KEEBLER FOODS CO, 424B1, 1999-01-21

KEEBLER FOODS CO
424B1, 1999-01-21
COOKIES & CRACKERS

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<PAGE> 1

16,200,000 Shares

KEEBLER LOGO KEEBLER FOODS COMPANY

Common Stock Keebler Elf Logo

------------------------
All of the shares of common stock offered in this prospectus are being sold by
certain selling stockholders. Of the 16,200,000 shares of common stock being
offered, 12,960,000 shares are initially being offered in the United States and
Canada by the U.S. underwriters and 3,240,000 shares are initially being
concurrently offered outside the United States and Canada by the international
managers.

The U.S. underwriters and the international managers have an option to purchase
a maximum of 1,628,729 additional shares to cover over-allotments of shares.

Our common stock is listed on the New York Stock Exchange under the symbol
"KBL." On January 20, 1999, the last reported sale price for the common stock
was $33 7/16.

INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
6.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS STOCKHOLDERS
------------ ------------- ------------
<S> <C> <C> <C>
Per share............................................ $33.4375 $1.00 $32.4375
Total................................................ $541,687,500 $16,200,000 $525,487,500
</TABLE>

Delivery of the shares of common stock will be made on or about January 26,
1999, against payment in immediately available funds.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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. WARBURG DILLON READ LLC
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS

Prospectus dated January 20, 1999.

<PAGE> 2

[INSIDE FRONT COVER]

PICTURE OF REPRESENTATIVE BRANDED PRODUCTS
NEXT TO THE KEEBLER HOLLOW TREE
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 6
AVAILABLE INFORMATION................. 9
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 9
FORWARD-LOOKING STATEMENTS............ 9
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION............... 11
SELECTED HISTORICAL FINANCIAL
DATA................................ 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.............................. 28
MANAGEMENT............................ 36
PRINCIPAL AND SELLING
STOCKHOLDERS........................ 38
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 40
UNDERWRITING.......................... 43
NOTICE TO CANADIAN RESIDENTS.......... 45
LEGAL MATTERS......................... 46
EXPERTS............................... 47
</TABLE>

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
------------------------

i
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the common stock. You should carefully
read the entire prospectus, including the documents incorporated by reference
into it. Keebler's operations are comprised of the Keebler business, which was
acquired in January 1996, the Sunshine business, which was acquired in June
1996, and the President business, which was acquired in September 1998. Unless
otherwise indicated, sales and market share data contained in this prospectus
include the results of President for the applicable period. See the first
paragraph of "Business" for the sources of market share data contained in this
prospectus.

KEEBLER

Keebler is the second largest cookie and cracker manufacturer in the United
States with annual net sales of over $2.5 billion and a 25.8% share of the U.S.
cookie and cracker market. We market a majority of our products under
well-recognized brands such as Keebler, Cheez-It, Carr's and Famous Amos. We
produce nine of the twenty-five best-selling cookies and ten of the twenty-five
best-selling crackers in the United States based on dollar sales. Our sales
employees and trucks distribute Keebler and Cheez-It branded cookie and cracker
products to substantially all supermarkets in the United States through our
national direct to store sales and distribution system. In the United States, we
are:

- the number two manufacturer of branded cookies and crackers;
- the number one manufacturer of private label cookies;
- the number one manufacturer of Girl Scout cookies;
- the number one manufacturer of cookies and crackers for the foodservice
market;
- the number one manufacturer of retail branded ice cream cones;
- a major producer of retail branded pie crusts; and
- a producer of custom-baked products for other marketers of branded food
products.

INDUSTRY OVERVIEW

In 1997, the U.S. cookie and cracker industry had retail sales of $8.4
billion, with cookie sales of $4.9 billion and cracker sales of $3.5 billion.
Supermarkets accounted for 78% of 1997 retail sales in the cookie and cracker
industry with mass merchandisers (such as Wal-Mart), 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, we believe 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 retail market share of
59.3%, with Keebler having 25.8% and Nabisco having 33.5%. Other participants in
the industry generally operate only in certain regions of the United States or
offer fewer types of cookie and cracker products.

STRATEGY

Since the acquisition of the Keebler business in January 1996, we have
employed a business strategy designed to capitalize on our competitive
strengths. The acquisitions of Sunshine and President have enabled us to further
develop this business strategy. The key elements of our strategy are:

- Build on the Keebler brand through continued advertising and promotion.
- Take advantage of Keebler brand strength across product types by cost
effectively introducing new line extensions and product types.
- Expand the Cheez-It brand through new products, advertising and
packaging.

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<PAGE> 5

- Expand non-supermarket sales by continuing to develop products, packaging
and distribution tailored to non-supermarket channels.
- Increase the efficiency of our operations through greater automation,
improved inventory management and improved management information
software.
- Capitalize on the President acquisition through integration with Keebler.
- Pursue complementary acquisitions.

We may not be successful in implementing the strategies identified above.

RECENT KEEBLER HISTORY

In September 1998, Keebler acquired President. President manufactures and
markets cookies, crackers, brownies and snack cakes. President's brands include
Famous Amos and Murray. President is the leading manufacturer of both Girl Scout
and sugar free cookies in the United States. In 1997, President had net sales of
$441.1 million and a 3.4% share of the U.S. cookie and cracker market.

In June 1996, Keebler acquired Sunshine. By the end of 1996, we completed
our planned integration of Sunshine's operations.

In January 1996, Artal Luxembourg S.A., Flowers Industries, Inc. and
certain of Keebler's current management acquired the Keebler business which is
referred to as the "Keebler acquisition." Artal Luxembourg is a private
investment company. Flowers Industries, a New York Stock Exchange-listed
company, is one of the country's largest manufacturers and marketers of fresh
and frozen baked goods. Flowers Industries currently owns approximately 55% of
Keebler's outstanding common stock and will own the same percentage after this
offering.

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<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common stock offered:
U.S. offering............................................ 12,960,000 shares
International offering................................... 3,240,000 shares
------------------------------
Total(a)......................................... 16,200,000 shares
==============================
Total shares outstanding as of January 18, 1999(b)......... 84,132,164 shares
Selling stockholders....................................... Artal Luxembourg and Claremont
Enterprises
Use of proceeds............................................ Keebler will not receive any
proceeds from the offering
New York Stock Exchange symbol............................. KBL
</TABLE>

- ---------------
(a) If the U.S. underwriters and the international managers exercise their
option to purchase additional shares of common stock from Artal Luxembourg
and Claremont Enterprises to cover over-allotments, the total number of
shares offered would increase by up to 1,628,729 shares.

(b) Does not include 16,048,330 shares of common stock which are reserved for
issuance under Keebler's current option plans. Options to purchase 9,187,416
of these shares are currently outstanding under these plans.

3
<PAGE> 7

SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The financial information below has been derived from the Unaudited Pro
Forma Consolidated Financial Information included elsewhere in this prospectus.
The operating and other data below give effect to the President acquisition as
if it had occurred on December 29, 1996. The financial information below does
not purport to represent what our results of operations would have been if the
President acquisition had occurred on the date indicated or to project our
results of operations for any future period. The information below should be
read together with the Unaudited Pro Forma Consolidated Financial Information.
As used below, EBITDA, as adjusted, means income from operations before
interest, taxes, depreciation, amortization and restructuring charges. EBITDA,
as adjusted, is presented as additional information because we believe 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>
<CAPTION>
FISCAL YEAR FORTY WEEKS ENDED
ENDED -----------------------------------
JANUARY 3, 1998 OCTOBER 4, 1997 OCTOBER 10, 1998
PRO FORMA PRO FORMA PRO FORMA
--------------- --------------- ----------------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net sales....................................... $ 2,501.5 $ 1,889.3 $ 1,983.7
Income from operations.......................... 163.0 117.4 152.1
Net income...................................... 49.3 32.4 68.6
Diluted net income per share.................... 0.61 0.40 0.79
Weighted average shares outstanding............. 80.6 80.1 87.4
OTHER DATA:
EBITDA, as adjusted............................. $ 246.3 $ 180.9 $ 213.5
Depreciation and amortization................... 83.3 63.5 61.4
Capital expenditures............................ 53.3 29.2 42.2
</TABLE>

4
<PAGE> 8

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

The financial data below as of and for the fiscal years ended January 1,
1994, December 31, 1994, December 30, 1995, December 28, 1996 and January 3,
1998 have been derived from the consolidated financial statements of Keebler and
UB Investments US Inc. (the "Predecessor Company") which have been audited by
PricewaterhouseCoopers LLP, independent public accountants. The financial data
below of Keebler as of and for the forty weeks ended October 4, 1997 and October
10, 1998 have been derived from unaudited financial statements of Keebler and,
in our opinion, 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 incorporated by reference
into this prospectus. As used below, EBITDA, as adjusted, means income (loss)
from continuing operations before interest, taxes, depreciation, amortization
and restructuring charges. EBITDA, as adjusted, is presented as additional
information because we believe 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>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------
FOUR
YEAR ENDED WEEKS
---------------------------------------- ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26,
1994 1994 1995 1996
---------- ------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................... $1,650.1 $1,599.7 $1,578.6 $101.7
Gross profit................................ 931.5 894.2 831.8 46.8
Nonrecurring charges........................ 120.1 -- 86.5 --
Income (loss) from continuing operations.... (67.6) 46.4 (137.9) (25.5)
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes.............. (126.9) (26.9) (165.7) (25.4)
Discontinued operations..................... 0.6 3.4 7.4 18.9
Extraordinary item.......................... -- -- -- --
Cumulative effect of accounting changes, net
of tax.................................... (20.9) 0.5 -- --
Net income (loss)........................... (147.2) (23.0) (158.3) (6.5)
Diluted net income per share................ -- -- -- --
Weighted average shares outstanding......... -- -- -- --

OTHER DATA:
EBITDA, as adjusted......................... $ 98.4 $ 89.5 $ (93.3) $(23.5)
Depreciation and amortization (excluding
items related to discontinued
operations)............................... 45.9 43.1 44.6 2.0
Capital expenditures (excluding expenditures
related to discontinued operations)....... 30.6 54.6 54.2 3.2

BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................... $ 6.4 $ 12.5 $ 3.0 $ 2.1
Total assets................................ 1,043.0 1,001.2 926.9 849.1
Due to affiliate............................ 872.7 551.6 108.0 105.0
Total debt.................................. 263.8 333.2 437.6 371.4
Shareholders' equity (deficit).............. (511.9) (234.9) 51.8 45.3

OTHER DATA:
EBITDA, as adjusted......................... $ 119.6 $ 202.1 $ 141.6 $ 171.1
Depreciation and amortization (excluding
items related to discontinued
operations)............................... 49.5 60.7 45.5 46.5
Capital expenditures (excluding expenditures
related to discontinued operations)....... 29.4 48.4 26.1 36.0

BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................... $ 12.0 $ 27.2 $ 61.1 $ 17.7
Total assets................................ 1,102.1 1,042.9 1,116.1 1,633.6
Due to affiliate............................ -- -- -- --
Total debt.................................. 457.9 298.8 401.8 654.7
Shareholders' equity (deficit).............. 165.1 222.0 201.5 297.4
</TABLE>

5
<PAGE> 9

RISK FACTORS

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

COMPETITION COULD ADVERSELY IMPACT OUR PERFORMANCE

The cookie and cracker market and the other markets in which we operate 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 our markets, there are competitors that are larger and have
greater financial resources, including our primary competitor, Nabisco.
Competition could cause us to lose market share, increase expenditures or reduce
pricing which could have a material adverse effect on our business or financial
results.

INCREASES IN PRICES OF MAIN INGREDIENTS AND OTHER MATERIALS COULD CAUSE OUR
COSTS TO INCREASE

The main ingredients that we use to manufacture our products are flour,
sugar, chocolate, shortening and milk. We also use paper products, such as
corrugated cardboard, as well as films and plastics, to package our products.
The prices of these materials have been, and we expect them to continue to be,
subject to significant volatility. We may not be able to pass price increases in
these materials on to our customers. Although we have mitigated the effects of
such price increases in the past through our hedging programs, we may not be
successful in protecting our business from price increases in the future.

THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM WILL REMAIN WITH US

We believe that our ability to successfully implement our business strategy
and to operate profitably depends on the continued employment of our senior
management team. If members of the management team become unable or unwilling to
continue in their present positions, our business and financial results could be
materially adversely affected.

MAJORITY CONTROL OF US BY A SINGLE STOCKHOLDER COULD CAUSE A CONFLICT OF
INTEREST WITH OTHER STOCKHOLDERS

Flowers Industries owns approximately 55% of the outstanding Keebler common
stock. Accordingly, Flowers controls Keebler and has the power to elect a
majority of the directors, appoint management and approve certain actions
requiring the approval of a majority of our stockholders. The interests of
Flowers could conflict with the interests of our other stockholders.

GOVERNMENTAL REGULATION COULD ADVERSELY IMPACT OUR OPERATIONS

Our operations and properties are subject to regulation by various federal,
state and local government entities and agencies. As a producer of food
products, our operations are subject to stringent production, packaging,
quality, labeling and distribution standards, including the Federal Food and
Drug Act. The operations of our 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. We believe that our current legal and environmental compliance programs
adequately address such concerns, and that we are in substantial compliance with
applicable laws and regulations. However, compliance with, or any violation of,
current and future laws or regulations could require us to make material
expenditures or

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<PAGE> 10

otherwise adversely affect our business or financial results. See
"Business -- Regulation;" for a further discussion of the environmental and
other regulations to which our operations and properties are subject.

INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD ADVERSELY
IMPACT OUR COMPETITIVE POSITION

We believe that our trademarks and other proprietary rights are important
to our success and our competitive position. Accordingly, we devote substantial
resources to the establishment and protection of our trademarks and proprietary
rights. However, our actions to establish and protect our trademarks and other
proprietary rights may be inadequate to prevent imitation of products by others
or to prevent others from claiming violations of their trademarks and
proprietary rights by us. See "Business -- Intellectual Property" for a further
discussion of the trademarks and proprietary rights used in our business.

FUTURE PRODUCT RECALLS OR LAWSUITS RELATING TO DEFECTIVE PRODUCTS COULD
ADVERSELY IMPACT OUR FINANCIAL RESULTS

We may be liable if the consumption of any of our products causes injury,
illness or death. We also may be required to recall certain of our products
should they become contaminated or be damaged. We are not aware of any material
product liability claim against us or possible product recall by us. However, a
product liability judgment against us or a product recall could have a material
adverse effect on our business or financial results.

CONSOLIDATION AMONG SUPERMARKET CHAINS COULD INCREASE THEIR ABILITY TO NEGOTIATE
MORE
FAVORABLE TERMS

The number of supermarket chains, our primary customers, has been reduced
in the last several years as supermarket chains have acquired each other. The
larger supermarket customers that have resulted from this consolidation may seek
more favorable terms for their purchases of our products. Although we have not
received requests for more favorable terms from these customers, we are aware of
other supermarket suppliers who have received such requests. Sales to our
supermarket customers on terms more favorable to such customers could have a
material adverse effect on our financial results.

THE TERMS OF OUR DEBT AGREEMENTS RESTRICT US FROM MAKING PAYMENTS WITH RESPECT
TO
OUR COMMON STOCK

Our ability to pay dividends on, or repurchase shares of, our common stock
is limited under the terms of our existing debt agreements. We do not currently
intend to pay any cash dividends.

FUTURE SALES OF UNREGISTERED SHARES COULD DEPRESS OUR STOCK PRICE

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

There will be 84,132,164 shares of common stock outstanding immediately
after this offering. Of these shares, 30,507,824 will be freely transferable
without restriction or further registration under the Securities Act of 1933,
except for any shares purchased by "affiliates" of Keebler, as defined in Rule
144 under the Securities Act. The remaining 53,624,340 shares of common stock
outstanding, including the 46,197,466 shares held by Flowers Industries, 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.

In connection with this offering, our executive officers and directors 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 60 days
after the date of this prospectus. In addition, Keebler and certain of its

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stockholders have agreed not to sell any shares of common stock without the
consent of Credit Suisse First Boston Corporation for 90 days after the date of
this prospectus. See "Underwriting" for a further discussion of such
restrictions and exceptions.

CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD MAKE
IT DIFFICULT FOR US TO BE ACQUIRED

Certain provisions of our 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. Our certificate of incorporation
allows us to issue preferred stock without stockholder approval. Such issuances
could make it more difficult for a third party to acquire Keebler.

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AVAILABLE INFORMATION

Keebler files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange 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.

Keebler has filed a registration statement on Form S-3 with the Commission.
This prospectus, which forms a part of that 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.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the Commission will automatically update and supersede the information in
this prospectus. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until the selling stockholders sell
all of the shares offered by this prospectus:

- Annual Report on Form 10-K for the fiscal year ended January 3, 1998;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended April 25,
1998, July 18, 1998 and October 10, 1998;
- Reports on Form 8-K filed August 25, 1998 and October 9, 1998, which was
amended on December 10, 1998; and
- the description of common stock contained in the Registration Statement
on Form 8-A filed on December 12, 1997 and amended on January 27, 1998.

You may request a copy of these filings at no cost, by writing or telephoning us
at the following address: Thomas E. O'Neill, Keebler Foods Company, 677 Larch
Avenue, Elmhurst, Illinois 60126, telephone number (630) 833-2900.

FORWARD-LOOKING STATEMENTS

Certain statements incorporated by reference or made in this prospectus are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to the safe harbor
provisions of the Reform Act. Such forward-looking statements include statements
about:

- the competitiveness of the cookie and cracker industry;
- the future availability and prices of raw materials;
- potential regulatory obligations;
- our strategies; and
- other statements 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

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<PAGE> 13

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:

- changes in general economic and business conditions (including in the
cookie and cracker industry);
- actions of competitors;
- our ability to recover material costs in the pricing of our products;
- the extent to which we are able to develop new products and markets for
our products;
- the time required for such development;
- the level of demand for such products;
- changes in our business strategies; and
- other factors discussed under "Risk Factors."

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following financial information is based on the historical financial
statements of Keebler and President during the periods presented, adjusted to
give effect to the President acquisition.

The unaudited pro forma consolidated financial information for the fiscal
year ended January 3, 1998, the forty weeks ended October 4, 1997 and October
10, 1998 gives effect to the President acquisition as if it had occurred on
December 29, 1996. The adjustments are described in the accompanying notes and
are based upon available information and certain assumptions that management
believes are reasonable. The President acquisition will be accounted for using
the purchase method of accounting. The total purchase consideration for the
acquisition of President was allocated to the tangible and intangible assets and
liabilities of President based on their estimated respective fair values. The
amount in excess of such fair values has been accounted for as goodwill. Our
allocation of the total purchase price assumed for preparation of the pro forma
financial statements below is preliminary, as we believe further refinement is
impractical to perform at this time. However, we do not expect the final
allocation of the purchase price to materially differ from the preliminary
allocation set forth herein.

The unaudited pro forma consolidated financial information does not purport
to represent what Keebler's results of operations would actually have been had
the President acquisition in fact occurred on December 29, 1996 or to project
Keebler's results of operations for any future period.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998

<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
KEEBLER PRESIDENT
FISCAL YEAR FISCAL YEAR
ENDED ENDED PRO FORMA PRO FORMA
JANUARY 3, 1998 DECEMBER 27, 1997 RECLASSIFICATIONS(A) ADJUSTMENTS PRO FORMA
--------------- ----------------- -------------------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales........................... $2,065.2 $441.1 $(4.8) $2,501.5
Costs and expenses:
Cost of sales..................... 888.0 276.3 (8.8) 1,155.5
Selling, marketing and
administrative expenses......... 1,026.3 123.9 5.0 $ 5.1(b) 1,160.3
Other............................. 9.5 11.9 (0.8) 2.1(c) 22.7
-------- ------ ----- ------ --------
Income from operations.............. 141.4 29.0 (0.2) (7.2) 163.0
Interest expense, net............. 33.8 13.9 (0.2) 9.1(d) 56.6
-------- ------ ----- ------ --------
Income before income tax expense.... 107.6 15.1 -- (16.3) 106.4
Income tax expense................ 45.2 8.1 -- (3.6)(e) 49.7
-------- ------ ----- ------ --------
Income before equity in net loss of
joint ventures.................... 62.4 7.0 -- (12.7) 56.7
Equity in net loss of joint
ventures........................ -- 3.1 -- (3.1)(f) --
-------- ------ ----- ------ --------
Income before extraordinary item.... 62.4 3.9 -- (9.6) 56.7
Extraordinary item:
Loss on early extinguishment of
debt, net of tax................ 5.4 -- -- 2.0(g) 7.4
-------- ------ ----- ------ --------
Net income.......................... $ 57.0 $ 3.9 $ -- $(11.6) $ 49.3
======== ====== ===== ====== ========
Basic net income per share:
Income before extraordinary
item............................ $ 0.80 $ 0.73
Extraordinary item................ 0.07 0.10
-------- --------
Net income........................ $ 0.73 $ 0.63
======== ========
Weighted average shares
outstanding....................... 77.6 77.6
======== ========
Diluted net income per share:
Income before extraordinary
item............................ $ 0.77 $ 0.70
Extraordinary item................ 0.07 0.09
-------- --------
Net income........................ $ 0.70 $ 0.61
======== ========
Weighted average shares
outstanding....................... 80.6 80.6
======== ========

OTHER DATA:
EBITDA, as adjusted(h).............. $ 202.1 $ 46.5 $(0.2) $ (2.1) $ 246.3
Depreciation and amortization....... 60.7 17.5 -- 5.1 83.3
Capital expenditures................ 48.4 4.9 -- -- 53.3
</TABLE>

11
<PAGE> 15

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FORTY WEEKS ENDED OCTOBER 4, 1997

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
KEEBLER PRESIDENT
FORTY WEEKS THIRTY-NINE
ENDED WEEKS ENDED PRO FORMA PRO FORMA
OCTOBER 4, 1997 SEPTEMBER 27, 1997 RECLASSIFICATIONS(A) ADJUSTMENTS PRO FORMA
--------------- ------------------ -------------------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $1,542.2 $350.8 $(3.7) $1,889.3
Costs and expenses:
Cost of sales.................... 668.5 217.8 (6.4) 879.9
Selling, marketing and
administrative expenses........ 770.5 96.0 2.8 $ 3.9(b) 873.2
Other............................ 7.1 9.8 0.2 1.7(c) 18.8
-------- ------ ----- ------ --------
Income from operations............. 96.1 27.2 (0.3) (5.6) 117.4
Interest expense, net............ 28.6 10.8 (0.3) 8.2(d) 47.3
-------- ------ ----- ------ --------
Income before income tax expense... 67.5 16.4 -- (13.8) 70.1
Income tax expense............... 28.4 8.1 -- (3.5)(e) 33.0
-------- ------ ----- ------ --------
Income before equity in net loss of
joint ventures................... 39.1 8.3 -- (10.3) 37.1
Equity in net loss of joint
ventures....................... -- 1.9 -- (1.9)(f)
-------- ------ ----- ------ --------
Income before extraordinary item... 39.1 6.4 -- (8.4) 37.1
Extraordinary item:
Loss on early extinguishment of
debt, net of tax............... 2.7 -- -- 2.0(g) 4.7
-------- ------ ----- ------ --------
Net income......................... $ 36.4 $ 6.4 $ -- $(10.4) $ 32.4
======== ====== ===== ====== ========
Basic net income per share:
Income before extraordinary
item........................... $ 0.50 $ 0.48
Extraordinary item............... 0.04 0.06
-------- --------
Net income....................... $ 0.46 $ 0.42
======== ========
Weighted average shares
outstanding...................... 77.6 77.6
======== ========
Diluted net income per share:
Income before extraordinary
item........................... $ 0.49 $ 0.46
Extraordinary item............... 0.04 0.06
-------- --------
Net income....................... $ 0.45 $ 0.40
======== ========
Weighted average shares
outstanding...................... 80.1 80.1
======== ========

OTHER DATA:
EBITDA, as adjusted(h)............. $ 141.6 $ 41.3 $(0.3) $ (1.7) $ 180.9
Depreciation and amortization...... 45.5 14.1 -- 3.9 63.5
Capital expenditures............... 26.1 3.1 -- -- 29.2
</TABLE>

12
<PAGE> 16

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FORTY WEEKS ENDED OCTOBER 10, 1998

<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
KEEBLER PRESIDENT
FORTY WEEKS THIRTY-NINE
ENDED WEEKS ENDED PRO FORMA PRO FORMA
OCTOBER 10, 1998 SEPTEMBER 26, 1998 RECLASSIFICATIONS(A) ADJUSTMENTS PRO FORMA
---------------- ------------------ -------------------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................... $1,626.7 $360.8 $(3.8) $1,983.7
Costs and expenses:
Cost of sales................... 678.3 218.8 (5.2) 891.9
Selling, marketing and
administrative expenses....... 816.7 102.2 1.8 $ 3.9(b) 924.6
Other........................... 7.1 6.4 (0.1) 1.7(c) 15.1
-------- ------ ----- ------ --------
Income from operations............ 124.6 33.4 (0.3) (5.6) 152.1
Gain on sale of the joint
ventures...................... -- 7.7 -- -- 7.7
Interest expense, net........... 17.0 9.2 (0.3) 8.5(d) 34.4
-------- ------ ----- ------ --------
Income before income tax
expense......................... 107.6 31.9 -- (14.1) 125.4
Income tax expense.............. 45.2 10.2 -- (0.6)(e) 54.8
-------- ------ ----- ------ --------
Income before equity in net loss
of joint ventures............... 62.4 21.7 -- (13.5) 70.6
Equity in net loss of joint
ventures...................... -- 2.2 -- (2.2)(f) --
-------- ------ ----- ------ --------
Income before extraordinary
item............................ 62.4 19.5 -- (11.3) 70.6
Extraordinary item:
Loss on early extinguishment of
debt, net of tax.............. 1.7 0.7 -- (0.4)(g) 2.0
-------- ------ ----- ------ --------
Net income........................ $ 60.7 $ 18.8 $ -- $(10.9) $ 68.6
======== ====== ===== ====== ========

Basic net income per share:
Income before extraordinary
item.......................... $ 0.75 $ 0.85
Extraordinary item.............. 0.02 0.02
-------- --------
Net income...................... $ 0.73 $ 0.83
======== ========
Weighted average shares
outstanding..................... 83.1 83.1
======== ========
Diluted net income per share:
Income before extraordinary
item.......................... $ 0.71 $ 0.81
Extraordinary item.............. 0.02 0.02
-------- --------
Net income...................... $ 0.69 $ 0.79
======== ========
Weighted average shares
outstanding..................... 87.4 87.4
======== ========

OTHER DATA:
EBITDA, as adjusted(h)............ $ 171.1 $ 44.4 $(0.3) $ (1.7) $ 213.5
Depreciation and amortization..... 46.5 11.0 -- 3.9 61.4
Capital expenditures.............. 36.0 6.2 -- -- 42.2
</TABLE>

13
<PAGE> 17

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

(a) Pro forma reclassifications to conform President's consolidated results
of operations with the Keebler basis of presentation. The more significant
adjustments include the reclassification of warehousing and shipping expenses
from cost of sales to selling, marketing and administrative expenses and the
reclassification of cash discounts and sales returns from selling, marketing and
administrative expenses to net sales.

(b) Additional depreciation resulting from the preliminary valuation of
President property, plant and equipment.

<TABLE>
<CAPTION>
FISCAL YEAR FORTY WEEKS FORTY WEEKS
ENDED ENDED ENDED
JANUARY 3, OCTOBER 4, OCTOBER 10,
1998 1997 1998
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Additional goodwill amortization expense associated with
the President acquisition over a forty year life....... $1.3 $1.1 $1.1
Amortization of costs associated with the President
acquisition over a five year life...................... 0.8 0.6 0.6
---- ---- ----
$2.1 $1.7 $1.7
==== ==== ====
</TABLE>

(d) The following adjustments to net interest expense reflect the
additional borrowings associated with the President acquisition:

<TABLE>
<CAPTION>
FISCAL YEAR FORTY WEEKS FORTY WEEKS
ENDED ENDED ENDED
JANUARY 3, OCTOBER 4, OCTOBER 10,
1998 1997 1998
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Elimination of President's historical interest expense.... $(12.9) $(9.7) $(8.3)
Additional interest expense related to the New Credit
Facilities............................................. 22.3 18.2 17.1
Eliminate Keebler's amortization of debt issuance costs
related to debt extinguished as part of the
acquisition............................................ (0.6) (0.5) (0.5)
Amortization of new debt issuance costs................... 0.3 0.2 0.2
------ ----- -----
$ 9.1 $ 8.2 $ 8.5
====== ===== =====
</TABLE>

(e) The pro forma adjustment to income tax expense assumes a combined
effective tax rate of 46.7% for the year ended January 3, 1998, 47.1% for the
forty weeks ended October 4, 1997 and 43.7% for the forty weeks ended October
10, 1998 .

(f) Elimination of the equity in net loss of joint ventures, which were
sold by President prior to the acquisition of President by Keebler.

(g) Reflects a net increase (decrease) in the extraordinary item due to:

<TABLE>
<CAPTION>
FISCAL YEAR FORTY WEEKS FORTY WEEKS
ENDED ENDED ENDED
JANUARY 3, OCTOBER 4, OCTOBER 10,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Elimination of the President extraordinary item
associated with writing off unamortized debt issuance
costs................................................. $ -- $ -- $(0.7)
Write off Keebler debt issuance costs related to debt
extinguished as part of the acquisition, net of income
taxes................................................. 2.0 2.0 0.3
---- ---- -----
$2.0 $2.0 $(0.4)
==== ==== =====
</TABLE>

14
<PAGE> 18

(h) EBITDA, as adjusted, is defined as income from operations before
interest, taxes, depreciation, amortization and restructuring charges. EBITDA,
as adjusted, is presented as additional information because we believe 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.

15
<PAGE> 19

SELECTED HISTORICAL FINANCIAL DATA

The financial data presented below as of and for the fiscal years ended
January 1, 1994, December 31, 1994, December 30, 1995, December 28, 1996 and
January 3, 1998 have been derived from the consolidated financial statements of
Keebler and the Predecessor Company incorporated by reference into this
prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
public accountants. The financial data of Keebler as of and for the forty weeks
ended October 4, 1997 and October 10, 1998 have been derived from unaudited
financial statements of Keebler incorporated by reference into this prospectus
and, in our opinion, 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
incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------
FOUR
YEAR ENDED WEEKS
---------------------------------------- ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26,
1994 1994 1995 1996
---------- ------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................... $1,650.1 $1,599.7 $1,578.6 $101.7
Costs and expenses:
Cost of sales.............................. 718.6 705.5 746.8 54.9
Selling, marketing and administrative
expenses................................. 878.9 845.7 884.6 71.4
Restructuring charges...................... 120.1 -- -- --
Loss on impairment of Salty Snacks
business................................. -- -- 86.5 --
Other...................................... 0.1 2.1 (1.4) 0.9
-------- -------- -------- ------
Income (loss) from continuing operations..... (67.6) 46.4 (137.9) (25.5)
Interest expense (income), net............... 81.6 74.4 28.3 (0.1)
-------- -------- -------- ------
Income (loss) from continuing operations
before income taxes........................ (149.2) (28.0) (166.2) (25.4)
Income tax expense (benefit)................. (22.3) (1.1) (0.5) --
-------- -------- -------- ------
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes............... (126.9) (26.9) (165.7) (25.4)
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)
Extraordinary item:
Loss on early extinguishment of debt, net
of tax................................... -- -- -- --
-------- -------- -------- ------
Income (loss) before cumulative effect of
accounting changes......................... (126.3) (23.5) (158.3) (6.5)
Cumulative effect of accounting changes,
net of tax............................... (20.9) 0.5 -- --
-------- -------- -------- ------
Net income (loss)............................ $ (147.2) $ (23.0) $ (158.3) $ (6.5)
======== ======== ======== ======
Diluted net income (loss) per share.......... -- -- -- --
Weighted average shares outstanding.......... -- -- -- --

OTHER DATA:
EBITDA, as adjusted(c)....................... $ 98.4 $ 89.5 $ (93.3) $(23.5)
Depreciation and amortization (excluding
items related to discontinued
operations)................................ 45.9 43.1 44.6 2.0
Capital expenditures (excluding expenditures
related to discontinued operations)........ 30.6 54.6 54.2 3.2

CASH FLOW DATA:
Cash provided from (used by)
Operating activities....................... $ 22.0 $ (17.4) $ (61.4) $ (0.4)
Investing activities....................... (92.1) (45.9) (52.6) 65.2
Financing activities....................... 58.3 69.4 104.4 (65.7)
-------- -------- -------- ------
Increase (decrease) in cash and cash
equivalents................................ $ (11.8) $ 6.1 $ (9.6) $ (0.9)
======== ======== ======== ======

<CAPTION>
KEEBLER
----------------------------------------------------
FORTY-EIGHT FORTY FORTY
WEEKS YEAR WEEKS WEEKS
ENDED ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, OCTOBER 4, OCTOBER 10,
1996(A) 1998 1997 1998(B)
------------ ---------- ---------- -----------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................... $1,645.5 $2,065.2 $1,542.2 $1,626.7
Costs and expenses:
Cost of sales.............................. 774.2 888.0 668.5 678.3
Selling, marketing and administrative
expenses................................. 794.8 1,026.3 770.5 816.7
Restructuring charges...................... -- -- -- --
Loss on impairment of Salty Snacks
business................................. -- -- -- --
Other...................................... 6.4 9.5 7.1 7.1
-------- -------- -------- --------
Income (loss) from continuing operations..... 70.1 141.4 96.1 124.6
Interest expense (income), net............... 38.4 33.8 28.6 17.0
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes........................ 31.7 107.6 67.5 107.6
Income tax expense (benefit)................. 14.0 45.2 28.4 45.2
-------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes............... 17.7 62.4 39.1 62.4
Discontinued operations:
Income from operations of discontinued
Frozen Food businesses, net of tax....... -- -- -- --
Gain on disposal of Frozen Food businesses,
net of tax............................... -- -- -- --
-------- -------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting changes.... 17.7 62.4 39.1 62.4
Extraordinary item:
Loss on early extinguishment of debt, net
of tax................................... 1.9 5.4 2.7 1.7
-------- -------- -------- --------
Income (loss) before cumulative effect of
accounting changes......................... 15.8 57.0 36.4 60.7
Cumulative effect of accounting changes,
net of tax............................... -- -- -- --
-------- -------- -------- --------
Net income (loss)............................ $ 15.8 $ 57.0 $ 36.4 $ 60.7
======== ======== ======== ========
Diluted net income (loss) per share.......... $ 0.21 $ 0.70 $ 0.45 $ 0.69
======== ======== ======== ========
Weighted average shares outstanding.......... 76.1 80.6 80.1 87.4
======== ======== ======== ========
OTHER DATA:
EBITDA, as adjusted(c)....................... $ 119.6 $ 202.1 $ 141.6 $ 171.1
Depreciation and amortization (excluding
items related to discontinued
operations)................................ 49.5 60.7 45.5 46.5
Capital expenditures (excluding expenditures
related to discontinued operations)........ 29.4 48.4 26.1 36.0
CASH FLOW DATA:
Cash provided from (used by)
Operating activities....................... $ 53.2 $ 218.3 $ 128.1 $ 103.4
Investing activities....................... (130.1) (41.5) (20.8) (480.1)
Financing activities....................... 86.8 (161.6) (58.2) 367.2
-------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................ $ 9.9 $ 15.2 $ 49.1 $ (9.5)
======== ======== ======== ========
</TABLE>

16
<PAGE> 20
<TABLE>
<CAPTION>
AS OF
-------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26,
1994 1994 1995 1996
---------- ------------ ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 6.4 $ 12.5 $ 3.0 $ 2.1
Total assets............................... 1,043.0 1,001.2 926.9 849.1
Due to affiliate........................... 872.7 551.6 108.0 105.0
Total debt................................. 263.8 333.2 437.6 371.4
Shareholders' equity (deficit)............. (511.9) (234.9) 51.8 45.3

<CAPTION>
AS OF
------------------------------------------------------
DECEMBER 28, JANUARY 3, OCTOBER 4, OCTOBER 10,
1996 1998 1997 1998
------------ ---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 12.0 $ 27.2 $ 61.1 $ 17.7
Total assets............................... 1,102.1 1,042.9 1,116.1 1,633.6
Due to affiliate........................... -- -- -- --
Total debt................................. 457.9 298.8 401.8 654.7
Shareholders' equity (deficit)............. 165.1 222.0 201.5 297.4
</TABLE>

- ---------------
(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) Excludes President's results of operations for the thirteen days in the
period following the acquisition date of September 28, 1998. President's
balance sheet data as of October 10, 1998 are included in the balance sheet
data as of such date.

(c) EBITDA, as adjusted, is defined as income (loss) from continuing operations
before interest, taxes, depreciation, amortization and restructuring
charges. EBITDA, as adjusted, is presented as additional information because
we believe 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.

17
<PAGE> 21

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

OVERVIEW

General

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

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

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

We are in the process of integrating President into our operations. In
connection with this integration, we are currently undertaking a complete
analysis of our system-wide manufacturing and distribution operations as we
assess opportunities to improve our operational efficiencies in 1999 and beyond.
We currently anticipate that we will take a restructuring charge during 1999
when our analysis and related plans are finalized.

Matters Affecting Comparability

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 year ended
December 28, 1996 include the operating results of Sunshine from its acquisition
date of June 4, 1996. Keebler's operating results for the forty weeks ended
October 10, 1998 exclude the operating results of President for the thirteen
days in the period following its acquisition date of September 28, 1998. Such
results will be included in Keebler's results for the year ending January 2,
1999. The operating results of Keebler have been restated to reflect the merger
with INFLO Holdings Corporation as if it had been effective January 26, 1996.

For the year ended 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

18
<PAGE> 22

Snacks business, excluding allocations of the fixed portions of selling,
distribution and general administrative expenses, for that year were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30, 1995
-----------------
(IN MILLIONS)
<S> <C>
Net sales.................................... $135.7
Loss from continuing operations.............. (25.6)
</TABLE>

For the year ended 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 results of operations, expressed as a percentage of net sales,
for the last three years ended December 30, 1995, December 28, 1996 and January
3, 1998 and the forty week periods ended October 4, 1997 and October 10, 1998
are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED FORTY WEEKS ENDED
---------------------------------------- ------------------------
DECEMBER 30, DECEMBER 28, JANUARY 3, OCTOBER 4, OCTOBER 10,
1995 1996 1998 1997 1998
------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.......................... 47.3 47.5 43.0 43.3 41.7
Selling, marketing and administrative
expenses............................ 56.0 49.6 49.7 50.0 50.2
Loss on impairment of Salty Snacks
business............................ 5.5 -- -- -- --
Other.................................. (0.1) 0.4 0.5 0.5 0.4
------ ------ ----- ------ -----
Income (loss) from continuing
operations............................. (8.7) 2.5 6.8 6.2 7.7
Interest expense, net.................. 1.8 2.2 1.6 1.8 1.1
------ ------ ----- ------ -----
Income (loss) from continuing operations
before income taxes.................... (10.5) 0.3 5.2 4.4 6.6
Income tax expense..................... -- 0.8 2.2 1.8 2.8
------ ------ ----- ------ -----
Income (loss) from continuing operations
before extraordinary item and
cumulative effect of accounting
changes................................ (10.5) (0.5) 3.0 2.6 3.8
Discontinued operations:
Income from operations of Frozen Food
businesses, net of tax.............. 0.5 -- -- -- --
Gain on disposal of Frozen Food
businesses, net of tax.............. -- 1.1 -- -- --
------ ------ ----- ------ -----
Income (loss) before extraordinary item
and cumulative effect of accounting
changes................................ (10.0) 0.6 3.0 2.6 3.8
Extraordinary item:
Loss on early extinguishment of debt,
net of tax.......................... -- 0.1 0.3 0.2 0.1
------ ------ ----- ------ -----
Net income (loss)........................ (10.0)% 0.5% 2.7% 2.4% 3.7%
====== ====== ===== ====== =====
</TABLE>

COMPARISON OF FIRST FORTY WEEKS OF 1998 TO 1997

Net Sales. For the forty weeks ended October 10, 1998, net sales of
$1,626.7 million were $84.5 million or 5.5% above the same period of the prior
year. Selected price increases combined with a favorable sales mix and volume
growth generated the increased revenue for the period. Sales of branded
products, including new products and line extensions of existing brands,
combined with wider distribution in nonsupermarket channels drove the volume
gains.

19
<PAGE> 23

Gross Profit. Gross profit improvements were realized on a year-to-date
basis, with gross profit of $948.4 million, up $74.7 million from the same
period in 1997, or 1.6 percentage points as a percentage of net sales. Lower
production costs combined with the impact of price increases resulted in the
gross profit margin improvements when compared to the comparable period of a
year ago. Productivity and cost savings have been principally secured through
capital investment in bakery automation projects.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses of $816.7 million for the forty weeks ended October 10,
1998 were $46.3 million higher than the comparable period in 1997. Higher
marketing and sales force expenses, offset partially by lower distribution
costs, primarily drove the increased spending for the forty week period. Higher
marketing expenses resulted from Keebler's continued focus on brand-building
advertising and consumer promotions, while improved inventory handling and
deployment accounted for a decline in distribution costs. For the forty weeks
ended October 10, 1998, selling, marketing and administrative expenses, as a
percentage of net sales, were 0.2 percentage points above the comparable prior
year period primarily due to increased marketing expenses.

Income (Loss) from Continuing Operations. Income from continuing operations
was $28.5 million higher in the forty week period ended October 10, 1998 versus
the same period in 1997. The growth in operating income for the period was
principally attributable to higher revenues combined with productivity and cost
savings attained from a more efficient cost structure. Results, however, were
partially offset by higher selling, marketing and administrative expenses.

Interest Expense. Net interest expense was $11.6 million lower for the
forty weeks ended October 10, 1998. The decline in net interest expense was
primarily attributable to more favorable interest rates in 1998 and up until
September 28, 1998, lower outstanding debt balances. Additional debt of $385.0
million was incurred on September 28, 1998 to finance the President acquisition.
Also contributing to the lower interest expense was a lower average debt balance
resulting from debt repayments consisting of $70.0 million of principal
pre-payments on term notes and a $29.0 million early extinguishment of a seller
note in the fourth quarter of 1997, as well as from the extinguishment of the
$145.0 million outstanding term note balance in September 1998. The weighted
average interest rate was 0.7 percentage points lower for the forty weeks ended
October 10, 1998 compared to the same period a year ago.

Income Taxes. Income tax expense of $45.2 million for the forty weeks ended
October 10, 1998 was $16.8 million higher than the same period a year ago. The
increase in income tax expense was primarily due to higher pre-tax earnings.
Keebler provided for income taxes 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, trade names and goodwill.

Extraordinary Item Net of Income Taxes. In both 1998 and 1997, Keebler
recorded extraordinary charges for the write-off of unamortized bank fees
associated with the early extinguishment of debt. The debt extinguishment in the
forty week period ended October 10, 1998 was for the $145.0 million payoff of
the outstanding term note balance in conjunction with the $825.0 million of new
credit facilities entered into in connection with the President acquisition. The
after-tax extraordinary charge recorded was $1.7 million in the forty week
period ended October 10, 1998 and $2.7 million in the comparable period in 1997.
Related tax benefits for the forty week period ended October 10, 1998 and the
comparable period in 1997 were $1.1 million and $1.9 million, respectively.

Net Income (Loss). Net income for the forty week period ended October 10,
1998 of $60.7 million was $24.3 million higher than the prior year comparable
period. Increased net earnings were the result of revenue growth achieved
through both higher prices and sales mix changes, combined with lower operating
expenses achieved from cost savings programs and lower interest expense.

COMPARISON OF FISCAL 1997 TO 1996

Net Sales. Net sales of $2,065.2 million in 1997 were $318.0 million, or
18.2%, higher than net sales of $1,747.2 million in 1996. The growth in net
sales for 1997 was achieved through incremental sales from both the Sunshine
acquisition and increased volumes. Sunshine results for 1996 were only included
from

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<PAGE> 24

the acquisition date of June 4, 1996. In 1996, net sales of Sunshine for the
twenty-two weeks ended June 4, 1996 were $229.8 million. Sunshine net sales, in
a full year-on-year comparison, were 27.3% and 29.6% of total Keebler net sales
in 1997 and 1996, respectively. In addition to the incremental revenue
associated with the Sunshine acquisition, increased volumes in 1997 provided
4.5% growth in net sales over the prior year. The volume growth was achieved
through emphasis on more profitable cookie and cracker products, while
discontinuing or repositioning less strategic products, and the introduction of
new products and line extensions.

Gross Profit. Gross profit in 1997 of $1,177.2 million was $259.0 million
higher than the prior year and 4.5 percentage points better as a percent of net
sales. The increase in gross profit in 1997 was due to higher sales, lower
commodity and package material prices and the implementation of cost reduction
and productivity programs. Of the total improvement, approximately 64.5% was
attributed to incremental sales associated with both the Sunshine acquisition
and increased volume. The balance of the improvement was achieved mainly through
further automation of the manufacturing facilities and higher capacity
utilization attributed to streamlining the manufacturing facilities. The shift
toward higher margin brands benefited gross profit by $11.8 million compared to
the prior year. Also contributing to the increase in gross profit in 1997 were
lower prices paid for raw materials, particularly for flour and soybean oil, and
lower prices paid for package materials, primarily for carton, corrugated
cardboard and flexible film.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses for 1997 of $1,026.2 million, or 49.7% of net sales,
increased $160.0 million from 1996, but remained relatively stable as a percent
of net sales. Spending rose in 1997 due to both the impact of higher sales and
increased marketing expense. The impact of higher sales contributed $126.9
million to the increase in selling, marketing and administrative expenses.
Marketing expense represented 23.8% of net sales in 1997 compared to 22.2% in
1996. The higher spending rate in 1997 was due to increased brand-building
national advertising and consumer promotions which were up $29.2 million over
the prior year. The increased spending as a result of these factors, along with
inflation, was offset by the impact of higher volumes in a more efficient,
relatively fixed cost, selling and distribution network. Therefore, selling,
marketing and administrative expenses as a percent of net sales remained
comparable to the prior year.

Other. Other expense for 1997 was $2.3 million, or 32.0%, higher than 1996
primarily due to higher bank fees and amortization of intangibles. Bank fees in
1997 were higher than the prior year due to several amendments to Keebler's
financing agreement. Other expenses for 1997 included a full year of
amortization of trademarks and goodwill recorded as part of the Sunshine
acquisition compared to only twenty-eight weeks in 1996.

Income (Loss) From Continuing Operations. Income from continuing operations
of $141.4 million was $96.7 million higher than 1996. The improvement was
attributed to a 18.2% increase in net sales driven by volume growth compounded
by enhanced gross margins resulting from a more profitable mix, cost reductions
and improved productivity. Total benefits realized more than offset incremental
marketing and amortization expense.

Interest Expense. Interest expense of $33.8 million for 1997 was $4.5
million lower than in 1996, primarily due to a lower average debt balance in
1997. The decrease in the average debt balance was the result of principal
pre-payments of $113.8 million on term notes and a $29.0 million pre-payment of
a seller note. In addition, the weighted average interest rate for 1997 was 0.28
percentage points lower than the 1996 weighted average rate.

Income Taxes. Income taxes for the year 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, trade names and goodwill. In 1996, the effective tax rate for the
forty-eight weeks ended December 28, 1996 was 44.2% and was higher than the 1997
rate due to a preliminary estimate of nondeductible expenses. Income tax expense
was not provided for during the first four weeks of 1996. 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. Keebler carried a deferred tax valuation
allowance of $84.4 million at January 3, 1998 and

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<PAGE> 25

December 28, 1996 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. 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 on
the disposal of the Frozen Food businesses.

Extraordinary Item Net of Income Taxes. In 1997 and 1996, Keebler recorded
extraordinary charges net of tax of $5.4 million and $1.9 million, respectively.
In 1997, $3.8 million of the extraordinary charges, net of tax, related to the
write-off of debt issuance costs associated with the early retirement of the
term notes. An additional $1.6 million net of tax extraordinary charge was
recorded due to a loss on the early extinguishment of a seller note entered into
at the time of the Keebler acquisition. In 1996, the $1.9 million extraordinary
charge, net of tax, related to the write-off of debt issuance costs associated
with the $125.0 million early extinguishment of increasing rate notes.

Net Income (Loss). Net income of $57.0 million in 1997 was $47.7 million
higher than net income of $9.3 million for 1996. The substantial growth in net
income was the result of increased volume, the inclusion of the Sunshine
business for the entire year, improved gross margins and savings achieved by
leveraging the fixed cost structure of the sales and distribution network.

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 branded 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

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<PAGE> 26

through a targeted marketing plan behind Keebler branded 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 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, trade names, 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, trade names 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

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<PAGE> 27

write-off of unamortized bank fees incurred when Keebler replaced the Keebler
acquisition bridge loan with the $125.0 million of 10 3/4% Senior Subordinated
Notes. The tax benefit on the extraordinary loss was $1.3 million resulting in
an after-tax loss of $1.9 million.

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.

LIQUIDITY AND CAPITAL RESOURCES

A condensed cash flow statement of Keebler follows:

<TABLE>
<CAPTION>
FORTY
YEAR ENDED WEEKS ENDED
-------------------------- -----------
DECEMBER 28, JANUARY 3, OCTOBER 10,
1996 1998 1998
------------ ---------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
CASH PROVIDED FROM (USED BY)
Operating activities.................................. $ 52.8 $ 218.3 $ 103.4
Investing activities.................................. (64.9) (41.5) (480.1)
Financing activities.................................. 21.1 (161.6) 367.2
------ ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ 9.0 $ 15.2 $ (9.5)
====== ======= =======
</TABLE>

Cash Flow for the Forty Weeks Ended October 10, 1998

During the first forty weeks of 1998, cash provided from operating
activities was $103.4 million. Year-to-date net earnings of $60.7 million,
together with higher current liabilities and income taxes payable than those at
the end of the comparable period in 1997, drove the favorable cash flow. The
timing of payments principally drove the increased current liabilities while the
higher income taxes payable resulted from a 59.4% increase in pre-tax earnings
over the prior year. An increased investment in trade accounts receivable and
inventories compared to the levels at the end of the corresponding period in
1997 combined with spending on plant and facility closing costs and severance
partially offset the above cash sources. The increase in inventory reflected
normal seasonal inventory replenishment as the holiday season approaches.
Spending for plant and facility costs and severance of $5.3 million related to
exit costs associated with the Keebler and Sunshine acquisitions. Spending on
plant and facility closing costs and severance associated with these
acquisitions is expected to conclude by the end of 1998, with the exception of
noncancellable lease obligations which are expected to continue until 2004.

Cash used for investing activities was $480.1 million for the period and
was directly attributable to the $444.8 million, net of cash acquired, used to
consummate the President acquisition. In addition, $36.0 million was used for
capital expenditures made to introduce new products, update and enhance
production facilities and achieve near-term cost savings and efficiencies in the
manufacturing, sales and distribution process.

Financing activities for the first forty weeks of 1998 provided $367.2
million of cash, principally from proceeds of long-term debt borrowings under
$825.0 million of new credit facilities. In order to finance the President
acquisition, total debt of $530.0 million was incurred under these new credit
facilities. In addition, cash proceeds totaling $19.8 million were received by
Keebler as a result of Bermore exercising a warrant in exchange for 6,135,781
shares of common stock at the time of Keebler's initial public offering.
Employee stock options exercised during the year also provided another $0.5
million of cash. Partially offsetting these cash sources was the $145.0 million
pre-payment of the outstanding term note balance and a $20.0 million repayment
on the revolving facility. Additionally, $5.7 million was used to repurchase
common stock into treasury under the stock repurchase program.

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<PAGE> 28

As of October 10, 1998, cash and cash equivalents were $17.7 million,
long-term debt outstanding was $551.4 million and current maturities were $103.3
million. Available borrowings under the revolving facility under our new credit
facilities were $350.0 million of which $85.0 million was outstanding as of
October 10, 1998. We met all financial covenants contained in our financing
agreements. We expect available cash, as well as existing credit facilities, to
be sufficient to meet our normal operating requirements for the foreseeable
future.

Cash Flow for 1997 and 1996

Cash provided from operating activities was $218.3 million in 1997 which
was an increase of $165.5 million over the cash provided from operations in
1996. The primary contributors to the positive cash flow for 1997 were net
earnings of $57.0 million, a lower investment in trade accounts receivable and
reduced funding of current liabilities and income taxes. Improved accounts
receivable collection procedures provided $38.2 million of working capital. The
reduced funding of current liabilities was attributable primarily to the timing
of payments, while the increase in income taxes payable was attributable to a
$47.7 million increase in earnings from 1996. Partially offsetting these
benefits was spending on plant and facility closing costs and severance and the
payment of an arbitration award. Spending on plant and facility closing costs
and severance relating to exit costs associated with the Keebler and Sunshine
acquisitions, although down from 1996, accounted for $13.7 million of cash used
by operations for the year ended January 3, 1998. Spending on plant and facility
closing costs and severance associated with these acquisitions is expected to
conclude by the end of 1998, with the exception of noncancellable lease
obligations which are expected to continue until 2004. In addition, we paid an
arbitration award in 1997 regarding a contract production arrangement which was
entered into by the Predecessor Company in the amount of $6.8 million plus legal
fees.

Cash used by investing activities was $41.5 million in 1997 compared to
$64.9 million in 1996. The cash used in 1997 was primarily used to fund capital
expenditures. Capital expenditures were $48.4 million and $32.6 million in 1997
and 1996, respectively. In 1997, capital spending was made principally to
enhance, update or realign the existing production lines, provide distribution
and production efficiencies and to achieve near-term cost savings. Proceeds
received from asset disposals of $7.0 million partially offset capital
expenditures. The sale of the Santa Fe Springs plant in 1997 accounted for $3.6
million of the proceeds with the remainder provided mainly from the sale of
trucks and machinery and equipment. We believe that the capital expenditure
program will continue at a level sufficient to support our strategies and
operating needs.

Cash used by financing activities in 1997 was $161.6 million. In 1997, we
entered into an amendment and restatement of our prior senior credit facility,
proceeds from which were used to extinguish existing term loans of $153.6
million. The extinguishment was funded primarily by a draw down on a revolving
loan facility and $109.8 million under a new term loan. During 1997, the draw
down on the revolving loan facility was completely repaid. Additionally, in the
fourth quarter of 1997, we extinguished $29.0 million of debt related to a
seller note and made $70.0 million in principal prepayments on the term loan
using existing cash resources. Scheduled principal payments of $18.7 million
were made during the year on the term loan and other debt.

Liquidity

Keebler's liquidity prior to the President acquisition in 1998 and during
1997 was provided primarily from a senior credit facility. Subsequent to the
President acquisition, our liquidity has been provided primarily from $825.0
million of new credit facilities. Our new credit facilities consist of a $350.0
million revolving facility, a $350.0 million term facility and an additional
$125.0 million short-term loan, which we anticipate will be refinanced with a
receivables facility. Any unused borrowings under the revolving facility are
subject to a commitment fee. Keebler's total debt was $457.9 million, $298.8
million and $654.7 million as of December 28, 1996, January 3, 1998 and October
10, 1998, respectively. Current maturities on the total debt outstanding were
$18.6 million, $26.4 million and $103.3 million as of such respective dates.
Cash and cash equivalents were $12.0 million, $27.2 million and $17.7 million as
of such

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<PAGE> 29

respective dates. Upon consummation of the President acquisition, we borrowed
$530.0 million under our new credit facilities and used the proceeds to finance
the acquisition and repay $145.0 million of term notes outstanding under our
prior senior credit facility. On November 10, 1997, we made a $40.0 million
prepayment, and on December 8, 1997, we made a $30.0 million prepayment, of
principal on outstanding term notes under our prior senior credit facility. The
prepayments were funded from available cash and resulted in the recognition of
an aggregate fourth quarter 1997 after-tax extraordinary charge of $1.1 million
resulting from the loss on the early extinguishment of this debt. On November
21, 1997, we purchased a seller note for $31.7 million and cancelled it. The
purchase and cancellation of the seller note resulted in the recognition of a
fourth quarter 1997 after-tax extraordinary charge of $1.6 million resulting
from the loss on the early extinguishment of this debt. We believe that
available cash as well as amounts available under our new credit facilities will
be sufficient to meet normal operating requirements for the foreseeable future.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The new statement establishes accounting
and reporting standards for derivative instruments and hedging activities. The
statement requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and that the instruments be
measured at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. We have not yet determined the impact the new statement may have on
our consolidated financial statements.

Year 2000 Issues

The Year 2000 issues arose because many existing computer programs use only
the last two digits to refer to a year. As a result, computer programs may not
properly recognize a year that begins with "20" instead of the familiar "19." If
not corrected, many businesses are at risk for possible computer application
miscalculations or systems failures causing disruptions in business operations.
These risks are commonly referred to as the "Y2K issues".

We utilize software and related technologies that will be affected by the
date change in the year 2000. We have completed a comprehensive review of our
computer systems and non-information technology systems to identify potential
Y2K issues. Since we have implemented the SAP R/3 management information system
and Manugistics software, both of which were developed/purchased as Y2K
compliant, we do not anticipate that the impact of the Y2K issues on our
business will be material. Additionally, secondary information systems, which
are not material to our ability to forecast, manufacture or deliver product,
have been reviewed and Y2K issues identified. We are currently in the process of
correcting or upgrading these systems. We intend to be Y2K compliant on all
critical systems by the end of the first quarter of 1999.

We have undertaken to verify that all of our material vendors and suppliers
will be Y2K compliant. Specifically, we have sent a comprehensive questionnaire
to all of our significant suppliers and vendors regarding their Y2K compliance
in an attempt to identify any problem areas with respect to these groups. As no
specific issues related to third parties have been identified to warrant a
contingency plan, we have not developed a plan to deal with a Y2K failure caused
by a third party, but we intend to do so if a specific problem is identified
through the questionnaires. While we cannot assure you that third parties will
convert their systems in a timely manner and in a way compatible with our
systems, we believe that our actions with third parties detailed above minimize
these risks.

We currently estimate that the incremental costs for making Keebler Y2K
compliant are approximately $2.0 - $3.0 million, expensed as incurred. This
estimate is exclusive of Y2K issues regarding the President acquisition. We are
currently conducting a comprehensive review of President's computer systems and
non-information technology systems to identify potential Y2K issues for this
newly-acquired

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<PAGE> 30

subsidiary. Many of the Y2K risks at President will be mitigated through our
implementation at the President facilities of the SAP R/3 management information
system, Manugistics software and our warehouse management system. We expect this
implementation to be completed during 1999.

Based on the progress we have made in addressing our Y2K issues and our
compliance with the Y2K issues on our primary business information systems, we
do not foresee significant risks associated with our Y2K compliance at this
time. As our plan is to address any significant risks associated with our Y2K
issues prior to being affected by them, a comprehensive contingency plan has not
been developed. However, if a significant risk related our Y2K compliance or a
delay in the anticipated timeline for compliance occurs, we will develop
contingency plans as deemed necessary at that time.

The information presented above sets forth the steps that we have taken to
address the Y2K issues. We do not expect compliance with Y2K issues or the most
reasonably likely worst case scenario and related contingency plan to have a
material impact on our business, results of operations or financial condition.

The above discussion of our efforts and expectations relating to Y2K
compliance is forward-looking. You are cautioned that forward-looking statements
contained in this discussion should be read in conjunction with our disclosure
under the heading "Forward-Looking Statements".

SEASONALITY

Our 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. President's net sales, net income and cash flow
historically have been higher in the first quarter than in any other fiscal
quarter because substantially all sales of Girl Scout cookies have occurred in
that quarter. For this reason, going forward, we expect to realize
proportionately higher net sales, net income and cash flows during the first
quarter of our fiscal year than we historically have experienced.

SELF INSURANCE

We purchase insurance coverage for workers' 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
our 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> 31

BUSINESS

KEEBLER

Unless stated otherwise, market share data included in this prospectus are
based on supermarket, mass merchandiser and drug store sales, measured in
pounds, for the fifty-two week period ended November 8, 1998 as reported by
Information Resources, Inc. ("IRI"). In those instances where market share data
are stated to be based on dollar sales, those dollar sales represent
supermarket, mass merchandiser and drug store sales for the fifty-two week
period ended November 8, 1998 as reported by IRI. Retail sales data included in
this prospectus for the U.S. cookie and cracker industry include 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 in this
prospectus are based on dollar sales for supermarkets only for the fifty-two
week period ended November 8, 1998 as reported by IRI. With respect to the
foodservice industry, market share data included in this prospectus are based on
sales, measured in pounds, for the nine-month period ended September 30, 1998 as
reported by the International Foodservice Manufacturers Association.

Keebler is the second largest cookie and cracker manufacturer in the United
States with annual net sales of over $2.5 billion and a 25.8% share of the U.S.
cookie and cracker market. We market a majority of our products under
well-recognized brands such as Keebler, Cheez-It, Carr's and Famous Amos. In the
United States, we are the number two manufacturer of branded cookies and
crackers and the number one manufacturer of private label cookies, Girl Scout
cookies and cookies and crackers for the foodservice market. We are also the
number one manufacturer of retail branded ice cream cones in the United States
and a major producer of retail branded pie crusts. In addition, we produce
custom-baked products for other marketers of branded food products.

Branded Products. Our branded cookie and cracker products accounted for 84%
of our net sales in the first forty weeks of 1998, excluding President. We
produce nine of the twenty-five best-selling cookies and ten of the twenty-five
best-selling crackers in the United States based on dollar sales. Our 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 Famous Amos
Pecan Sandies cookies Cheez-It party mix Murray
Fudge Shoppe cookies Nacho Cheez-It snack crackers Carr's
Town House crackers Cheez-It Heads and Tails crackers Vienna Fingers
Club crackers Cheez-It snack mix Hydrox
Wheatables crackers Sunshine Krispy
Zesta crackers Hi-Ho
</TABLE>

DSD Distribution System. We distribute our Keebler and Cheez-It branded
cookie and cracker products to approximately 30,000 retail locations through our
national direct to store sales and distribution system, which is known as a "DSD
distribution system". We service substantially all supermarkets in the United
States with this national DSD distribution system. We are one of only two cookie
and cracker companies that own and operate a national DSD distribution system.
We believe our national DSD distribution system provides us with certain
competitive advantages. Sales employees of our national DSD distribution system
visit supermarkets on average 2.8 times each week. These employees stock and
arrange our products on store shelves and build end-aisle and free-standing
product displays. This frequent presence of our employees in supermarkets
provides us with a high level of control over the availability and presentation
of our products. We believe that this control allows us to maintain shelf space,
better execute in-store promotions and more effectively introduce new products.
In-store promotions are important because we believe that purchases of cookies
and crackers are often impulse driven. With the President acquisition, we
acquired President's franchised DSD distribution system which principally
distributes products east of the Mississippi River. The President DSD
distribution system is comprised of

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<PAGE> 32

independent franchisees who purchase and resell certain President products.
President's DSD distribution system services both supermarkets and certain
non-supermarket channels.

INDUSTRY OVERVIEW

In 1997, the U.S. cookie and cracker industry had retail sales of $8.4
billion, with cookie sales of $4.9 billion and cracker sales of $3.5 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
types of products. Cookie product types include, among others, sandwich cookies,
chocolate chip cookies and fudge-covered cookies. Cracker product types include,
among others, saltine crackers, graham crackers and snack crackers.

Supermarkets accounted for 78% of 1997 retail sales in the cookie and
cracker industry with mass merchandisers (such as Wal-Mart), 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, we believe that non-supermarket channels of distribution are
becoming increasingly important.

STRATEGY

Build on the Keebler Brand. Keebler is one of the few packaged food brands
that generates over $1.0 billion in annual sales. The Keebler brand is
recognized in approximately 99% 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.
We intend to continue to invest in advertising and promoting the Keebler brand.
Our marketing emphasizes the well known images of Ernie and the other Keebler
Elves and Keebler's Hollow Tree.

Take Advantage of Keebler Brand Strength Across Product Types. There are
many types of cookie and cracker products. We believe that many well known
cookie and cracker brands are only associated with one type of product, such as
chocolate chip cookies. As a result, we believe it is more difficult to use
these brands to market other types of cookie and cracker products. This requires
other manufacturers to invest in creating an entirely new brand identity when
developing a new product. In contrast, we believe the strength of the Keebler
brand is its consumer identity across a wide variety of product types. This
strength allows us to cost effectively introduce new product line extensions,
market new types of products and compete in lower volume types of products. Our
strategy is also to focus on products in our portfolio of cookie and cracker
products that already have a strong position or on product types which are not
dominated by a competitor's strong branded product.

Expand the Cheez-It Brand. Cheez-It brand crackers are the number one
selling snack cracker in the United States. Annual retail sales of Cheez-It
brand products exceed $250 million. We believe that the Cheez-It brand has a
distinctive image with consumers. We intend to maintain and build on Cheez-It's
distinctive image through new products, advertising and packaging. In 1998, as
part of our strategy, we ran national media advertising for Cheez-It for the
first time in the brand's history. We have also introduced new products, such as
Cheez-It Heads and Tails crackers and Cheez-It snack mix, adding to our
portfolio of Cheez-It products. Sales of Cheez-It products for the first forty
weeks of 1998 increased by 23.7% compared to the same period in 1997.

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<PAGE> 33

Expand Non-Supermarket Sales. In 1997, 22% of retail cookie and cracker
sales were through mass merchandisers, convenience stores and drug stores. We
believe that our total share of sales to these and other non-supermarket
channels, including club stores and vending distributors, is significantly lower
than our share of sales to supermarkets. Following the Keebler acquisition in
January 1996, we began focusing resources on non-supermarket channels. We are
continuing to develop products, packaging and distribution tailored to
non-supermarket channels in order to increase our sales through these sales
channels. We believe that the growth of our non-supermarket sales is a result of
these efforts. For example, Keebler's retail sales through mass merchandisers
(excluding President's sales) increased 34% in the first forty weeks of 1998
compared to the first forty weeks of 1997.

Increase the Efficiency of Our Operations. We intend to continue to
increase the efficiency of our operations and reduce costs. In 1998, we lowered
annual costs by approximately $35.0 million principally by further automating
certain bakery and distribution operations and by improving inventory
management. We have also installed SAP R/3 management information software. This
management information system has resulted in more efficient operations because
of the availability of detailed financial and operational information. We plan
to install this SAP R/3 system in the President facilities in 1999.

Capitalize on the President Acquisition. The President acquisition provides
us with a number of opportunities and benefits that should help us achieve
certain strategic goals, including:

- President's product mix complements Keebler's by adding strong brands
such as Famous Amos cookies, which has annual retail sales in excess of
$60 million, and Murray sugar free cookies, which has annual retail sales
in excess of $35 million. These brands strengthen and diversify our
portfolio of branded products.

- The integration of President into our operations should allow us to
operate more efficiently in areas such as manufacturing, raw material and
packaging purchasing and product distribution.

- The President acquisition diversifies our cookie and cracker business by
making us the leading manufacturer of Girl Scout cookies, a position that
President has held for over ten years.

- The President acquisition provides us with an increased market share in
non-supermarket channels. For example, we believe that Famous Amos is the
number one selling cookie in vending machines. It also has a strong
presence in club and convenience stores. Sales of Famous Amos products in
non-supermarket channels are approximately $40 million annually.

Pursue Acquisitions. We intend to pursue additional acquisitions, such as
the President acquisition, that complement or provide further opportunities to
use our existing brands, manufacturing capabilities 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 national 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 January 1996, Artal Luxembourg, Flowers Industries and certain of
Keebler's current management acquired the Keebler business. In June 1996,
Keebler acquired Sunshine. By the end of 1996, we completed our planned
integration of Sunshine's operations into those of Keebler. The combination of
Sunshine and Keebler allowed us to achieve efficiencies in administration,
purchasing, production, marketing, sales and distribution. In particular, we
incorporated the sales and distribution of Sunshine retail branded products into
Keebler's national DSD distribution system which had excess capacity. Filling

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<PAGE> 34

this excess capacity with Sunshine products made Keebler's national DSD
distribution system more efficient and allowed us to focus our sales and
marketing efforts on our more profitable retail branded products.

In September 1998, Keebler acquired President. President manufactures and
markets cookies, brownies and snack cakes. President's brands include Famous
Amos and Murray. President is also the leading manufacturer of both Girl Scout
and sugar free cookies in the United States. In 1997, President had net sales of
$441.1 million and a 3.4% share of the U.S. cookie and cracker market.

PRODUCTS AND MARKETS

We are the second largest cookie and cracker manufacturer in the United
States. Our 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. We produce and market nine 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 have a 25.3% share of
the U.S. cookie market and a 26.5% share of the U.S. cracker market. As a result
of the President acquisition, we are the leading manufacturer of cookies for the
Girl Scouts of America.

Branded Cookies

The following table sets forth information with respect to certain of our
leading branded cookie products:

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

Branded Crackers

The following table sets forth information with respect to certain of our
leading branded cracker products:

<TABLE>
<CAPTION>
PRODUCT TYPE SALES 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>

We import and distribute 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, we have
the right to produce new cookie and cracker products under the Carr's label,
which can be marketed throughout the United States.

President's Branded Products

President's branded products include Famous Amos cookies, Murray cookies,
including sugar free cookies, and Plantation brownies. Our research indicates
that Famous Amos is an upscale adult brand. Famous Amos cookies have annual
retail sales in excess of $60 million and have a strong presence in club

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<PAGE> 35

and convenience stores. We believe Famous Amos cookies are the number one
selling cookie in vending machines. These non-supermarket channels contribute
approximately $40 million in annual sales of Famous Amos cookies. Murray sugar
free cookies have annual retail sales in excess of $35 million and are the
number one selling sugar free cookies in the United States. We believe that
Plantation brownies are the number one selling brownie in vending machines.
President also manufactures Olde New England brownies and Jackson's, Greg's and
Bishop cookies for certain regional markets.

Pie Crusts

Preformed pie crusts, sold under the Keebler Ready Crust brand name,
accounted for approximately 73% of the U.S. retail shelf stable preformed pie
crust market (measured in dollars). Our 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 33.7% market share. We also market ice cream
cones through foodservice channels and produce cones for various restaurants and
ice cream retailers, such as McDonald's and TCBY.

Products for the Foodservice Market

We are the leading supplier of cookies and crackers purchased by the
foodservice market in the United States. Our 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, we generally sell
to large distributors who sell these products to restaurants and institutions.

Private Label Products

We manufacture private label products to be sold by retailers under their
own brands. We expanded into the private label cookie and cracker market in 1993
with our purchase of Bake-Line Products, Inc., a producer of private label
cookie products. While Bake-Line had historically concentrated on cookie
products, we expanded into the private label cracker market in 1994. We are the
leading manufacturer of private label cookie products in the United States. We
have a 38.6% share of the private label cookie market and a 14.1% share of the
private label cracker market. We serve 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. Our 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 our private label customers. Our private
label cookies and crackers are shipped via common carrier directly to customer
warehouses and are not distributed through our national DSD distribution system.

Girl Scouts of America Relationship

President has been the leading manufacturer of cookies for the Girl Scouts
of America since the mid-1980s. The President acquisition makes us the exclusive
supplier to more than one-half of the approximately 320 Girl Scout Councils in
the United States and one of only three cookie manufacturers licensed by the
Girl Scouts of America to manufacture Girl Scout cookies. We have dedicated
marketing personnel which assist the various Girl Scout Councils with sales,
marketing and public relations programs. We employ a team of nine salespersons,
as well as independent brokers, which market to U.S. Girl Scout Councils.

Custom-Baked Products for Other Marketers of Branded Food Products

We manufacture a variety of custom-baked products for other marketers of
branded food products. For example, we have manufactured Pop Tarts for Kellogg
since the product's introduction in 1963. We

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<PAGE> 36

have also manufactured a variety of other Kellogg branded products, including
Cracklin' Oat Bran and Nutri-Grain bars. Custom-baked products that we produce
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.

New Products and Other Innovations

Since the Keebler acquisition, we have focused on new product introductions
and line extensions within our core product types such as Keebler Snackin'
Grahams, Keebler Peanut Butter Fudge Sticks, Cheez-It Heads and Tails, Cheez-It
snack mix, Cheez-It Hot & Spicy and Lemon Creme Vienna Fingers. In addition, we
have introduced innovative product types such as Keebler Cookie Stix. We have
also developed new sizes of our leading products to enable us to expand in
non-supermarket channels and introduced innovative packaging, such as
holographic holiday packaging and resealable stand-up packages for our Cheez-It
snack mix.

CUSTOMERS

Our top 10 customers in the first forty weeks of 1998 accounted for 29.1%
of our net sales. No single customer accounted for more than 5% of net sales.

MANAGEMENT INFORMATION SYSTEM

We have installed the SAP R/3 management information system, which allows
for the rapid communication of extensive information among our corporate office,
manufacturing facilities, distribution facilities and sales force. This software
system enables us to:

- improve the efficiency of our manufacturing and distribution facilities;
- service the diverse needs of our decentralized sales force;
- plan production runs and control inventory; and
- provide consistent, timely and current information to management.

We plan to install this SAP R/3 system in the President facilities in 1999.

MANUFACTURING AND DISTRIBUTION

We recognize that the mass distribution of our consumer food products is an
important element in maintaining sales growth and providing service to our
customers. We attempt to meet the changing demands of our customers by planning
appropriate stock levels and reasonable delivery times consistent with achieving
optimal economics of distribution. In order to achieve these objectives, we have
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. We use a combination of Keebler-owned,
public and contract carriers to deliver our products from our distribution
points to our customers.

Following the President acquisition, we own and operate nineteen
manufacturing facilities in the United States. We also own and operate a dairy
in Fremont, Ohio that produces cheese under a proprietary formula which is used
as an ingredient in Cheez-It crackers.

Our national DSD distribution system uses distribution facilities,
including shipping centers and warehouses, located throughout the United States.
With the President acquisition, we acquired President's franchised DSD
distribution system which distributes products east of the Mississippi River.
The President DSD distribution system is comprised of independent franchisees
who purchase and resell product. President's DSD distribution system services
both supermarkets and certain non-supermarket channels.

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<PAGE> 37

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.

We use our national DSD distribution system exclusively to serve
supermarkets and mass merchandisers. We serve convenience stores and vending
distributors through a network of independent distributors. In the case of club
stores and foodservice distributions, we use a dedicated sales force and ship
our products directly to customers' warehouses.

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

RAW MATERIALS

The principal raw materials that we use in our food products consist of
flour, sugar, chocolate, shortening and milk. We also use paper products, such
as corrugated cardboard, as well as films and plastics to package our products.
We use 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 our raw material costs or protect us from sharp increases in
certain raw material costs, which we have experienced in the past. See "Risk
Factors -- Increases in Prices of Main Ingredients and Other Materials" for a
further discussion of the risks related to our use of raw materials.

EMPLOYEES

Following the President acquisition, we employ approximately 12,300
persons, of which approximately 5,900 are represented by unions. We believe that
our relations with our employees are satisfactory.

COMPETITION

The U.S. branded cookie and cracker industry is led by Keebler and Nabisco,
which together account for 59.3% of sales volume. Smaller competitors include
numerous national, regional and local manufacturers of both branded and private
label products. Competition in our markets takes many forms, including:

Nabisco is the largest manufacturer in the U.S. cookie and cracker
industry. We have a 25.8% share of the retail cookie and cracker market, while
Nabisco has a 33.5% share. The remaining industry participants primarily target
certain portions of the industry or focus on certain geographical regions of the
United States.

INTELLECTUAL PROPERTY

We own a number of patents, licenses, trademarks and trade names in the
United States. Our principal trademarks and trade names include Keebler, Ernie
the Keebler Elf, the Hollow Tree logo, Cheez-It, Chips Deluxe, Club, Famous
Amos, Fudge Shoppe, Hi-Ho, Hydrox, Munch'ems, Murray, Olde New England,
Plantation, Ready Crust, Sandies, Soft Batch, Sunshine, Sunshine Krispy,
Toasteds, Town House, Vienna Fingers, Wheatables and Zesta. We are also the
exclusive licensee of the Carr's brand name in the United States. We consider
such trademarks and trade names to be of material importance to our business
since they have the effect of developing brand identification and maintaining
consumer

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<PAGE> 38

loyalty. We are not aware of any fact that would negatively impact the
continuing use of any of our patents, licenses, trademarks or trade names.

REGULATION

As a manufacturer and marketer of food items, our 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. These agencies regulate various aspects of our
business, including 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 our
businesses is subject to regulation by the FTC, and we are subject to certain
health and safety regulations, including those issued under the Occupational
Safety and Health Act. Our operations and properties are also 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 our operations are the Federal Clean Air Act and
the Clean Water Act. We may be required to spend significant sums in order to
maintain our compliance with environmental laws. We do not believe that
compliance with, or liability under, any environmental laws individually or in
the aggregate will have a material adverse effect on our results of operations
or financial condition.

LITIGATION

We are involved in routine litigation. We believe none of the pending or
threatened litigation will result in an outcome that will have a material
adverse effect on our results of operations or financial condition.

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<PAGE> 39

MANAGEMENT

The following is information concerning certain of our executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert P. Crozer.................. 51 Chairman of the Board and Director
Sam K. Reed....................... 51 Chief Executive Officer, President and Director
Chief Financial Officer and Senior Vice President --
E. Nichol McCully................. 44 Finance
David B. Vermylen................. 48 President -- Keebler Brands
Jack M. Lotker.................... 55 President -- Specialty Products
James T. Willard.................. 58 Senior Vice President -- Operations
Thomas E. O'Neill................. 43 Vice President, Secretary and General Counsel
James T. Spear.................... 43 Vice President -- Finance and Corporate Controller
Harry J. Walsh.................... 43 Vice President -- Corporate Planning and Development
</TABLE>

Robert P. Crozer. Mr. Crozer was elected Chairman of the Board of Directors
of Keebler in February 1998. 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 1989. Mr. Crozer served as Vice President-Marketing of Flowers from 1985
to 1989, Corporate Director of Marketing Planning of Flowers from 1979 to 1985,
as well as President and Chief Operating Officer, Convenience Products Group of
Flowers from 1979 to 1989. Mr. Crozer received both a B.A. and an M.B.A. from
the University of Virginia.

Sam K. Reed. Mr. Reed has been the Chief Executive Officer, President and a
Director of Keebler since the Keebler acquisition in January 1996. Mr. Reed has
twenty-five 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 ten years in finance, manufacturing and general
management. Mr. Reed received a B.A. from Rice University and an M.B.A. from
Stanford University.

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 eleven years of 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. Mr.
McCully is also a Certified Public Accountant.

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 twenty-four years of
experience in marketing consumer packaged goods including cookies, cereals,
beverages and convenience foods. In 1995, he served as Chairman, President and
Chief Executive Officer of Brothers Gourmet Coffee, a publicly traded specialty
beverage manufacturer and retailer. He served as President and Chief Operating
Officer from 1994 to 1995 and Vice President-Marketing from 1991 to 1993 at
Mother's Cake and Cookie Co. Mr. Vermylen spent fourteen 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

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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.

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 twenty-four 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
and General Manager 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 thirty-four years of experience in the food
industry, Mr. Willard most recently was Senior Vice President at Nabisco Biscuit
Co. 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 (1983 to 1986), 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
thirteen 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 a B.A. and a 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.

James T. Spear. Mr. Spear has been Vice President Finance and Corporate
Controller of Keebler since July 1995. He originally joined Keebler in February
1992 as Corporate Controller. Before starting with Keebler, Mr. Spear was Chief
Financial Officer of Kirkland & Ellis from 1989 to 1991. From 1979 to 1989, he
was with Price Waterhouse as both an auditor and consultant, mainly with clients
in the food industry. Mr. Spear received a B.A. from Miami University and an
M.B.A. from Indiana University Graduate School of Business. Mr. Spear is also a
Certified Public Accountant.

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 also has seventeen 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 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. Mr. Walsh is also a Certified Public
Accountant.

37
<PAGE> 41

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 18, 1999, and as adjusted to reflect
the sale of the common stock being offered, by:

- all persons known by us to own beneficially 5% or more of our common
stock;
- each of our Directors;
- the Chief Executive Officer and certain other executive officers;
- each selling stockholder; and
- all Directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares of common stock
beneficially owned by such stockholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS NUMBER OF OWNED AFTER THIS
OFFERING (1) SHARES OFFERING (1)
-------------------- BEING --------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------------------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Flowers Industries, Inc.(2)............... 46,197,466 54.9 -- 46,197,466 54.9
1919 Flowers Circle
Thomasville, Georgia 31757
Artal Luxembourg S.A.(3).................. 17,228,729 20.5 15,654,500(3) 1,574,229(3) 1.9
39 Boulevard Royal
Luxembourg City, Luxembourg 2449
Claremont Enterprises, Limited(4)......... 4,772,770 5.7 545,500(4) 4,227,270(4) 5.0
West Bay Street
P.O. Box N7788
Nassau, Bahamas
Sam K. Reed(5)............................ 1,572,855 1.8 -- 1,572,855 1.8
David B. Vermylen(6)...................... 333,559 * -- 333,559 *
E. Nichol McCully(7)...................... 263,559 * -- 263,559 *
Jack M. Lotker(8)......................... 283,559 * -- 283,559 *
James T. Willard(8)....................... 283,559 * -- 283,559 *
Robert P. Crozer(9)....................... 10,000 * -- 10,000 *
Franklin L. Burke(10)(11)................. 9,500 * -- 9,500 *
Wayne H. Pace(10)......................... 8,500 * -- 8,500 *
Johnston C. Adams, Jr.(10)................ 8,900 * -- 8,900 *
Jimmy M. Woodward(12)..................... 2,000 * -- 2,000 *
G. Anthony Campbell(9).................... 2,004 * -- 2,004 *
Amos R. McMullian(9)...................... 2,000 * -- 2,000 *
C. Martin Wood III(9)..................... 2,000 * -- 2,000 *
Raymond Debbane(13)....................... -- -- -- -- --
Sacha Lainovic(13)........................ -- -- -- -- --
All Directors and executive officers as a
group (consisting of 19 persons)........ 3,179,583 3.8 -- 3,179,583 3.8
</TABLE>

- ---------------
* Less than 1%

(1) Shares beneficially owned and percentage of ownership are based on
84,132,164 shares of common stock outstanding before this offering and
exercisable stock options.

(2) Flowers Industries is currently subject to the periodic reporting and other
information requirements of the Securities Exchange Act of 1934. Flowers
Industries' common stock is listed on the New York Stock Exchange.

38
<PAGE> 42

(3) Excludes a maximum of 1,574,229 shares to cover any over-allotments of our
shares. If the over-allotment option is exercised in full, Artal Luxembourg
will no longer own any common stock. The parent entity of Artal Luxembourg
is Artal Group. The address of Artal Group is the same as the address of
Artal Luxembourg.

(4) Excludes a maximum of 54,500 shares to cover any over-allotments of shares.
Claremont Enterprises is a privately held Bahamian limited company.

(5) Shares are held by The Sam K. Reed and Victoria P. Reed January 19, 1995
Inter Vivos Trust of which Mr. Reed and his wife are trustees. Includes
999,605 shares subject to stock options that are currently exercisable;
excludes 539,958 shares subject to stock options that are not exercisable
within 60 days.

(6) Includes 233,241 shares subject to stock options that are currently
exercisable; excludes 175,940 shares subject to stock options that are not
exercisable within 60 days. Mr. Vermylen's shares are held by the David B.
Vermylen Declaration of Trust dated August 22, 1997, of which Mr. Vermylen
is trustee.

(7) Includes 198,241 shares subject to stock options that are currently
exercisable; excludes 167,615 shares subject to stock options that are not
exercisable within 60 days.

(8) Includes 233,241 shares subject to stock options that are currently
exercisable; excludes 150,965 shares subject to stock options that are not
exercisable within 60 days. Mr. Lotker's shares are held by the Jack M.
Lotker Revocable Trust of which Mr. Lotker and his wife are co-trustees and
the beneficiaries of which are Mr. Lotker and various members of his
immediate family. Mr. Willard's shares are held by the James T. Willard
Living Trust dated October 14, 1998 of which Mr. Willard and his wife are
co-trustees.

(9) A director and executive officer of Flowers Industries.

(10) Includes 7,500 shares subject to stock options that are currently
exercisable.

(11) A director of Flowers Industries. 1,000 of Mr. Burke's shares are held by
his wife and 1,000 shares are held by the Franklin L. Burke IRA.

(12) An executive officer of Flowers Industries.

(13) An officer of The Invus Group, Ltd., the U.S. investment advisor for Artal
Luxembourg. Assuming completion of this offering, under a contract among
Artal Luxembourg, Keebler and Flowers Industries, Artal Luxembourg is
required to cause Mssrs. Debbane and Lainovic to resign from the Keebler
Board.

39
<PAGE> 43

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 one or more United States persons 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:

- such individual is a lawful permanent resident of the United States at
any time during the taxable year;
- such individual makes an election to be treated as a resident pursuant to
the provisions of the Code; or
- 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, provided such individual has not
taken any steps during the current year to apply for permanent resident status
and no such application is pending. 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 U.S. federal
income and estate tax consequences of the ownership and disposition of common
stock by non-U.S. Holders. Thus, we urge all investors to consult their own tax
advisors with respect to the application and effect of the U.S. 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 generally 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 unless
such dividends are effectively connected with a trade or business

40
<PAGE> 44

carried on by the non-U.S. holder within the United States or, if a tax treaty
applies, are attributable to a United States permanent establishment of the
non-U.S. holder, in which cases the dividends will be taxed as described below
in the succeeding paragraph. 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 on or prior to
December 31, 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, 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, 1999. 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, 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 if a Form 4224 is filed with Keebler;
or
- if a tax treaty applies, attributable to a United States permanent
establishment of the non-U.S. holder.

If either exception applies, the 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

- 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 or, if a
tax treaty applies, is attributable to a United States permanent
establishment of the non-U.S. holder;
- 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;
- 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
- Keebler is or has been a "U.S. real property holding corporation" for
federal income tax purposes at any time within the shorter of the
five-year period preceding such disposition or such non-U.S. holder's
holding period. 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.

41
<PAGE> 45

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Pursuant to U.S. Treasury regulations, we 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 on or prior to December 31,
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 December 31, 1999 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:

- a U.S. broker,
- 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
- 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 tax purposes.

42
<PAGE> 46

UNDERWRITING

Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Warburg Dillon Read LLC, Donaldson, Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc. are acting as the U.S.
representatives for the U.S. underwriters named below. Credit Suisse First
Boston (Europe) Limited, Merrill Lynch International, UBS AG, acting through its
division Warburg Dillon Read, Donaldson, Lufkin & Jenrette International and
Lehman Brothers International (Europe) are acting as the international
representatives for the international managers named below. Each underwriter and
manager has agreed to purchase simultaneously from the selling stockholders the
numbers of shares set forth below opposite its name. Their obligations are
subject to certain conditions to be contained in a U.S. underwriting agreement
and an international underwriting agreement. We have filed forms of the
underwriting agreements as exhibits to the registration statement.

<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation...................... 2,754,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 2,754,000
Warburg Dillon Read LLC, a subsidiary of UBS AG............. 2,754,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,377,000
Lehman Brothers Inc......................................... 1,377,000
Bear, Stearns & Co. Inc. ................................... 97,200
Sanford C. Bernstein & Co. Inc. ............................ 97,200
BT Alex. Brown Incorporated................................. 97,200
Burnham Securities Inc. .................................... 97,200
EVEREN Securities, Inc. .................................... 97,200
Goldman, Sachs & Co. ....................................... 97,200
Inverned Associates, Inc. .................................. 97,200
Janney Montgomery Scott Inc. ............................... 97,200
Mesirow Financial, Inc. .................................... 97,200
J.P. Morgan Securities Inc. ................................ 97,200
Morgan Stanley & Co. Incorporated........................... 97,200
NationsBanc Montgomery Securities LLC....................... 97,200
Nesbitt Burns Securities Inc. .............................. 97,200
Preferred Capital Markets, Inc. ............................ 97,200
Prudential Securities Incorporated.......................... 97,200
The Robinson-Humphrey Company, LLC.......................... 97,200
Salomon Smith Barney Inc. .................................. 97,200
Charles Schwab & Co., Inc. ................................. 97,200
Scotia Capital Markets (USA) Inc. .......................... 97,200
Shields & Company........................................... 97,200
----------
Subtotal............................................... 12,960,000
----------
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL MANAGERS
----------------------
<S> <C>
Credit Suisse First Boston (Europe) Limited................. 810,000
Merrill Lynch International................................. 810,000
UBS AG, acting through its division Warburg Dillon Read..... 810,000
Donaldson, Lufkin & Jenrette International.................. 405,000
Lehman Brothers International (Europe)...................... 405,000
----------
Subtotal............................................... 3,240,000
----------
Total............................................. 16,200,000
==========
</TABLE>

43
<PAGE> 47

The U.S. offering and the international offering are each conditioned upon
the closing of the other.

The underwriting agreements provide that the U.S. underwriters and the
international managers will be obligated to purchase all the shares of common
stock in the offering if any are purchased, other than those shares covered by
the over-allotment option described below. The underwriting agreements also
provide that in the event of a default, purchase commitments may be increased or
the underwriting agreements may be terminated.

The selling stockholders have granted to the U.S. underwriters and the
international managers a 30-day option exercisable by Credit Suisse First Boston
Corporation ("CSFBC"). The underwriters and managers may purchase on a pro rata
basis up to 1,628,729 additional shares of common stock at the public offering
price, less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments.

The U.S. underwriters and the international managers will offer the common
stock initially at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession of $.60 per
share. The U.S. underwriters, the international managers and such dealers may
also reallow a discount of $.10 per share on sales to certain other
broker/dealers. After the initial offering, the offering price, concession and
discount may be changed by mutual agreement of the representatives.

The following table summarizes the compensation and the estimated expenses
payable by the selling stockholders and us.

<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by the
selling stockholders.................................. $1.00 $16,200,000 $17,828,729
Expenses payable by the selling stockholders.......... -- $ 40,000 $ 40,000
Expenses payable by Keebler........................... $ .05 $ 869,912 $ 869,912
</TABLE>

Each of the U.S. underwriters will agree that it will not offer or sell any
shares of our common stock or distribute our prospectus to any person outside
the United States or Canada or to any other dealer who does not so agree. Each
of the international managers will agree that it will not offer or sell any
shares of our common stock or distribute our prospectus in the United States or
Canada or to any other dealer who does not so agree.

Sales may be made between the U.S. underwriters and the international
managers for resale in those countries where they are selling our common stock.
The price of any shares sold shall be the public offering price, less an amount
agreed upon by the representatives, but not exceeding the selling concession
applicable to those shares.

Each of the international managers and the U.S. underwriters represents and
agrees that:

(1) it has not affected or sold prior to the date six months after the date
of issue any of our 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 or do not result in an offer to the public in
the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;

(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to our common stock in, from or otherwise involving the United
Kingdom; and

(3) 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 our common stock to a person who is of a kind described in Article
II(3) of the Financial Services Act 1986 (Investment Advertisements)

44
<PAGE> 48

(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.

Our officers and directors have each agreed that they will not sell or
otherwise dispose of 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 sale or disposition. These restrictions
are effective for a period of 60 days after the date of this prospectus. We and
Flowers Industries, Artal Luxembourg and Claremont Enterprises have also agreed
to such restrictions for a period of 90 days after the date of this prospectus.
These restrictions are subject to the following exceptions:

(1) in the case of Keebler, issuances pursuant to Keebler's 1996 Stock
Option Plan, the 1998 Omnibus Stock Incentive Plan and the Non-Employee
Director Stock Plan;

(2) in the case of certain officers, sales or exchanges in connection with
certain arrangements between such officers, Keebler and CSFBC, as
described in the following paragraph; and

(3) the prior written consent of CSFBC.

Eight senior executives are parties to arrangements entered into prior to
our initial public offering in January 1998. The executives may require us to
purchase their shares of common stock during the 60-day period described above.
The maximum aggregate amount which we can be required to purchase is the greater
of:

(1) 1% of all shares of common stock then outstanding; and

(2) $25,000,000.

As of the date of this prospectus, we have not been informed by any executive
officer of its intention to exercise this right. In addition, an agreement
between the eight senior executives and CSFBC allows the executives to enter
into certain tax-free share exchanges during the 60-day period described above.

We and each of the selling stockholders have agreed to indemnify the U.S.
underwriters and the international managers against certain liabilities
described in the underwriting agreements. In addition, we and each of the
selling stockholders have agreed to contribute to payments which the U.S.
underwriters and the international managers may be required to make relating to
such liabilities.

CSFBC may engage in over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934. 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 common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the U.S. representatives 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 our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of our common stock in Canada is being made only on a
private placement basis exempt from the requirement that Keebler and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of our common stock are effected.
Accordingly, any resale of our 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
45
<PAGE> 49

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
our common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of our common stock in Canada who receives a purchase
confirmation will be deemed to represent to Keebler, the selling stockholders
and the dealer from whom such purchase confirmation is received that:

- 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;
- where required by law, that such purchaser is purchasing as principal and
not as agent; and
- 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
Ontario securities law. 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.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders 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 a 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 our 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 our 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 our common stock acquired on the same
date and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of our 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. The
U.S. Underwriters and the International Managers have been represented by
Cravath, Swaine & Moore, New York, New York.

46
<PAGE> 50

EXPERTS

The consolidated financial statements of Keebler and the Predecessor
Company included in the Annual Report on Form 10-K of Keebler for the year ended
January 3, 1998, and the financial statements of President included as Item
7(a)1 in Keebler's Form 8-K filed on October 9, 1998 and amended on December 10,
1998, have been audited by PricewaterhouseCoopers LLP, independent accountants,
as set forth in their reports accompanying such financial statements and are
incorporated by reference in this prospectus, in reliance upon such reports of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
that firm as experts in accounting and auditing.

47
<PAGE> 51

[INSIDE BACK COVER]

PICTURES OF A KEEBLER TRUCK AND KEEBLER PRODUCTS IN A SUPERMARKET IN KEEBLER
HOLLOW TREE
<PAGE> 52

[Keebler Logo]
[A logo of Ernie the Elf in the Keebler Hollow Tree]
<PAGE> 53

16,200,000 Shares

KEEBLER LOGO KEEBLER FOODS COMPANY

Common Stock Keebler Elf Logo

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

All of the shares of common stock offered in this prospectus are being sold by
certain selling stockholders. Of the 16,200,000 shares being offered, 3,240,000
shares are initially being offered outside the United States and Canada by the
international managers and 12,960,000 shares are initially being concurrently
offered in the United States and Canada by the U.S. underwriters.

The international managers and the U.S. underwriters have an option to purchase
a maximum of 1,628,729 additional shares to cover over-allotments of shares.

Our common stock is listed on the New York Stock Exchange under the symbol
"KBL." On January 20, 1999, the last reported sale price for the common stock
was $33 7/16.

INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
6.

Delivery of the shares of common stock will be made on or about January 26,
1999, against payment in immediately available funds.

CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH INTERNATIONAL WARBURG DILLON READ
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS

Prospectus dated January 20, 1999.