities,
which include primarily severance and carrying costs, are expected to total
$13.0 million. The carrying and lease termination costs associated with the
closure of distribution and sales force facilities were estimated at $26.9
million. In addition, the Company expects to incur $6.8 million in lease costs
related to exiting legacy information systems. Spending against reserves
established totaled $41.5 million resulting in a balance of $36.0 million at
December 28, 1996, detailed as follows:

<TABLE>
<CAPTION>
STAFF FACILITY INFORMATION LEASE
REDUCTION CLOSURE SYSTEM TERMINATION
COSTS COSTS EXIT COSTS COSTS TOTAL
--------- -------- ----------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Liabilities provided for in the
allocation of the purchase
price of the Keebler
acquisition on January 26,
1996........................... $ 22,760 $ 12,069 $ 6,809 $13,700 $ 55,338
Liabilities provided for in the
allocation of the purchase
price of the Sunshine
acquisition on June 4, 1996.... 7,975 929 -- 13,240 22,144
Charges.......................... (24,516) (9,789) (3,038) (4,155) (41,498)
-------- -------- ------- ------- --------
Balance at December 28, 1996..... $ 6,219 $ 3,209 $ 3,771 $22,785 $ 35,984
======== ======== ======= ======= ========
</TABLE>

F-24
<PAGE> 90

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED)
The plans initiated by management are expected to be completed prior to the
end of 1998. Only noncancellable lease obligations are expected to extend beyond
1998, to be paid out over the next eight years concluding in 2004.

13. EMPLOYEE BENEFIT PLANS

The Company maintains a trusteed, noncontributory pension plan covering
certain salaried and hourly-paid employees. Assets held by the plan consist
primarily of common stocks, collective trust funds, government securities,
bonds, and guaranteed insurance contracts. Benefits provided under the
defined-benefit pension plan are primarily based on years of service and the
employee's final level of compensation. The Company's funding policy is to
contribute annually not less than the ERISA minimum funding requirements.
Effective September 30, 1996, the Sunshine Biscuits, Inc. Pension Plan was
merged with the Retirement Plan for Salaried and Certain Hourly-Paid Employees
of Keebler Company.

Pension expense included the following components:

<TABLE>
<CAPTION>
FOUR WEEKS FORTY-EIGHT
YEAR ENDED YEAR ENDED ENDED WEEKS ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost.......................... $ 7,888 $ 6,611 $ 599 $ 7,711
Interest cost......................... 13,374 13,877 1,133 21,338
Actual return on plan assets.......... (9,295) (43,661) (1,693) (12,752)
Net amortization of transition
obligation.......................... 616 616 47 --
Deferral of (gains) losses............ (10,407) 24,468 -- (15,495)
Prior service cost.................... (512) (155) (12) --
Net gain.............................. -- (437) -- --
-------- -------- ------- --------
Pension expense....................... $ 1,664 $ 1,319 $ 74 $ 802
======== ======== ======= ========
</TABLE>

The funded status of the Company's pension plan and amounts recognized in
the consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.................................................... $(136,131) $(366,253)
Nonvested................................................. (24,109) (7,255)
--------- ---------
$(160,240) $(373,508)
========= =========
Projected benefit obligation................................ $(201,267) $(408,060)
Plan assets at fair value................................... 241,604 464,433
--------- ---------
Plan assets greater than projected benefit obligation....... 40,337 56,373
Unrecognized transition obligation.......................... 3,682 --
Unrecognized prior service.................................. (1,123) --
Unrecognized net gain....................................... (19,060) (13,014)
--------- ---------
Prepaid pension............................................. $ 23,836 $ 43,359
========= =========
</TABLE>

F-25
<PAGE> 91

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumptions used in accounting for the defined-benefit pension plan at each
of the respective period-ends are as follows:

<TABLE>
<CAPTION>
FORTY-EIGHT
FOUR WEEKS WEEKS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Discount rate.......................... 7.75-8.5% 7.5% 7.5% 7.5%
Rate of compensation level increases... 4.4-6.0 4.0-6.0 4.0 4.0
Expected long-term rate of return on
plan assets.......................... 8.0-10.0 8.0-9.0 10.0 8.6
</TABLE>

As of December 31, 1995, included in plan assets were real estate
investments of $7.2 million in two distribution centers which are under two
operating leases to a subsidiary of UBIUS. The plan assets, as of December 28,
1996, include a real estate investment of $3.1 million in a distribution center
which is under an operating lease to the Company.

The Company, in addition to the defined-benefit pension plan, also
maintains an unfunded supplemental retirement plan for certain highly
compensated executives. Benefits provided are based on years of service. Vesting
is graduated depending on termination after age 55.

The supplemental retirement plan expense includes the following components:

<TABLE>
<CAPTION>
FORTY-EIGHT
FOUR WEEKS WEEKS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost........................... $ 126 $ 452 $ 35 $ --
Interest cost.......................... 710 854 66 637
Net amortization of transition
obligation........................... 110 111 8 --
Prior service cost..................... 134 170 13 --
------ ------ ---- ----
Plan expense........................... $1,080 $1,587 $122 $637
====== ====== ==== ====
</TABLE>

F-26
<PAGE> 92

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The unfunded status of the supplemental retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
Vested.................................................... $(11,301) $(10,028)
Nonvested................................................. -- --
-------- --------
$(11,301) $(10,028)
======== ========
Projected benefit obligation................................ $(12,077) $ (9,890)
Plan assets at fair value................................... -- --
-------- --------
Projected benefit obligation in excess of plan assets....... (12,077) (9,890)
Unrecognized transition obligation.......................... 664 --
Unrecognized prior service cost............................. 1,307 --
Unrecognized net (gain) loss................................ 1,732 (754)
-------- --------
Plan obligation included in other liabilities............... $ (8,374) $(10,644)
======== ========
</TABLE>

Assumptions used in accounting for the supplemental retirement plan at each
of the respective period-ends are as follows:

<TABLE>
<CAPTION>
FORTY-EIGHT
FOUR WEEKS WEEKS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Discount rate.......................... 8.5% 7.5% 7.5% 7.5%
Rate of compensation level increase.... 4.5 4.0 4.0 4.0
</TABLE>

Contributions are also made by the Company to a retirement program for
Grand Rapids union employees. Benefits provided under the plan are based on a
flat monthly amount for each year of service and are unrelated to compensation.
Contributions are made based on a negotiated hourly rate. In 1994, 1995, the
four weeks ended January 26, 1996, and the forty-eight weeks ended December 28,
1996, the Company expensed contributions of $2.3 million, $2.5 million, $0.2
million, and $2.3 million, respectively.

The Company contributes to various multiemployer union administered
defined-benefit and defined-contribution pension plans. Benefits provided under
the multiemployer pension plans are generally based on years of service and
employee age. Expense under these plans was $8.7 million, $9.6 million, $0.9
million, and $7.8 million in 1994, 1995, the four weeks ended January 26, 1996
and the forty-eight weeks ended December 28, 1996, respectively.

The Company also offers certain employees participation in the Keebler
Company Salaried Savings Plan, a defined-contribution plan. Prior to July 1,
1995, certain nonunion employees who met length-of-service requirements could
elect to participate in the plan. Currently, participation in the plan can be
elected immediately. Contributions, made by participants with no company
matching, are based on an elected percentage of the participants' compensation
within a specified range. Expenses incurred by the Company to administer the
plan are nominal.

During 1996, the Company matched a portion of employee contributions to a
defined contribution savings plan for qualified salaried employees of Sunshine.
Contributions made by the Company were not to exceed 6%

F-27
<PAGE> 93

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EMPLOYEE BENEFIT PLANS (CONTINUED)
of gross wages. The Company also provides a savings plan for certain hourly
employees of Sunshine which provides no matching company contributions. Expenses
in 1996 for the plans were nominal.

A Voluntary Employee Beneficiary Association ("VEBA") provides health and
welfare benefits for certain Sunshine employees. Payments made by the Company to
the VEBA relating to future employee benefits are included in other assets. The
Company's policy is to fund the VEBA based on actual expenses of the preceding
year to the extent deductible under current federal income tax laws. The Company
funded $10 million during the forty-eight weeks ended December 28, 1996.

The Company also makes contributions to a money purchase pension plan for
certain hourly and salaried employees of Bake-Line Products, Inc. Contributions
are based on 4% of employees' annual salary. Expenses paid by the Company to
administer the plan were nominal.

14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

The Company provides certain medical and life insurance benefits for
eligible retired employees. The medical plan, which covers nonunion employees
with ten or more years of service, is a comprehensive indemnity-type plan. The
plan incorporates up-front deductible, coinsurance payments, and employee
contributions which are based on length of service. The life insurance plan
offers a small amount of coverage versus the amount the employees had while
employed. The Company does not fund the plan.

The net periodic postretirement benefit expense includes the following
components:

The funded status of the plan reconciled to the postretirement obligation
in the Company's consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(18,914) $(33,054)
Fully eligible active participants........................ (3,522) (8,579)
Other active participants................................. (19,635) (11,815)
-------- --------
(42,071) $(53,448)
Unrecognized net gain....................................... (1,048) (3,857)
-------- --------
Postretirement obligation................................... $(43,119) $(57,305)
======== ========
</TABLE>

The accumulated postretirement benefit obligation was determined using a
weighted-average discount rate of 8.5% for the year ended December 31, 1994, and
7.5% for the year ended December 30, 1995, the four weeks ended January 26,
1996, and the forty-eight weeks ended December 28, 1996.

F-28
<PAGE> 94

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The weighted-average annual assumed rate of increase in the cost of covered
benefits is 7.0% for 1996 declining gradually to an ultimate trend rate of 5.0%
by the year 1999. A 1% increase in the trend rate for health care costs would
have increased the accumulated benefit obligation as of December 28, 1996 by
$3.7 million and the net periodic benefit cost by $0.4 million.

The Company also provides postemployment medical benefits to employees on
long-term disability. The plan is a comprehensive indemnity-type plan which
covers nonunion employees on long-term disability. There is no length of service
requirement. The plan incorporates coinsurance payments and deductibles. The
Company does not fund the plan. The postemployment obligation included in the
consolidated balance sheets at December 30, 1995 and December 28, 1996 was $4.3
million and $4.6 million, respectively.

15. INCOME TAXES

The components of income tax expense (benefit) were as shown below:

<TABLE>
<CAPTION>
FOUR FORTY-EIGHT
WEEKS WEEKS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 30, JANUARY 26, DECEMBER 28,
1994 1995 1996 1996
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal.................................. $ (1,505) $ 1,526 $ -- $ --
State.................................... 1,425 -- -- --
-------- -------- ------- -------
Current provision (benefit) for income
taxes.................................... (80) 1,526 -- --
-------- -------- ------- -------
Deferred:
Federal.................................. (11,599) (63,212) 6,490 11,524
State.................................... (733) (9,215) 843 2,478
Valuation allowance (federal and
state)................................ 11,278 70,442 (7,333) --
-------- -------- ------- -------
Deferred provision (benefit) for income
taxes.................................... (1,054) (1,985) -- 14,002
-------- -------- ------- -------
$ (1,134) $ (459) $ -- $14,002
======== ======== ======= =======
</TABLE>

The differences between the income tax expense (benefit) calculated at the
federal statutory income tax rate and the company's consolidated income tax
expense (benefit) are as follows:

<TABLE>
<CAPTION>
FORTY-EIGHT
WEEKS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal statutory rate..................... $(10,098) $(64,843) $11,140
State income taxes (net of federal benefit)..... 603 (8,208) 1,608
Deferred tax asset valuation adjustment......... 9,227 70,442 --
Intangible amortization......................... 693 828 1,268
Non-taxable items............................... 228 883 --
All others...................................... (1,787) 439 (14)
-------- -------- -------
$ (1,134) $ (459) $14,002
======== ======== =======
</TABLE>

F-29
<PAGE> 95

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax (liabilities) recorded on the
consolidated balance sheets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Depreciation................................................ $ (92,573) $ (91,860)
Prepaid pension............................................. (9,207) (17,050)
Capitalized interest........................................ (1,010) --
Inventory valuation......................................... -- (7,073)
Other....................................................... (131) (144)
--------- ---------
(102,921) (116,127)
--------- ---------
Net operating loss carryforwards............................ 81,922 94,659
Restructuring reserves...................................... 63,998 --
Postretirement/postemployment benefits...................... 18,755 24,997
Workers' compensation....................................... 18,375 16,703
Plant and facility closing costs and severance.............. -- 14,232
Incentives and deferred compensation........................ 10,084 11,658
Charitable contributions.................................... 9,204 10,067
Employee benefits........................................... 7,751 8,251
Other current assets........................................ -- 3,121
Other....................................................... 1,537 8,650
--------- ---------
211,626 192,338
Valuation allowance......................................... (116,817) (84,350)
--------- ---------
$ (8,112) $ (8,139)
========= =========
</TABLE>

Net operating loss carryforwards total approximately $236 million through
1996 and expire in 2008 through 2011. Pursuant to the terms of the Keebler
acquisition, the Predecessor Company retained the right to use the net operating
losses for potential carrybacks. Any unused operating losses are then available
to Keebler, but are significantly restricted under current tax law. Therefore,
all net operating loss carryforwards have been fully reserved due to the
uncertainty of their realization.

Income taxes paid (refunded) were approximately $(22.8) million, $2.3
million, and $1.6 million for the year ended December 31, 1994, December 30,
1995, and the forty-eight weeks ended December 28, 1996, respectively. There
were no taxes paid or refunded during the four weeks ended January 26, 1996.

16. SHAREHOLDERS' EQUITY

As a result of the Sunshine acquisition, the Company issued GFI 5,675,633
shares of the Company's common stock and a warrant to purchase 6,135,781 shares
of the Company's common stock. The shares of $.01 par value stock were valued at
$3.23 per share. The warrant is exercisable at $3.23 per share over a seven year
period, beginning June 4, 1996 and expiring June 4, 2003. At December 28, 1996,
the warrant has not been exercised. The total value of the stock and warrant
held by GFI was $23.6 million at December 28, 1996. Subsequent to the Merger,
the stock and warrant held by GFI were transferred to Bermore, Limited and
reissued for the same value in the name of the Company.

During the forty-eight weeks ended December 28, 1996, management invested
$3.7 million in exchange for 1,963,361 shares of the Company's common stock.

F-30
<PAGE> 96

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. STOCK OPTION PLAN

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for employee stock options. Under the Company's
1996 Stock Option Plan 9,673,594 shares of the Company's stock were authorized
for future grant. Options granted to management personnel in 1996 were 7,031,198
shares of the Company's common stock. All options granted have ten year terms
and vest and become exercisable over five years.

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 26, 1996 ........................... -- --
Granted.................................................... 7,031,198 $1.98
Exercised.................................................. -- --
Forfeited.................................................. 228,727 $1.74
Outstanding at December 28, 1996........................... 6,802,471 $1.98
Exercisable at December 28, 1996........................... -- --
</TABLE>

Exercise prices for options as of December 28, 1996 for options outstanding
arising from the May 1996 grant (5,688,073 options) were $1.74 and for options
outstanding from the December 1996 grant (1,114,398 options) were $3.23. The
weighted average fair value for options granted in 1996 was $1.86. The weighted
average remaining contractual life of those options is nine years.

Pro forma information regarding net income is required by the SFAS No. 123,
"Accounting for Stock-Based Compensation", and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair value for these options was estimated at the date of
grant using a present value approach with the following weighted-average
assumptions: risk-free interest rate of 6.0%; no expected dividend yield;
volatility of zero; and a weighted-average expected life of the option of five
years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income and primary net income per share would have been
approximately $14.0 million and $0.18, respectively, for the forty-eight weeks
ended December 28, 1996.

18. RESTRUCTURING CHARGE

In 1993, the predecessor company had recorded an operating charge of $122.7
million to restructure operations. In 1995, spending against the restructuring
reserves totaled $24.1 million. Restructuring reserves remaining as of December
30, 1995 were $38.2 million related primarily to future cash costs for
contractual obligations related to streamlining of the sales and distribution
network as well as related information system projects and a reserve to reduce a
manufacturing facility to its net realizable value. At December 28, 1996, there
were no restructuring reserves. The restructuring reserve balance of $38.2
million at December 30, 1995 was not a cost assumed as part of the Keebler
acquisition.

F-31
<PAGE> 97

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. RESTRUCTURING CHARGE (CONTINUED)
A summary of the restructuring reserve activity from the time the initial
restructuring reserve was recorded to the Keebler acquisition follows:

<TABLE>
<CAPTION>
FOUR WEEKS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26,
1994 1994 1995 1996
---------- ------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Beginning balance........................ $ 14.0 $104.6 $ 62.3 $38.2
Liabilities recorded in connection with
the 1993 acquisition of Bake-Line
Products Inc........................... 5.5 -- -- --
Provision for continuing operations...... 120.1 -- -- --
Provision for discontinued operations.... 2.6 -- -- --
Charges.................................. (19.3) (42.3) (24.1) --
Reclassification of property, plant, and
equipment.............................. (18.3) -- -- --
------ ------ ------ -----
Ending balance........................... $104.6 $ 62.3 $ 38.2 $38.2
====== ====== ====== =====
</TABLE>

19. DISCONTINUED OPERATIONS

During July 1995, the predecessor company adopted plans to discontinue the
operations of the Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the Frozen Food businesses to the Windsor Food Company
Ltd. for $70 million. A gain on sale of $18.9 million was recorded during the
four weeks ended January 26, 1996.

Net sales from these operations were $70.6 million and $70.9 million for
the years ended December 31, 1994 and December 30, 1995. Expenses charged
against discontinued operations include expenses associated with the costs of
production, marketing, and specific administrative expenses. Expenses do not
include an allocation of shared selling, distribution, and general
administrative costs. Income from discontinued operations relating to the Frozen
Food businesses was $3.4 million, net of $3.2 million of tax, for the year ended
December 31, 1994. For the year ended December 30, 1995, income from
discontinued operations was $7.3 million. Income tax expense was not recognized
for discontinued operations in 1995 due to the Company having a net loss on a
consolidated basis. There were no operating activities for the Frozen Food
businesses during the four weeks ended January 26, 1996 as the sale was
effective as of December 31, 1995. The net assets of the Frozen Food businesses
as of December 30, 1995 were $47.7 million. Included in the net assets were
primarily inventory, other current assets, property, plant, and equipment, and
certain current liabilities and accruals.

20. AFFILIATE TRANSACTIONS

In 1995, the predecessor company conducted business with various affiliated
companies that ultimately are under the control of United Biscuits (Holdings)
plc. Transactions with related parties included working capital financing and
the purchase of product for resale in the United States. Receivables from
affiliates and payables to affiliates are summarized in Note 11. Purchases of
product from affiliated companies for resale in the United States were $11.3
million for the year-ended 1995.

On November 30, 1995, Keebler Company sold to UB Group Ltd., ultimately
United Biscuits (Holdings) plc., for a $5 million affiliate receivable, the
entire rights, titles and interests in certain logos, tradenames, trademarks,
and service marks registered or pending registration by Keebler Company in
Australia, New Zealand, Asia, and Europe. The proceeds of this transaction were
offset by certain legal fees and registration and licensing costs aggregating
$0.5 million. The net gain on the sale of these trademarks is included in other
costs and expenses for the year-ended December 30, 1995.

Near the end of 1995 and in consideration of completing various pending
stock and asset purchase agreements, as described in Note 4, the predecessor
company entered into several transactions with affiliated companies within
United Biscuits (Holdings) plc. The accompanying consolidated financial
statements have not

F-32
<PAGE> 98

KEEBLER FOODS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. AFFILIATE TRANSACTIONS (CONTINUED)
\been adjusted to reflect these transactions which are summarized below, as it
is the Company's policy to only give effect to dispositions resulting in a gain
on the completion of the transaction with the ultimate third party acquirer.

On December 29, 1995, the predecessor company transferred certain assets
and the stock of the Frozen Food businesses to U.B. Investments (Netherlands)
B.V. for promissory notes that aggregated $70 million. On January 9, 1996, U.B.
Investments (Netherlands) B.V. sold both these assets and stock to Windsor Food
Company Ltd. for $70 million, effective December 31, 1995. The aggregate
carrying value of these businesses and assets reflected in the December 30, 1995
consolidated balance sheet is $47.7 million, consisting primarily of goodwill of
$22 million, property, plant and equipment of $21.2 million and inventory of
$7.6 million, which resulted in a pre-tax realized gain, net of a $3.4 million
charge for severance arising from the sale, of $18.9 million for UBIUS.

On December 29, 1995, the predecessor company sold the stock of both
U.B.F.C., Inc. and U.B.H.C., Inc. to U.B. Investments plc. for $100 each which
resulted in no significant gain or loss.

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair market value of financial instruments, which includes short and
long-term borrowings, was estimated using discounted cash flow analyses based on
current interest rates which would be obtained for similar financial
instruments. The carrying amounts of these financial instruments approximate
fair value.

The Company often enters into exchange traded commodity futures and options
contracts to protect the Company against a portion of adverse raw material price
movements. Gains or losses realized from the liquidation or expiration of the
contracts are recognized as part of the cost of raw materials. Gains or losses
are deferred until realized. Cost of sales was reduced by gains on futures and
options transactions of $0.6 million in 1994, $3.4 million in 1995, and $0.8
million for the forty-eight weeks ended December 28, 1996. Operations for the
four weeks ended January 26, 1996, was unaffected by gains or losses on futures
and options as the $0.5 million loss was recorded as an adjustment to the
opening balance sheet. As of December 28, 1996, $3.3 million in unrealized
futures contracts losses have been deferred. There were no outstanding options
contracts at December 28, 1996. As of December 28, 1996 the notional amount of
open futures contracts was $45 million.

22. UNAUDITED QUARTERLY FINANCIAL DATA

The unaudited quarterly financial results of operations are as follows:

<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------------------------------
APRIL 20, JULY 13, OCTOBER 5, DECEMBER 28,
1996* 1996 1996 1996
--------- -------- ---------- ------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales............................................. $335.3 $383.8 $452.3 $474.1
Gross profit.......................................... 177.8 197.9 235.0 260.6
Income before extraordinary items and cumulative
effect of a change in accounting.................... 1.3 0.5 0.8 15.1
Extraordinary item.................................... -- 1.9 -- --
Net income (loss)..................................... 1.3 (1.4) 0.8 15.1
Net income (loss) per share........................... $ 0.02 $(0.02) $ 0.01 $ 0.19
</TABLE>

- -------------------------
* Quarter 1 excludes the financial data of the predecessor company for the four
weeks ended January 26, 1996.

23. SUBSEQUENT EVENT

F-33
<PAGE> 99

INDEPENDENT AUDITORS' REPORT

To the Stockholder
Sunshine Biscuits, Inc.
Woodbridge, New Jersey

We have audited the accompanying balance sheets of Sunshine Biscuits, Inc.
(a wholly-owned subsidiary of G.F. Industries, Inc.) (the "Company") as of March
31, 1995 and 1996, and the related statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1995 and 1996, and
the results of its operations and its cash flows for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP

Parsippany, New Jersey
May 15, 1996

F-34
<PAGE> 100

SUNSHINE BISCUITS, INC.

BALANCE SHEETS
MARCH 31, 1995 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 2,140 $ 1,841
Trade accounts receivable, less allowance for doubtful
accounts of $1,399 and $830............................ 43,036 42,361
Due from Parent and affiliates............................ 2,783 3,362
Inventories............................................... 44,272 35,220
Prepaid expenses and other................................ 5,583 5,428
Deferred income taxes..................................... 11,521 6,767
-------- --------
Total current assets................................... 109,335 94,979
PROPERTY HELD FOR SALE -- Net............................... 1,698 993
PROPERTY, PLANT AND EQUIPMENT -- Net........................ 98,879 88,844
OTHER ASSETS................................................ 30,409 27,877
-------- --------
TOTAL ASSETS................................................ $240,321 $212,693
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 35,497 $ 32,944
Other accrued liabilities................................. 40,020 27,444
Accrued restructuring costs............................... 9,830 1,904
Due to affiliates......................................... 2,802 399
Current maturities of long-term debt...................... 33 13,192
-------- --------
Total current liabilities......................... 88,182 75,883
LONG-TERM DEBT.............................................. 93,780 73,458
OTHER LIABILITIES........................................... 31,475 30,638
DEFERRED INCOME TAXES....................................... 9,325 10,058
STOCKHOLDER'S EQUITY:
Common stock, no par value; authorized, issued and
outstanding 100 shares................................. 15,000 15,000
Additional paid-in capital................................ 19,660 19,660
Accumulated deficit....................................... (17,101) (12,004)
-------- --------
Total stockholder's equity........................ 17,559 22,656
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $240,321 $212,693
======== ========
</TABLE>

See notes to financial statements.

F-35
<PAGE> 101

SUNSHINE BISCUITS, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
SALES (Net of discounts and allowances of $22,155, $24,637
and $21,450).............................................. $643,215 $629,841 $628,302
COST OF SALES............................................... 335,416 350,283 339,982
-------- -------- --------
GROSS MARGIN................................................ 307,799 279,558 288,320
-------- -------- --------
OPERATING EXPENSES:
Selling and marketing..................................... 267,782 272,476 258,018
General and administrative................................ 23,620 23,233 22,585
Restructuring charge (gain)............................... -- 21,933 (16,458)
Other..................................................... 955 5,051 727
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................... 15,442 (43,135) 23,448
INTEREST EXPENSE............................................ 6,529 8,409 9,361
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM.................................... 8,913 (51,544) 14,087
ALLOCATED INCOME TAXES (TAX BENEFIT)........................ 4,033 (18,918) 6,169
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM........................................ 4,880 (32,626) 7,918
LOSS FROM DISCONTINUED OPERATIONS........................... (2,610) -- --
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 2,270 (32,626) 7,918
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT
(NET OF TAX).............................................. -- -- 2,821
-------- -------- --------
NET INCOME (LOSS)........................................... $ 2,270 $(32,626) $ 5,097
======== ======== ========
</TABLE>

See notes to financial statements.

F-36
<PAGE> 102

SUNSHINE BISCUITS, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT) EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993............................ $15,000 $ 35,000 $ 13,255 $ 63,255
Capital contribution............................. -- 8,000 -- 8,000
Transfer of snack food businesses to Parent...... -- (23,340) -- (23,340)
Net income....................................... -- -- 2,270 2,270
------- -------- -------- --------
BALANCE, MARCH 31, 1994............................ 15,000 19,660 15,525 50,185
Net loss......................................... -- -- (32,626) (32,626)
------- -------- -------- --------
BALANCE, MARCH 31, 1995............................ 15,000 19,660 (17,101) 17,559
Net income....................................... -- -- 5,097 5,097
------- -------- -------- --------
BALANCE, MARCH 31, 1996............................ $15,000 $ 19,660 $(12,004) $ 22,656
======= ======== ======== ========
</TABLE>

See notes to financial statements.

F-37
<PAGE> 103

SUNSHINE BISCUITS, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,270 $(32,626) $ 5,097
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Loss from discontinued operations...................... 2,610 -- --
Depreciation and amortization.......................... 9,049 8,773 8,204
Deferred income taxes (benefit)........................ (190) (20,211) 6,109
Extraordinary item -- loss on extinguishment of debt... -- -- 2,821
Restructuring charge (gain)............................ -- 21,933 (16,458)
Other.................................................. (62) 3 108
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. (6,228) 11,568 675
Decrease (increase) in inventory....................... (5,474) 7,248 9,052
Decrease in prepaid expenses and other................. 432 7,553 155
Changes in amounts due to and due from
affiliates -- net.................................... (6,494) 1,278 (2,982)
Decrease (increase) in other noncurrent assets......... 394 (11,547) 1,962
(Decrease) increase in trade accounts payable.......... 3,989 4,695 (2,553)
(Decrease) increase in other accrued liabilities....... 2,568 (1,504) (12,576)
Decrease in accrued restructuring charges.............. -- -- (5,417)
Increase in income taxes payable....................... 158 -- --
Increase (decrease) in long-term liabilities........... 1,857 14,886 (2,484)
-------- -------- --------
Net cash (used in) provided by operating
activities...................................... 4,879 12,049 (8,287)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (10,930) (10,660) (6,108)
Proceeds from sale of plant and distribution operation.... -- -- 21,954
Proceeds from sale of other assets........................ 10 34 1,321
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... (10,920) (10,626) 17,167
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan refinancing............................ -- -- 74,522
Payment of debt issue costs............................... (1,461) (47) (1,116)
Payments of revolving credit loans........................ (4,989) (1,460) (21,635)
(Payments) proceeds on senior secured notes............... 60,500 -- (60,500)
Payments on other loans and capital leases................ (48,248) (35) (450)
-------- -------- --------
Net cash (used in) provided by financing
activities...................................... 5,802 (1,542) (9,179)
-------- -------- --------
NET DECREASE IN CASH........................................ (239) (119) (299)
CASH, BEGINNING OF YEAR..................................... 2,498 2,259 2,140
-------- -------- --------
CASH, END OF YEAR........................................... $ 2,259 $ 2,140 $ 1,841
======== ======== ========
</TABLE>

See notes to financial statements.

F-38
<PAGE> 104

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

1. ORGANIZATION AND OPERATIONS

Sunshine Biscuits, Inc. (the "Company") is a wholly-owned subsidiary of
G.F. Industries, Inc. (the "Parent"). The Company manufactures cookies, crackers
and related products at several plants located in the United States. These
products are sold directly to retailers, distributors and food service
customers. No single customer accounts for more than 10% of total revenues and
export sales are not significant. As discussed in Note 15, in 1994 the Company
transferred to the Parent its salty snack foods operations.

On March 29, 1996 the Parent announced that it had entered into preliminary
discussions with a third party with respect to a possible merger of the Company.
As of May 15, 1996, no definitive purchase agreement has been signed.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

Inventories -- Inventories are stated at the lower of last-in, first-out
("LIFO") cost or market.

Property, Plant and Equipment -- Property, plant and equipment is stated at
fair market value determined at the time the Company was acquired by the Parent.
Property, plant and equipment additions subsequent to such acquisition are
stated at cost, including capitalized interest related to plant expansion and
other major capital projects. Capitalized leases are stated at the lesser of the
present value of future minimum lease payments or the fair value of the leased
property. Depreciation is computed using the straight-line method over the
estimated economic useful lives of the related assets. Leasehold improvements
are amortized over related lease terms.

Other Assets -- The excess cost over fair value of assets acquired is being
amortized over 40 years. Debt issuance costs are being amortized over the terms
of the related loans. Package design and plate costs are deferred and amortized
over periods from twelve to sixty months. On an on-going basis, the Company
reassesses the recorded values of long-lived assets based on estimated
undiscounted expected future cash flows. If the results of these periodic
assessments indicate that an impairment may be likely, the Company recognizes a
charge to operations at that time.

Allocated Income Taxes -- The Company's taxable income or loss is included
in the Parent's consolidated Federal income tax return. A tax-sharing agreement
between the Parent and its subsidiaries specifies that income taxes will be
allocated to each company in an amount equal to the amount of income tax that
would be due if the Company filed separate income tax returns. The Company
receives benefit for losses to the extent that it has paid tax in the past.
Allocated income taxes in these financial statements have been recognized in
accordance with Statement of Financial Accounting Standards No. 109, and
deferred income taxes provided for the differences between the tax bases of
assets and liabilities and their related financial statement amounts using
current income tax rates.

Fair Value of Financial Instruments -- The fair market value of certain
financial instruments, including cash, accounts receivable, accounts payable,
amounts due to and from affiliates and other accrued liabilities, approximate
the amounts recorded in the balance sheet because of the relatively current
maturities of these financial instruments. The fair market value of long-term
debt at March 31, 1995 and 1996 approximates the amounts recorded in the balance
sheet based on information available to the Company with respect to interest
rates and terms for similar financial instruments.

F-39
<PAGE> 105

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Advertising and Consumer Promotion -- Advertising and consumer promotion
costs of $16,083 in 1994, $24,062 in 1995 and $7,231 in 1996 are expensed when
incurred.

New Accounting Standard -- Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, is effective for the Company's fiscal year ending March 31,
1997. This standard requires impairment losses to be recorded on long-lived
assets and certain intangible assets when the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Although the Company has not yet completed its evaluation of the impact of
adopting this standard, management does not expect the effect, if any, to be
significant.

Reclassifications -- Certain prior year financial statement amounts have
been reclassified to conform to classifications used in the 1996 financial
statements.

3. RESTRUCTURING PROGRAMS

Results of operations for 1995 include the accrual of $21,933 for a
restructuring program designed to reduce costs and improve operating efficiency.
The restructuring represents primarily the closing of the Oakland, California
bakery and includes (1) a provision to adjust the carrying values of property
held for sale to estimated net realizable values ($7.5 million); (2) severance
and related benefits ($9.3 million); (3) facility shutdown costs ($1.7 million);
and (4) other related expenses ($3.4 million). During 1996, the Company
substantially completed this restructuring program and, as a result, accrued
restructuring costs were reduced by approximately $2,913. This amount is
included in restructuring gain in 1996.

Also during 1996, the Company sold its Chicago, Illinois bakery for cash
proceeds of approximately $17,600, resulting in a gain of approximately $15,900,
and sold its Chicago-based distribution operations for cash proceeds of
approximately $4,200, resulting in a loss of approximately $2,400. As a result
of these transactions, the Company reduced its workforce and recognized a
curtailment gain for the net decrease in accrued pension and postretirement
benefit obligations (see Note 11). Also in connection with the sale of the
distribution operations, the Company recorded a withdrawal liability of
approximately $250 related to a multiemployer pension plan.

On March 27, 1996, the Company entered into a contract to sell the Oakland
bakery property for approximately $2,700. The closing is subject to the
satisfaction of certain conditions. The Company expects that the sale will be
completed in September 1996 at which time any gain, net of related costs to
dispose of the property, will be recognized.

4. INVENTORIES

Inventories at March 31, 1995 and 1996 consist of the following:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Finished goods.............................................. $27,742 $20,046
Raw materials............................................... 12,116 11,328
Packaging................................................... 4,414 3,846
------- -------
Total....................................................... $44,272 $35,220
======= =======
</TABLE>

F-40
<PAGE> 106

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

4. INVENTORIES -- (CONTINUED)
The cost of finished goods on the LIFO method exceeds their replacement
cost by approximately $2,867 and $1,768 at March 31, 1995 and 1996,
respectively. The replacement cost of raw materials and packaging exceeds their
LIFO cost by approximately $5,716 and $5,618 at March 31, 1995 and 1996,
respectively.

Inventory reductions during 1996 resulted in a LIFO liquidation which
decreased net income by approximately $540.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at March 31, 1995 and 1996 consists of the
following:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Land and improvements....................................... $ 9,666 $ 7,575
Buildings and improvements.................................. 43,194 42,885
Machinery and equipment..................................... 91,236 89,629
Vehicles.................................................... 2,304 1,348
Leasehold improvements...................................... 1,953 1,924
Construction in progress.................................... 6,948 4,587
-------- --------
Total....................................................... 155,301 147,948
Less accumulated depreciation and amortization.............. (56,422) (59,104)
-------- --------
Total....................................................... $ 98,879 $ 88,844
======== ========
</TABLE>

Property above excludes $1,698 and $993 at March 31, 1995 and 1996,
respectively, relating to the Company's closure of the Oakland bakery. Such
amounts have been segregated in the accompanying balance sheet as property held
for sale.

6. OTHER ASSETS

Other assets at March 31, 1995 and 1996 consist of the following:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Excess cost over fair value of assets acquired (net of
related amortization of $2,005 and $1,559)................ $14,707 $14,261
Intangible pension asset.................................... 11,613 10,610
Debt issuance costs......................................... 1,132 1,023
Other....................................................... 2,957 1,983
------- -------
Total....................................................... $30,409 $27,877
======= =======
</TABLE>

7. TRADE ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

Checks outstanding in excess of related cash balances totaling $10,509 and
$9,935 at March 31, 1995 and 1996, respectively, are included in trade accounts
payable.

F-41
<PAGE> 107

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

7. TRADE ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES -- (CONTINUED)
Other accrued liabilities at March 31, 1995 and 1996 consist of the
following:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued selling expenses.................................... $15,298 $ 7,030
Compensation and payroll taxes.............................. 13,544 11,335
Other....................................................... 11,178 9,079
------- -------
Total....................................................... $40,020 $27,444
======= =======
</TABLE>

8. INCOME TAXES

Allocated income taxes (tax benefit) from continuing operations for the
years ended March 31, 1994, 1995 and 1996 consist of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------ -------- ------
<S> <C> <C> <C>
Currently (receivable) payable:
Federal.................................................. $3,334 $ 1,341 $ 60
State.................................................... 889 (48) --
------ -------- ------
Total currently payable.................................... 4,223 1,293 60
------ -------- ------
Deferred:
Federal.................................................. (163) (15,921) 4,750
State.................................................... (27) (4,290) 1,359
------ -------- ------
Total deferred............................................. (190) (20,211) 6,109
------ -------- ------
Total...................................................... $4,033 $(18,918) $6,169
====== ======== ======
</TABLE>

Included in the amount due from Parent and affiliates at March 31, 1996 is
$2,679 which represents the portion of the federal tax benefit of the 1995
consolidated net operating loss carryback allocated to the Company pursuant to
the tax sharing agreement among the Parent and its subsidiaries.

At March 31, 1996, the Company has net operating loss carryforwards for
Federal and State tax purposes of approximately $9,625 and $16,200,
respectively, expiring in 2010.

The differences between income taxes calculated at Federal statutory income
tax rate and the Company's allocated income tax provision (benefit) from
continuing operations are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1994 1995 1996
------ -------- ------
<S> <C> <C> <C>
U.S. Federal Statutory Rate................................ $3,030 $(17,525) $4,930
State income taxes (net of federal benefit)................ 569 (2,863) 883
Goodwill amortization...................................... 152 152 156
Adjustments to prior years' allocated income taxes......... 117 1,106 --
Nondeductible expenses..................................... 165 212 200
------ -------- ------
$4,033 $(18,918) $6,169
====== ======== ======
</TABLE>

F-42
<PAGE> 108

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

8. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities at March 31, 1995 and 1996 are as
follows:

<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Current:
Accrued employee benefits...................... $ 4,658 $ -- $ 6,323 $ --
Inventory costing and valuation................ -- 3,644 -- 3,052
Accrued promotion and marketing costs.......... 1,100 -- 175 --
Accrued restructuring costs.................... 6,913 -- 1,206 --
Accrued plant closing and other costs.......... 694 -- 557 --
Other accrued expenses......................... 760 -- 688 --
Allowance for doubtful accounts................ 560 -- 332 --
Other.......................................... 480 -- 538 --
------- ------- ------- -------
Total current.................................... 15,165 3,644 9,819 3,052
------- ------- ------- -------
Noncurrent:
Depreciation................................... -- 24,081 -- 20,381
Net operating loss carryforwards............... 7,868 -- 5,353 --
Accrued pension and post-retirement benefits... 6,284 344 4,539 344
Alternative minimum tax credit carryforwards... 948 -- 775 --
------- ------- ------- -------
Total noncurrent................................. 15,100 24,425 10,667 20,725
------- ------- ------- -------
Total............................................ $30,265 $28,069 $20,486 $23,777
======= ======= ======= =======
</TABLE>

The Internal Revenue Service has examined the Parent's consolidated income
tax returns for years 1989 through 1992. The Parent believes that the amounts
accrued are adequate to cover taxes payable for these years.

9. OTHER LIABILITIES

Other liabilities as of March 31, 1995 and 1996 consist of the following:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Postretirement benefit obligations (Note 11)................ $15,711 $11,347
Pension obligation.......................................... 15,694 19,178
Other....................................................... 70 113
------- -------
Total....................................................... $31,475 $30,638
======= =======
</TABLE>

F-43
<PAGE> 109

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

10. NOTES PAYABLE

Notes payable as of March 31, 1995 and 1996 consist of the following:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Borrowings under BankAmerica Business Credit Inc. loan and
security agreement, interest payable monthly at a rate
based on prime or LIBOR(1)................................ $ -- $74,105
Borrowings under Wells Fargo revolving credit loan, interest
payable at a rate based on prime (9.0% at March 31, 1995)
plus .25%(1).............................................. 21,635 --
Senior secured notes, interest at 8.69% payable
semi-annually in arrears on May 1st and November 1st
commencing May 1, 1994. Notes are payable in installments
beginning in 1997 with final payment due in 2005(1)....... 60,500 --
Notes payable to Parent (includes accrued interest)(2)...... 10,645 11,545
Subordinated, unsecured, note payable to American Brands,
Inc., interest at prime (8.25% at March 31, 1996) payable
semi-annually beginning July 1993, balance due January 22,
1998...................................................... 1,000 1,000
Capital lease obligation.................................... 33 --
------- -------
Total(3).................................................... 93,813 86,650
Less current maturities, including revolving loans of
$8,192.................................................... 33 13,192
------- -------
Long-term portion........................................... $93,780 $73,458
======= =======
</TABLE>

- -------------------------

(1) On February 1, 1996, the Company refinanced the Wells Fargo and senior
secured notes with BankAmerica Business Credit, Inc. The new credit facility
consists of revolving loans, letters of credit and a term loan of up to
$90,000 in the aggregate. The revolving loans are available for a two-year
period, not exceeding $50,000 at any one time, based on eligible accounts
receivable and inventory. The term loan is for $40,000 and is payable in
twenty-three equal monthly installments with a final balloon payment at
maturity. At March 31, 1996 the amounts outstanding under the revolving
loans and term loan were $34,522 (interest at 7.56%) and $39,583 (interest
at 7.81%), respectively, and letters of credit outstanding totaled $725 at
March 31, 1996. Based on eligible receivables and inventory at March 31,
1996, the Company had $8,657 available under this credit facility. Revolving
loans of $26,330 have been classified as long-term as management expects to
maintain at least this level of borrowings during fiscal year 1997.

The agreement includes restrictive financial covenants related to capital
expenditures, minimum earnings and fixed charge coverage, and borrowings are
collateralized by substantially all of the Company's assets.

As a result of this refinancing, the Company recognized an extraordinary
loss on the early extinguishment of debt of $2,821 (net of related tax
benefit of $2,123).

(2) Notes payable to Parent, due February 1, 2001, are subordinated and bear
interest at prime plus 1/2%. Interest on these notes was approximately
$495, $810 and $900 for the years ended March 31, 1994, 1995 and 1996,
respectively. During 1994, other notes of $8,000 due the Parent were
contributed to capital and recorded as additional paid-in capital.

(3) At March 31, 1996, the long-term portion of notes payable is due, $61,913 in
1998 and $11,545 in 2001.

F-44
<PAGE> 110

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

11. EMPLOYEE BENEFIT PLANS

The following table sets forth the funded status of the Company's pension
plan and the amounts recognized in the Company's financial statements at March
31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested.................................................... $(174,218) $(197,420)
Nonvested................................................. (16,561) (16,972)
--------- ---------
Total accumulated benefit obligation........................ $(190,779) $(214,392)
========= =========
Projected benefit obligation................................ $(199,804) $(221,305)
Plan assets at fair value................................... 175,085 195,214
--------- ---------
Projected benefit obligation in excess of plan assets....... (24,719) (26,091)
Unrecognized net loss....................................... 5,903 1,206
Additional minimum liability................................ (11,613) (10,610)
Unrecognized prior service cost............................. 14,536 16,153
Unrecognized net obligation from adoption................... 199 164
--------- ---------
Accrued pension cost (including intangible pension asset of
$11,613 in 1995 and $10,610 in 1996, see Note 6).......... $ (15,694) $ (19,178)
========= =========
Components of net pension cost for the year:
Service cost-benefits earned during the period............ $ 3,823 $ 3,363
Interest costs on projected benefit obligation............ 14,888 16,268
Return on plan assets..................................... (12,160) (35,297)
Net amortization and deferral............................. (2,426) 19,874
--------- ---------
Net pension cost............................................ $ 4,125 $ 4,208
========= =========
</TABLE>

Prior to March 31, 1994, eligible salaried and hourly employees
participated in defined benefit pension plans sponsored by the Company or the
Parent. The plans provided for payment of retirement benefits and certain
disability and severance benefits. Effective March 31, 1994, a decision was made
to merge the Company's defined benefit pension plan into the Parent's defined
benefit pension plan. Accordingly, for 1994, the Company was allocated pension
costs, for both salaried and hourly employees, by the Parent. Total pension
costs allocated for 1994 were $3,905.

During 1995, the Parent reevaluated its continuing operations and decided
that the plan merger described above would not be completed. On December 31,
1994, the Parent's defined benefit pension plan was reorganized into two
continuing plans, one primarily for all employees of the Company and the other
for the employees of the Parent and its other subsidiaries. Certain benefit
obligations and accruals were allocated to the plans in accordance with the
Internal Revenue Code and other regulations and other components of the
projected benefit obligations were allocated on a historical basis as shown
above.

The Company's policy is to make plan contributions required by applicable
ERISA regulations. Plan assets are primarily invested in equity and fixed income
securities. The actuarial present value of the benefit obligation at March 31,
1995 and 1996 was determined using assumed discount rates of 8.5% and 7.75%,
respectively, an expected long-term rate of return on plan assets of 10%, and an
assumed increase in future compensation of 4.5% and 4.75%, respectively.

F-45
<PAGE> 111

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
In addition, the Company provides a savings plan for qualified salaried
employees and matches a portion of employee contributions not to exceed 6% of
gross wages. Expense for this plan was approximately $692, $411 and $93 in 1994,
1995 and 1996, respectively. The Company also provides a savings plan for
certain hourly employees which provides for no matching Company contributions.

In addition to pension benefits, the Company provides certain health care
benefits and life insurance to eligible retired employees (and their eligible
dependents) who are not covered by any collective bargaining agreements. The
Company continues to fund benefit costs on a pay-as-you-go basis, with retirees
paying a portion of the cost.

The following table sets forth amounts recognized in the Company's 1994,
1995 and 1996 financial statements:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 18,352 $ 14,046
Fully eligible active employees........................... 5,702 5,939
Other employees........................................... 9,783 9,908
-------- --------
Total............................................. 33,837 29,893
Unrecognized net gain....................................... 5,828 9,406
Unrecognized transition obligation.......................... (23,954) (27,952)
-------- --------
Accrued postretirement benefit obligation at March 31 (Note
9)........................................................ $ 15,711 $ 11,347
======== ========
</TABLE>

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned............................. $ 891 $ 945 $ 792
Interest cost on accumulated postretirement benefit
obligation................................................ 2,955 2,574 2,335
Amortization -- net......................................... 1,447 1,215 959
------ ------ ------
Net postretirement benefit cost for the year................ $5,293 $4,734 $4,086
====== ====== ======
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 12% and 10.25% for those retirees not
eligible for Medicare (pre 65 years of age) and 9% and 7.25% for those eligible
for Medicare in 1995 and 1996, respectively, gradually declining to 5.5% and
5.75% by the years 2001 and 2002, respectively, and remaining at that level
thereafter. A one percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
liability by approximately 14% and 10% and net postretirement health care costs
by approximately 14% and 8% at March 31, 1995 and 1996, respectively. The
assumed discount rate and rate of compensation increases used in determining the
accumulated postretirement benefit obligation were 5.25% and 7.75%,
respectively, at March 31, 1995, and 5.25% and 8.25%, respectively, at March 31,
1996.

In 1995, curtailment losses of $4,650 associated with these programs were
included in restructuring costs. In 1996 a net curtailment gain of $5,570
associated with the Company's restructuring programs (see Note 3) was recognized
and is included in restructuring gains for 1996.

A Voluntary Employee Beneficiary Association ("VEBA") provides health and
welfare benefits for certain employees. Payments made to the VEBA relating to
future employee benefits are included in prepaid expenses. The Company's policy
is to fund the VEBA based on actual expenses of the preceding year to the

F-46
<PAGE> 112

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
extent deductible under current Federal income tax laws. Expenses funded through
the VEBA were approximately $18,298, $18,212 and $15,252 in 1994, 1995 and 1996,
respectively.

12. LEASES

The Company leases manufacturing, warehouse and office facilities, vehicles
and other bakery equipment under long-term operating leases. These leases
generally contain renewal options for periods ranging from one to ten years and
generally require the payment of other costs such as property taxes, maintenance
and insurance.

Future minimum payments under operating leases as of March 31, 1996 are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING:
- ------------
<S> <C>
1997........................................................ $10,273
1998........................................................ 7,892
1999........................................................ 5,559
2000........................................................ 4,240
2001........................................................ 2,960
Thereafter.................................................. 5,051
-------
Total minimum lease payments...................... $35,975
=======
</TABLE>

Rent expense was approximately $11,490, $12,346 and $12,537 for the years
ended March 31, 1994, 1995 and 1996, respectively.

13. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the years ended March 31, 1994, 1995
and 1996 is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.................................................. $4,181 $7,432 $10,084
Income taxes.............................................. 724 252 90
</TABLE>

14. RELATED PARTY TRANSACTIONS

Subsequent to March 31, 1995, one of the Parent's subsidiaries filed for
protection under Chapter 11 of the United States Bankruptcy Code, and another
subsidiary's business was closed and in process of being liquidated. It is
expected that the assets of both of these subsidiaries will be insufficient to
satisfy all of the creditors' claims. For 1995 and 1996, $2,567 and $750,
respectively of trade receivables due from these subsidiaries were written off
as uncollectible. At March 31, 1996, amounts due from Parent and affiliates
includes $513 of these receivables remaining unpaid.

The Company is obligated as guarantor under certain lease agreements of
these subsidiaries. In 1996 the Company subleased certain property subject to
these leases and, accordingly, reduced the amounts recorded for these guarantees
by approximately $600. At March 31, 1995, the Company recorded a liability of
$1,734 related to its expected future obligations (including rental payments and
carrying costs, etc.) associated with such leases.

F-47
<PAGE> 113

SUNSHINE BISCUITS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

15. DISCONTINUED OPERATIONS

Effective October 1, 1993, the Company transferred its salty snack food
operations to the Parent and has accounted for these businesses as discontinued
operations. Accordingly, their operating results for 1994 have been segregated
in the accompanying statement of operations as follows:

<TABLE>
<S> <C>
Sales....................................................... $ 42,721
Costs and expenses.......................................... (46,895)
Income tax benefit.......................................... 1,564
--------
Net loss.................................................... $ (2,610)
========
</TABLE>

* * * * * *

F-48
<PAGE> 114
DESCRIPTION OF INSIDE BACK COVER PAGE:

A series of four pictures starting clockwise with (i) Ernie the Elf
appearing in The Hollow Tree, (ii) a Keebler delivery truck, (iii) a mother and
child in a grocery store selecting Keebler products and (iv) a Keebler elf
discussing Keebler products with a store manager.

<PAGE> 115

- ---------------------------------------------------

PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER KEEBLER FOODS COMPANY, THE SELLING STOCKHOLDERS NOR ANY U.S.
UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT JURISDICTION.

===================================================

KEEBLER ELF WITH TREE LOGO

KEEBLER FOODS COMPANY

11,640,575 SHARES

COMMON STOCK
PROSPECTUS
CREDIT SUISSE FIRST BOSTON

MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ INC.
- ---------------------------------------------------
<PAGE> 116

11,640,575 Shares

KEEBLER FOODS COMPANY
KEEBLER LOGO
Common Stock
KEEBLER ELF

------------------

Keebler will list the common stock on the New York Stock Exchange under the
symbol "KBL."

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.

CREDIT SUISSE FIRST BOSTON MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER SBC WARBURG DILLON READ

ABN AMRO ROTHSCHILD BAYERISCHE LANDESBANK GIROZENTRALE

CAZENOVE & CO. DEUTSCHE MORGAN GRENFELL

Prospectus dated January 29, 1998

<PAGE> 117

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements; Certain Defined Terms; Market
Share Data................................................ 10
Dividend Policy............................................. 11
Capitalization.............................................. 12
Unaudited Pro Forma Consolidated Financial Information...... 13
Selected Historical Financial Data.......................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 37
Principal and Selling Stockholders.......................... 45
Certain Related Transactions................................ 46
Description of Certain Indebtedness......................... 49
Description of Capital Stock................................ 51
Certain United States Federal Tax Considerations For
Non-U.S. Holders of Common Stock.......................... 53
Shares Eligible for Future Sale............................. 55
Subscription and Sale....................................... 57
Legal Matters............................................... 60
Experts..................................................... 60
Available Information....................................... 60
Index to Financial Statements............................... F-1
</TABLE>

------------------------------------

Keebler's principal executive offices are located at 677 Larch Avenue,
Elmhurst, Illinois 60126, (630) 833-2900.

For the definition of certain capitalized terms and an explanation of
certain market share data, see "Forward-Looking Statements; Certain Defined
Terms; Market Share Data."
<PAGE> 118

SUBSCRIPTION AND SALE

The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated January 28, 1998, among Keebler, the Selling
Stockholders and the Managers (the "Subscription Agreement"), severally and not
jointly, agreed with the Selling Stockholders to subscribe and pay for the
following respective numbers of International Shares (as defined) as set forth
opposite their names:

<TABLE>
<CAPTION>
NUMBER OF
MANAGER INTERNATIONAL SHARES
------- --------------------
<S> <C>
Credit Suisse First Boston (Europe) Limited........... 468,381
Merrill Lynch International........................... 468,378
Morgan Stanley & Co. International Limited............ 468,378
Swiss Bank Corporation................................ 468,378
ABN AMRO Rothschild................................... 114,650
Bayerische Landesbank Girozentrale.................... 114,650
Cazenove & Co. ....................................... 114,650
Deutsche Bank AG London............................... 114,650
---------
Total............................................ 2,328,115
=========
</TABLE>

Of the 11,640,575 shares of Common Stock being offered, 2,328,115 shares
(the "International Shares") are initially being offered by the Managers (the
"Managers") outside the United States and Canada (the "International Offering")
and 9,312,460 Shares (the "U.S. Shares") are initially being concurrently
offered by the U.S. Underwriters (the "U.S. Underwriters") in the United States
and Canada (the "U.S. Offering").

The Subscription Agreement provides that the obligations of the Managers
are such that, subject to certain conditions precedent, the Managers will be
obligated to purchase all the International Shares offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of the
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.

Keebler and the Selling Stockholders have entered into an Underwriting
Agreement with the U.S. Underwriters providing for the concurrent offer and sale
of the U.S. Shares in the United States and Canada. The closing of the U.S.
Offering is a condition to the closing of the International Offering and vice
versa.

The Selling Stockholders have granted to the Managers and the U.S.
Underwriters an option, exercisable by Credit Suisse First Boston Corporation,
on behalf of the Managers and the U.S. Underwriters, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
1,746,086 additional shares of Common Stock at the initial public offering
price, less the underwriting discounts and commissions. Such option may be
exercised only to cover over-allotments, if any, in the sale of the shares of
Common Stock offered hereby. To the extent that this option to purchase is
exercised, each Manager and each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of
additional shares being sold to the Managers and the U.S. Underwriters as the
number of International Shares set forth next to such Manager's name in the
preceding table and as the number set forth next to such U.S. Underwriter's name
in the corresponding table in the Prospectus relating to the U.S. Offering bears
to the sum of the total number of shares of Common Stock in such tables.

57
<PAGE> 119

Keebler and the Selling Stockholders have been advised by Credit Suisse
First Boston (Europe) Limited, on behalf of the Managers, that the Managers
propose to offer the International Shares outside the United States and Canada
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Managers, to certain dealers at such price less a
commission of $0.86 per share, and that the Managers and such dealers may
reallow a commission of $0.10 per share on sales to certain other dealers. After
the Offering, the public offering price and commission and re-allowance may be
changed by the Managers.

The public offering price, the aggregate underwriting discounts and
commissions per share and the per share commission and re-allowance to dealers
for the International Offering and the concurrent U.S. Offering will be
identical. Pursuant to an Agreement between the U.S. Underwriters and the
Managers (the "Intersyndicate Agreement") relating to the Offering, changes in
the public offering price, the aggregate underwriting discounts and commissions
per share and per share commission and re-allowance to dealers will be made only
upon the mutual agreement of Credit Suisse First Boston (Europe) Limited, on
behalf of the Managers, and Credit Suisse First Boston Corporation, as
representative of the U.S. Underwriters.

Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock in the United States or Canada or to any other dealer who does
not so agree. Each of the U.S. Underwriters has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein, "United States" means the Unites
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) an individual resident in the United States or Canada or
(ii) a corporation, partnership, pension, profit-sharing or other trust or other
entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount agreed upon by Credit Suisse First Boston
(Europe) Limited, on behalf of the Managers, and Credit Suisse First Boston
Corporation, as representative of the U.S. Underwriters, but not exceeding the
selling concession applicable to such shares. To the extent there are sales
between the Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement, the number of shares of Common Stock initially available for sale by
the Managers or by the U.S. Underwriters may be more or less than the amount
appearing on the cover page of this Prospectus. Neither the Managers nor the
U.S. Underwriters are obligated to purchase from the other any unsold shares of
Common Stock.

Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the Common Stock will not offer or sell any shares of
Common Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom;
58
<PAGE> 120

and (iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
Shares to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.

Purchasers of shares of Common Stock outside the United States may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the Price to Public set
forth on the cover page of this Prospectus.

Keebler and each of the Selling Stockholders have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
Managers and the U.S. Underwriters may be required to make in respect thereof.

Application has been made to list the shares of Common Stock on the NYSE
under the symbol "KBL." In order to meet one of the requirements for listing the
shares of Common Stock on the NYSE, the U.S. Underwriters and the Managers have
undertaken to sell (i) lots of 100 or more shares to a minimum of 2,000
beneficial holders, (ii) a minimum of 1.1 million shares and (iii) shares with a
minimum aggregate market value of $40.0 million.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation among the Selling Stockholders and the Representatives, and does not
reflect the market price for the Common Stock following the Offering. Among the
principal factors considered in determining the initial public offering price
were market conditions for initial public offerings, the history of and
prospects for Keebler's business, Keebler's past and present operations, its
past and present earnings and current financial position, an assessment of the
Keebler's management, the market of securities of companies in businesses
similar to those of Keebler, the general condition of the securities markets and
other relevant factors. There can be no assurance that the initial public
offering price will correspond to the price at which the Common Stock will trade
in the public market subsequent to the Offering or that an active trading market
for the Common Stock will develop and continue after the Offering.

Credit Suisse First Boston Corporation, on behalf of the Managers and the
U.S. Underwriters, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit Credit Suisse First Boston Corporation to reclaim a selling
concession from a syndicate member when the Common Stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.

59
<PAGE> 121

The Managers and the U.S. Underwriters have informed the Company that they
do not expect discretionary sales by the Managers and the U.S. Underwriters to
exceed 5% of the number of shares of Common Stock being offered in the Offering.

LEGAL MATTERS

EXPERTS

AVAILABLE INFORMATION

60
<PAGE> 122

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PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER KEEBLER FOODS COMPANY, THE SELLING STOCKHOLDERS NOR ANY
MANAGER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION
DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

===================================================

KEEBLER ELF WITH TREE LOGO

KEEBLER FOODS COMPANY

11,640,575 SHARES

COMMON STOCK
PROSPECTUS
CREDIT SUISSE FIRST BOSTON

MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ

ABN AMRO ROTHSCHILD

BAYERISCHE LANDESBANK GIROZENTRALE

CAZENOVE & CO.

DEUTSCHE MORGAN GRENFELL

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