AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996
REGISTRATION NO. 333-8379
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
KEEBLER CORPORATION, ISSUER
KEEBLER COMPANY
SHAFFER, CLARKE & CO., INC.
JOHNSTON'S READY-CRUST COMPANY
EMERALD INDUSTRIES, INC.
ATHENS PACKAGING, INC.
KEEBLER LEASING CORP.
BAKE-LINE PRODUCTS, INC.
SUNSHINE BISCUITS, INC.
STEAMBOAT CORPORATION
ILLINOIS BAKING CORPORATION
KEEBLER COOKIE AND CRACKER COMPANY
HOLLOW TREE COMPANY
KEEBLER COMPANY/PUERTO RICO, INC.
KEEBLER H.C., INC.
KEEBLER-GEORGIA, INC., GUARANTORS
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2052 36-3839556
DELAWARE (Primary Standard Industrial 36-1894790
DELAWARE Classification Code Number) 13-2948476
DELAWARE 36-3110530
DELAWARE 62-1350629
GEORGIA 36-3840961
DELAWARE 13-3869240
ILLINOIS 36-2318208
DELAWARE 11-2111159
GEORGIA 36-2801224
DELAWARE 36-2589168
NEVADA 36-2590868
DELAWARE 36-3027531
DELAWARE 36-2689289
ILLINOIS 36-3756201
GEORGIA 35-2781281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
-------------------
ONE HOLLOW TREE LANE
ELMHURST, ILLINOIS 60126
(630) 833-2900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
SAM K. REED
CHIEF EXECUTIVE OFFICER
KEEBLER CORPORATION
ONE HOLLOW TREE LANE
ELMHURST, ILLINOIS 60126
(630) 833-2900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:
JOHN B. TEHAN
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 455-2000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction 6, check the following box. / /
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CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
TITLE OF EACH PROPOSED PROPOSED
CLASS OF SECURITIES TO AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED BE REGISTERED PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
10 3/4% Senior Subordinated Notes due
2006.................................... $125,000,000 100% $125,000,000 $43,104.00
Guarantees of the Restricted Subsidiaries
of the 10 3/4% Senior Subordinated Notes
due 2006................................. (3) (3) (3) None
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) The registration fee of $43,104.00 was paid to the Commission on July 18,
1996.
(3) No separate consideration will be received for the Guarantees.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
KEEBLER CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page; Cross Reference
Sheet; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data
4. Terms of the Transaction................... The Exchange Offer; Certain United States
Federal Income Tax Consequences;
Description of Exchange Notes
5. Pro Forma Financial Information............ Prospectus Summary; Pro Forma Consolidated
Financial Statements
6. Material Contracts with the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters......................... Not Applicable
8. Interest of Named Experts and Counsel...... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information with Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.......... Prospectus Summary; The Acquisitions;
Capitalization; Selected Consolidated
Historical Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Stockholders; Certain Related
Transactions; Description of Senior
Credit Facility and the UB Note;
Description of Exchange Notes; Book
Entry; Delivery and Form; Plan of
Distribution; Exchange and Registration
Rights Agreement; Legal Matters; Experts;
Available Information; Glossary;
Consolidated Financial Statements.
15. Information with Respect to S-3
Companies.................................. Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................. Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer..................... Management; The Exchange Offer; Certain
Related Transactions
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS
, 1996
[HOLLOW TREE LOGO]
[ERNIE]
KEEBLER CORPORATION
OFFER TO EXCHANGE
$125,000,000 OF ITS 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006 WHICH ARE FULLY
AND UNCONDITIONALLY
GUARANTEED BY THE RESTRICTED SUBSIDIARIES AND WHICH HAVE BEEN REGISTERED UNDER
THE
SECURITIES ACT, FOR ITS OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006
WHICH ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE RESTRICTED SUBSIDIARIES.
-------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996, UNLESS EXTENDED (THE "EXPIRATION DATE").
Keebler Corporation (the "Company") hereby offers to exchange (the "Exchange
Offer") up to $125,000,000 in aggregate principal amount of its new 10 3/4%
Senior Subordinated Notes due 2006 (the "Exchange Notes") for $125,000,000 in
aggregate principal amount of its outstanding 10 3/4% Senior Subordinated Notes
due 2006 (the "Notes").
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to this offer, except that the
Exchange Notes will be freely transferable by holders thereof (other than as
provided below) and are issued free from any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and contain
terms which are identical in all material respects to the terms of the Notes
that are to be exchanged therefor.
On January 26, 1996, the Company was acquired (the "Keebler Acquisition") by
INFLO Holdings Corporation, a corporation jointly controlled by Artal Luxembourg
S.A. ("Artal") and Flowers Industries, Inc. ("Flowers"). On June 4, 1996, the
Company purchased Sunshine Biscuits, Inc. (the "Sunshine Acquisition"; which
together with the Keebler Acquisition, are herein referred to as the
"Acquisitions"). The Notes were sold to refinance certain indebtedness incurred
in connection with the Keebler Acquisition. See "The Acquisitions" and "Use of
Proceeds."
Interest on the Exchange Notes will be payable semi-annually on January 1 and
July 1 of each year, commencing January 1, 1997, at the rate of 10 3/4% per
annum. The Exchange Notes will mature on July 1, 2006. The Exchange Notes will
be redeemable at the option of the Company, in whole or in part, on or after
July 1, 2001, at the redemption prices set forth herein, plus accrued and unpaid
interest thereon, if any, to the date of redemption. In addition, on or prior to
July 1, 1999, at the option of the Company, up to 35% of the aggregate original
principal amount of the Exchange Notes may be redeemed at the redemption prices
set forth herein, plus accrued and unpaid interest thereon, if any, to the date
of redemption, with the proceeds of one or more Public Equity Offerings (as
defined in "Description of Exchange Notes--Certain Definitions"); provided, that
at least 65% of the original aggregate principal amount of the Exchange Notes
remains outstanding following any such redemption. See "Description of Exchange
Notes--Optional Redemption." The Exchange Notes will not be subject to any
mandatory sinking fund. Upon the occurrence of a Change of Control (as defined
in "Description of Exchange Notes--Certain Definitions"), holders of the
Exchange Notes will have the right to require the Company to repurchase their
Exchange Notes, in whole or in part, at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of repurchase. There can be no assurance that upon the
occurrence of a Change of Control the Company will have, or will have access to,
sufficient funds to repurchase the Exchange Notes in this manner. See
"Description of Exchange Notes--Certain Covenants--Change of Control."
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all Senior Indebtedness (as defined
in "Description of Exchange Notes--Certain Definitions") of the Company (which
includes all indebtedness under the Senior Credit Facility (as defined in
"Summary--The Company--The Keebler Acquisition")) and will rank senior in right
of payment to all future Subordinated Indebtedness (as defined in "Description
of Exchange Notes--Certain Definitions") of the Company. The Exchange Notes are
guaranteed by all existing and future Restricted Subsidiaries (as defined in
"Description of Exchange Notes--Certain Definitions") of the Company, which
guarantees are subordinate in right of payment to all existing Senior
Indebtedness of the Company and the Company's Restricted Subsidiaries. As of
July 13, 1996, Senior Indebtedness of the Company was $451.0 million.
The Notes were issued and sold on June 25, 1996 in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereunder in order to satisfy
certain of the obligations of the Company and the Guarantors (as defined in
"Description of Exchange Notes--Certain Definitions") under a registration
rights agreement relating to the Notes. See "The Exchange Offer--Purpose of the
Exchange Offer." The Company is making the Exchange Offer in reliance upon an
interpretation by the staff of the Securities and Exchange Commission set forth
in a series of no-action letters issued to third parties. Based on such
interpretation, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any such other person is
engaging in or intends to engage in a distribution of such Exchange Notes.
However, the Company has not sought, and does not intend to seek, its own
no-action letter, and there can be no assurance that the staff of the Securities
and Exchange Commission would make a similar determination with respect to the
Exchange Offer. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal relating to the Exchange Offer states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Notes where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company will, for a
period of 180 days after the Expiration Date (as defined in "The Exchange
Offer--Expiration Date; Extention; Termination; Amendments"), make copies of
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange. The date of acceptance and exchange
of the Notes (the "Exchange Date") will be the first business day following the
Expiration Date. Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. The Company will pay all expenses
incident to the Exchange Offer. The Company will not receive any proceeds from
the Exchange Offer.
-------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 13, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantors filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the Exchange
Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company, the
Guarantors and the Exchange Notes, reference is made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions in such exhibit,
to which reference is hereby made. Copies of the Registration Statement may be
examined without charge at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the web site
(http://www.sec.gov.) maintained by the Commission and at the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Avenue, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material so filed can
be obtained from the Public Reference Section of the Commission, upon payment of
certain fees prescribed by the Commission. In addition, pursuant to the
Indenture covering the Notes and the Exchange Notes, the Company has agreed to
file with the Commission and provide to the Noteholders the annual reports and
the information, documents and other reports otherwise required pursuant to
Section 13 of the Exchange Act. Such requirements may be satisfied through the
filing and provision of such documents and reports which would otherwise be
required pursuant to Section 13 in respect of the Company.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation, the statements under "Summary--
Keebler Strategy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Keebler Strategy--Cost Reductions,"
"--History of Sunshine," "-- Keebler's Acquisition of Sunshine,"
"--Environmental," and "--Litigation" and located elsewhere herein regarding the
Company's financial position, cost cutting plans and plans to take advantage of
synergies, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this
Prospectus, including without limitation in conjunction with the forward-looking
statements included in this Prospectus and under "Risk Factors". All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with, the more detailed financial and other information contained
elsewhere in this Prospectus. Noteholders are urged to read this Prospectus in
its entirety. All references to "Sunshine" shall mean Sunshine Biscuits, Inc.,
unless the context requires otherwise. All references to "Keebler" shall mean
the Keebler Corporation and its consolidated subsidiaries but shall exclude (i)
Sunshine and (ii) certain businesses of Keebler that were sold prior to the
Keebler Acquisition, unless the context requires otherwise. All references to
the "Company" shall mean Keebler Corporation and its consolidated subsidiaries
(including Sunshine but excluding certain businesses of Keebler that were sold
prior to the Keebler Acquisition), unless the context requires otherwise. Unless
otherwise noted, references to fiscal 1993, 1994 and 1995 or the 1993, 1994 and
1995 fiscal years of the Company or Keebler are to the fiscal years ended
January 1, 1994, December 31, 1994 and December 30, 1995, respectively.
Reference to Sunshine's 1994, 1995 and 1996 fiscal years or fiscal 1994, 1995
and 1996 of Sunshine are to Sunshine's fiscal years ended March 31, 1994, 1995
and 1996, respectively.
Unless stated otherwise, figures provided for market share percentages and
rank in any market are based on retail sales (measured by weight) in 1995, as
reported by Information Resources, Inc., a service which tracks retail sales
through scanner data in grocery stores with annual revenue greater than $2.0
million dollars ("IRI"). In those instances where market share data is stated to
be based on dollar sales, these dollar sales represent retail sales (measured in
dollars) in 1995 as reported by IRI. The IRI data exclude sales through other
channels in which the Company has a lesser position and, therefore, may
overstate the Company's share of the overall cookie and cracker market. See
"Business--Keebler Strategy--Targeted Marketing Strategy--Expand Non-supermarket
Business."
THE COMPANY
The Company is the second largest cookie and cracker manufacturer in the
United States with a 23.2% share of the retail cookie and cracker market
(including private label sales) for the year ended December 31, 1995. The
Company had approximately $2.1 billion in gross sales in fiscal 1995 on a pro
forma basis including the gross sales of Keebler and Sunshine. Keebler alone was
the second largest cookie and cracker manufacturer in the United States with a
16.4% share of the retail cookie and cracker market (including private label
sales) in 1995. Sunshine alone was the third largest cookie and cracker
manufacturer in the United States with a 6.8% market share in 1995. The Company
produces and markets nine of the top 25 selling cookies and ten of the top 25
selling crackers, based, in each case on dollar sales. In addition, the Company
is the leading manufacturer and marketer of cookies and crackers (combined) to
the foodservice market as reported by IFMATRAC (as defined in "Business--
Overview--Keebler").
The cookie and cracker market is stable in terms of its total sales volume
and has not experienced significant fluctuations in either total dollar or unit
sales over the past several years. In addition, the market shares of the leading
companies (including the Company) in the combined cookie and cracker industry
have not shifted materially over the past several years.
The Company's principal executive offices are located at One Hollow Tree
Lane, Elmhurst, Illinois 60126 (telephone number: (630) 833-2900).
KEEBLER
Keebler is the second largest cookie and cracker manufacturer in the United
States with a 16.4% share of the retail cookie and cracker market (including
private label sales) and approximately $1.5 billion in gross sales for fiscal
1995. Keebler manufactures and distributes branded and private label
3
<PAGE>
cookies, crackers, pie crusts and ice cream cones for the retail and foodservice
markets. In addition, Keebler produces custom products for other marketers of
branded food products.
Keebler has well recognized brands, as evidenced by its national brand
awareness rate of 97% based on data compiled by Luhrs Marketing Research
Corporation on behalf of Keebler in 1992. Keebler's major brands include Chips
Deluxe, Fudge Shoppe, Elfin Delights, Sandies, Wheatables, Munch'ems, Zesta,
Town House and Club, among others, and Keebler imports and distributes the
Carr's line of cookies and crackers, which is the top selling premium cracker
brand in the U.S. Keebler, with its Ready-Crust products, has over a 70% dollar
market share of the pre-formed retail pie crust market.
Keebler is the largest manufacturer of cookies for the private label market,
and Keebler on a stand alone basis was the second largest manufacturer of
cookies and crackers to the foodservice market as reported by IFMATRAC.
Keebler directly services more than 30,000 grocery accounts through its own
national direct store door sales and distribution system (a "DSD system").
Keebler's DSD system distributes Keebler's retail branded cookie and cracker
products directly to retail stores, where Keebler's own sales force then stocks
and arranges the products on the retailers' shelves and builds end-aisle and
free standing product displays within the stores. Keebler is one of only two
cookie and cracker companies with a national, wholly owned DSD system. The
Company believes that Keebler's DSD system gives it a number of distinct
advantages over competitors that lack a DSD system. Keebler's DSD system (i)
enables Keebler to sell and promote a wide variety of products and to introduce
new products at a lower cost, because the customer's own warehouse space,
transportation and in-store labor are not required, (ii) results in high display
levels and well stocked displays during major promotion periods through the
efforts of Keebler's in-store sales force and (iii) enables Keebler's products
to be available in grocery stores representing 99% of all commodity volume
("ACV;" i.e., the total annual dollar sales of U.S. grocery stores with annual
revenue in excess of $2.0 million) as reported by IRI in 1995.
THE KEEBLER ACQUISITION
On January 26, 1996, INFLO Holdings Corporation ("INFLO") acquired all of
the shares of Keebler for an aggregate consideration of $454.9 million
(excluding related fees and expenses and after receipt of a $32.6 million cash
working capital adjustment). Prior to the Keebler Acquisition, Keebler was an
indirect wholly owned subsidiary of United Biscuits (Holdings) plc., a publicly
traded United Kingdom company ("United Biscuits"). Financing for the Keebler
Acquisition was comprised of (i) a $157.5 million capital contribution provided
by INFLO, (ii) a $200.0 million advance under Keebler's senior credit facility
(as described below, the "Senior Credit Facility"), (iii) the $125.0 million
Increasing Rate Notes (as defined herein), and (iv) the assumption of $20.3
million of senior indebtedness.
Immediately following the Keebler Acquisition, a new management team was
installed with the industry expertise necessary to implement a new strategic
plan at Keebler. This management team is led by Mr. Sam K. Reed who is the new
president and chief executive officer of Keebler. Mr. Reed had previously worked
with Artal as the president and chief executive officer of Mother's Cake and
Cookie Co. from 1990 to 1993. The members of the new senior management team have
an average of 20 years experience in the U.S. food industry (see "Management"
below) and have played an active part in designing and implementing similar
strategies at other baked goods companies, many of which were acquired through
leveraged buy-outs. Management currently owns 2.3% of the common stock, par
value $.01 per share, of INFLO (the "INFLO Common Stock") and will have the
right to purchase through options (two-thirds of which will vest upon the
attainment of certain performance criteria) additional shares, which together
with management's existing shares would represent 8.6% of the shares of INFLO
Common Stock on a fully diluted basis.
4
<PAGE>
KEEBLER STRATEGY
Since the Keebler Acquisition, management has been executing a strategic
plan to reduce inefficiencies and further capitalize on (i) the strength of
Keebler's DSD capabilities and (ii) the significant share positions of its
brands within the relatively stable cookie and cracker industry. The new
strategic plan is comprised of three key elements:
1. Cost reductions--immediately reduce costs, particularly in
manufacturing and corporate overhead.
2. Structural reorganization of sales and marketing--decentralize
management with regional teams led by regional vice presidents having
increased responsibility and accountability.
3. Targeted marketing--execute a new marketing strategy designed to
reflect Keebler's relative strengths in its differing product segments
and regions in a way that emphasizes profits rather than sales volume
alone.
RESULTS SINCE THE KEEBLER ACQUISITION
Actions completed since the Keebler Acquisition include (i) the elimination
of 201 corporate positions and 75 manufacturing positions, (ii) the closure of
Keebler's Atlanta plant, (iii) the regionalization of the sales and marketing
management structure, and (iv) the implementation of a focused marketing
strategy, which has resulted in the elimination of inefficient marketing
expenditures. These actions are expected to generate approximately $62 million
of annual cost savings, with a related one-time cost of approximately $35
million, which has been reserved for on Keebler's balance sheet. As of July 13,
1996, $30.7 million of such one-time cost had been paid from Keebler's available
cash.
SUNSHINE
At the time of its acquisition by the Company, Sunshine was the third
largest cookie and cracker manufacturer in the United States with a 6.8% market
share and approximately $607 million in gross sales on a pro forma basis for
fiscal 1996. Sunshine's products include such well known brands as Cheez-It, the
number one snack cracker, Vienna Fingers, the leading non-chocolate-based
sandwich cookie, Krispy saltine crackers and Hydrox chocolate sandwich cookies.
Sunshine sells its retail branded products throughout the United States
primarily through a customer warehouse sales and distribution system. This
system involves the delivery of products by Sunshine to its customers'
warehouses and not to their individual stores. In contrast to Keebler's DSD
sales and distribution system, Sunshine's customers must move purchased products
from their warehouses to their stores at their own expense, and their own
employees (rather than Sunshine's) stock Sunshine's products on the stores'
shelves. Only in Philadelphia, New York and New Jersey does Sunshine operate its
own DSD system. In those markets, Sunshine maintains a higher market share than
in most other areas of the country.
THE SUNSHINE ACQUISITION
On June 4, 1996, the Company acquired Sunshine from G.F. Industries, Inc.
("GFI") for an aggregate consideration of $171.6 million (excluding related fees
and expenses of $2.2 million). The Sunshine Acquisition was funded by (i) $150.2
million in cash, of which $36.2 million was provided by Keebler's existing cash
resources and $114.0 million (net of cash acquired of $5.4 million) was provided
by borrowings under the Senior Credit Facility, and (ii) the issuance to GFI of
approximately $23.6 million of INFLO common stock and warrants, which was
accounted for as a capital contribution. These shares and warrants and GFI's
rights, duties and obligations under the GFI Stockholder's
5
<PAGE>
Agreement were subsequently transferred to Bermore Ltd., a Bermuda limited
company and the parent of GFI ("Bermore"), and such shares and warrants
represent 13.2% of INFLO's Common Stock on a fully diluted basis.
In addition to the strategic value of combining Keebler and Sunshine,
management expects that this combination will provide economic efficiencies in
administration, purchasing, production, sales, distribution and marketing. In
particular, management's current plans include closing up to two manufacturing
plants, closing Sunshine's corporate headquarters, shifting the sales and
distribution of Sunshine's retail branded products to Keebler's DSD system and
reducing redundant sales and distribution infrastructure. Management believes
that Keebler's DSD system will provide a more effective vehicle for marketing
Sunshine branded retail products throughout the United States.
SPONSORS
Artal and Flowers each owns 45.2% (39.1% on a fully diluted basis) of the
outstanding INFLO Common Stock, and INFLO owns 100% of the outstanding common
stock of the Company.
Artal is a private Luxembourg investment company. The Invus Group Ltd.
("Invus"), Artal's U.S. investment advisor, has focused Artal's investments
within the U.S. food industry. Since 1985, with Invus' advice, Artal has
completed more than 25 acquisitions of food companies, including a number in the
baking industry.
Flowers is one of the country's largest manufacturers and marketers of baked
goods. Flowers is a New York Stock Exchange-listed company, operates in the
packaged foods industry and serves the grocery, deli/bakery, foodservice,
restaurant and fast food markets. In fiscal 1995, Flowers generated sales of
$1.1 billion. In terms of fresh retail branded bread and roll market shares as
reported by A.C. Nielsen in 1995, Flowers ranks number one in ten of its fifteen
major markets and number two in its remaining five major markets.
Both Invus and Flowers are working closely with management to execute the
Company's strategic plan.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER........... The Company is offering to exchange pursuant to the Exchange
Offer up to $125,000,000 aggregate principal amount of its
new 10 3/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") for $125,000,000 aggregate principal
amount of its outstanding 10 3/4% Senior Subordinated Notes
due 2006 (the "Notes"). The terms of the Exchange Notes are
identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are freely
transferable by holders thereof (other than as provided
herein), and are not subject to any covenant regarding
registration under the Securities Act. See "The Exchange
Offer--Terms of the Exchange" and "--Terms and Conditions of
the Letter of Transmittal" and "Description of Exchange
Notes."
INTEREST PAYMENTS............ Interest on the Exchange Notes shall accrue from the last
Interest Payment Date (January 1 or July 1) on which
interest was paid on the Notes so surrendered or, if no
interest has been paid on such Notes, from June 26, 1996.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
MINIMUM CONDITION............ The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Notes being tendered for
exchange.
EXPIRATION DATE.............. The Exchange Offer will expire at 5:00 p.m. New York City
time, on , 1996, unless extended (the "Expiration Date").
Any Note not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination
of the Exchange Offer.
EXCHANGE DATE................ The date of acceptance for exchange of the Notes will be the
first business day following the Expiration Date.
CONDITIONS OF THE EXCHANGE
OFFER........................ The Company's obligation to consummate the Exchange Offer
will be subject to certain conditions. See "The Exchange
Offer-- Conditions to the Exchange Offer." The Company
reserves the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the occurrence
of any such condition.
WITHDRAWAL RIGHTS............ The tender of Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
PROCEDURES FOR TENDERING
NOTES...................... See "The Exchange Offer--Tender Procedure."
FEDERAL INCOME TAX
CONSEQUENCES................. The exchange of Notes for Exchange Notes will not be a
taxable exchange for federal income tax purposes. See
"Certain United States Federal Income Tax Consequences."
EFFECT ON HOLDERS OF NOTES... As a result of the making of, and upon acceptance for
exchange of all validly tendered Notes pursuant to the terms
of, this Exchange Offer, the Company will have fulfilled a
covenant contained in the Exchange and Registration Rights
Agreement (the "Registration Rights Agreement") dated June
25, 1996 between the Company, the Guarantors and Nomura
Securities International, Inc. and Morgan Stanley & Co.
Incorporated (the "Initial Purchasers") and, accordingly,
there will be no increase in the interest rate on the Notes
pursuant to the terms of the Registration Rights Agreement,
and the holders of the Notes will have no further
registration or other rights under the Registration Rights
Agreement. Holders of the Notes who do not tender their
Notes in the Exchange Offer will continue to hold such Notes
and will be entitled to all the rights and subject to all
limitations applicable thereto under the Indenture dated as
of June 15, 1996 between the Company, the Guarantors and
United States Trust Company of New York relating to the
Notes and the Exchange Notes (the "Indenture"), except for
any such rights under the Registration Rights Agreement that
by their terms terminate or cease to have further
effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Notes
pursuant to, the Exchange Offer. All untendered Notes will
continue to be subject to the restrictions on transfer
provided for in the Notes and in the Indenture. To the
extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered Notes could be
adversely affected.
USE OF PROCEEDS.............. There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
EXCHANGE AGENT............... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
CONSEQUENCE OF FAILURE TO
EXCHANGE..................... Holders of Notes who do not exchange their Notes for
Exchange Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such Notes
as set forth in the legend thereon as a consequence of the
offer or sale of the Notes pursuant to an exemption from, or
in a transaction not subject to, the registration
requirements of the Securities Act and applicable state
securities laws. In general, the Notes may not be offered or
sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate
that it will register the Notes under the Securities Act or
any state securities laws.
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
ISSUER....................... Keebler Corporation.
SECURITIES OFFERED........... $125,000,000 aggregate principal amount of 10 3/4% Senior
Subordinated Notes due 2006 (the "Exchange Notes").
MATURITY DATE................ July 1, 2006.
INTEREST..................... Interest on the Exchange Notes will accrue from the date of
issuance at the rate of 10 3/4% per annum, and will be
payable in cash semi-annually in arrears on January 1 and
July 1 of each year, commencing on January 1, 1997, to the
holders of record at the close of business on the
immediately preceding December 15 or June 15.
MANDATORY REDEMPTION......... None.
OPTIONAL REDEMPTION.......... The Exchange Notes will be redeemable at the option of the
Company at any time on or after July 1, 2001, in whole or in
part, at the redemption prices set forth herein plus accrued
and unpaid interest, if any, to the date of redemption. In
addition, on or prior to July 1, 1999, the Company may
redeem up to 35% of the original aggregate principal amount
of the Exchange Notes with the proceeds of one or more
Public Equity Offerings at 110.0% of the principal amount
thereof, together with accrued and unpaid interest, if any,
to the date of redemption; provided that at least 65% of the
original aggregate principal amount of the Exchange Notes
remains outstanding immediately after any such redemption.
See "Description of Exchange Notes--Optional Redemption."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
RANKING...................... The Exchange Notes will be general unsecured obligations of
the Company and will be subordinated in right of payment to
all Senior Indebtedness of the Company (which includes all
indebtedness under the Senior Credit Facility) and will rank
senior in right of payment to all future Subordinated
Indebtedness of the Company. As of July 13, 1996, Senior
Indebtedness of the Company was $451.0 million. In addition,
as of July 13, 1996, the Company had approximately $155.0
million of additional borrowing availability under the
Revolving Credit Facility (as defined in "Description of
Senior Credit Facility and the UB Note--Senior Credit
Facility."). See "Description of Exchange Notes--Ranking."
GUARANTEES................... The Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated basis by each of the
Company's existing Restricted Subsidiaries (referred to
herein as the "Guarantors"). The guarantees (the
"Guarantees") will be unsecured, senior subordinated
obligations of the Guarantors and will rank junior in right
of payment to all existing and future Senior Indebtedness of
the Guarantors including their guarantees of the Company's
obligations under the Senior Credit Facility. As of July 13,
1996, the Guarantors had approximately $451.0 million of
Senior Indebtedness, all of which would have represented
guarantees of Senior Indebtedness of the Company. See
"Description of Exchange Notes--Guarantees."
CERTAIN COVENANTS............ The Indenture limits (i) the incurrence of additional
indebtedness by the Company and its subsidiaries, (ii) the
payment of dividends on, and redemption of, capital stock of
the Company and the redemption of certain subordinated
obligations of the Company, (iii) investments, (iv) sales of
assets and subsidiary stock, (v) transactions with
affiliates and (vi) consolidations, mergers and transfers of
all or substantially all the assets of the Company. The
Indenture also prohibits certain restrictions on
distributions from subsidiaries. However, all of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See "Description of
Exchange Notes--Certain Covenants."
CHANGE OF CONTROL............ In the event of a Change of Control, the Company will be
required, subject to certain conditions, to offer to
purchase all outstanding Exchange Notes at a price of 101%
of the principal amount thereof, plus interest accrued to
the date of purchase. See "Description of Exchange
Notes--Certain Covenants."
</TABLE>
RISK FACTORS
Noteholders should carefully consider the information set forth in this
Prospectus and, in particular, should evaluate the specific factors set forth
under "Risk Factors" before tendering Notes in exchange for Exchange Notes.
9
<PAGE>
SUMMARY FINANCIAL DATA
THE COMPANY
The following table sets forth certain unaudited pro forma consolidated
financial data of the Company after giving effect to the Sunshine Acquisition
and the financing thereof and the offering of the Notes (excluding related fees
and expenses) and certain unaudited consolidated financial data of the Company
as of July 13, 1996. The unaudited pro forma consolidated financial data and the
unaudited consolidated financial data have been derived from, and should be read
in conjunction with, the historical and unaudited pro forma consolidated
financial data of the Company, Keebler and Sunshine, included elsewhere herein.
<TABLE>
<CAPTION>
FIRST
TWENTY-FOUR
1995 WEEKS 1996(1)
COMPANY COMPANY
PRO FORMA PRO FORMA
--------- -------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
OPERATING DATA:
Gross sales.............................................................. $2,093.8 $ 979.0
Reclamations and discounts............................................... 64.0 32.8
--------- ------
Net sales................................................................ 2,029.8 946.2
Cost of sales............................................................ 984.5 461.9
--------- ------
Gross profit............................................................. 1,045.3 484.3
Selling, marketing and administrative expenses........................... 1,013.6 467.2
Restructuring charges (gains)............................................ (16.5 ) (9.1)
--------- ------
Income from operations................................................... 48.2 26.2
Interest expense......................................................... 43.4 21.3
--------- ------
Income before income taxes............................................... 4.8 4.9
Income tax expense (benefit)............................................. 5.5 2.8
--------- ------
Net income (loss)........................................................ $ (0.7 ) $ 2.1
--------- ------
--------- ------
OTHER DATA:
EBITDA(2)--before restructuring charges (gains).......................... $ 95.8 $ 48.9
Depreciation, amortization and non-cash expenses relating to retirement
benefit programs....................................................... 64.1 31.8
Capital expenditures..................................................... $ 58.3 $ 12.1
Ratio of EBITDA to interest expense...................................... 2.2 x 2.3x
Ratio of earnings to fixed charges(3).................................... 1.1 x 1.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 13, 1996
-------------------
COMPANY
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 2.6
Total assets................................................................... 1,142.0
Total debt..................................................................... 451.0
Shareholder's equity........................................................... $ 173.5
</TABLE>
- ------------
(1) The Company's first twenty-four weeks 1996 comprises the 24 weeks ended July
13, 1996 for Keebler and the twenty-two weeks ended June 4, 1996 for
Sunshine. Keebler's fiscal year consists of thirteen four-week periods, with
the first quarter consisting of four four-week periods and the second
quarter consisting of three four-week periods. The Keebler Acquisition
closed on the last day of the first four-week period of Keebler's fiscal
1996, and therefore the first quarter 1996 consists of the three four-week
periods ended April 20, 1996.
(2) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, restructuring, and non-cash expenses related to retirement
benefit programs and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity. In particular, EBITDA does not include the effects of interest
expense on earnings, including interest on the Company's $451.0 Senior
Indebtedness (as of July 13, 1996) or the Company's $125.0 million aggregate
principal amount of Notes.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
(including capitalized interest) on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest.
10
<PAGE>
KEEBLER SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary historical consolidated
financial data of Keebler prior to the Keebler Acquisition and excludes
financial data with respect to certain businesses of Keebler sold prior to the
Keebler Acquisition. The historical financial data for fiscal 1993, 1994 and
1995 have been derived from, and should be read in conjunction with, the
historical consolidated financial statements of Keebler, including the
respective notes thereto, included elsewhere herein. The following summary
historical financial data as of July 13, 1996 and for the twenty-four weeks then
ended were derived from the unaudited financial statements of Keebler. The
following table also sets forth certain unaudited summary pro forma consolidated
financial data of Keebler. The unaudited summary pro forma operating data give
effect to the Keebler Acquisition as if the Keebler Acquisition had occurred as
of January 1, 1995. Keebler's fiscal year consists of thirteen four-week
periods, with its first quarter consisting of four four-week periods and the
second quarter consisting of three four-week periods. The Keebler Acquisition
closed on the last day of the first four-week period of fiscal 1996, and
therefore its first quarter 1996 consists of the three four-week periods ended
April 20, 1996.
<TABLE>
<CAPTION>
TWENTY-FOUR
FISCAL WEEKS
FISCAL YEAR ENDED YEAR ENDED ENDED
---------------------------------------- ------------ ------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 30, JULY 13,
1994 1994 1995 1995 1996
HISTORICAL HISTORICAL HISTORICAL PRO FORMA HISTORICAL
---------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross sales................................ $1,453.8 $1,452.9 $1,486.8 $1,486.8 $ 741.4
Reclamations and discounts................. 41.9 40.4 43.9 43.9 22.4
---------- ------------ ------------ ------------ ------------
Net sales.................................. 1,411.9 1,412.5 1,442.9 1,442.9 719.0
Cost of sales.............................. 610.3 626.1 672.8 673.5 343.4
---------- ------------ ------------ ------------ ------------
Gross profit............................... 801.6 786.4 770.1 769.4 375.6
Selling, marketing and administrative
expenses................................... 662.5 675.0 738.9 745.1 353.6
---------- ------------ ------------ ------------ ------------
Income from operations before restructuring
charges.................................... 139.1 111.4 31.2 24.3 22.0
Restructuring charges...................... 102.9 -- -- -- --
---------- ------------ ------------ ------------ ------------
Income from operations..................... 36.2 111.4 31.2 24.3 22.0
Interest expense........................... 81.5 74.5 28.2 32.1 16.6
---------- ------------ ------------ ------------ ------------
Income (loss) before income taxes and
cumulative effect of accounting changes... (45.3) 36.9 3.0 (7.8) 5.4
Income tax expense......................... 14.0 10.6 -- -- 3.0
---------- ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
accounting changes......................... (59.3) 26.3 3.0 (7.8) 2.4
Cumulative effect of accounting changes.... 20.7 1.2 -- -- --
---------- ------------ ------------ ------------ ------------
Net income (loss).......................... $ (80.0) $ 25.1 $ 3.0 $ (7.8) $ 2.4
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
OTHER DATA:
EBITDA--before restructuring charges....... $ 167.6 $ 139.1 $ 71.1 $ 71.1 $ 45.7
Depreciation, amortization and non-cash
expenses relating to retirement benefit
programs................................... 28.5 27.7 39.9 46.8 23.7
Capital expenditures....................... $ 25.5 $ 48.3 $ 52.2 $ 52.2 $ 9.1
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 13, 1996
-------------------
HISTORICAL
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 2.6
Total assets................................................................... 1,142.0
Total debt..................................................................... 451.0
Shareholder's equity........................................................... $ 173.5
</TABLE>
11
<PAGE>
SUNSHINE SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth certain summary historical and unaudited pro
forma financial data of Sunshine prior to the Sunshine Acquisition. The
historical financial data for fiscal 1994, 1995 and 1996 have been derived from,
and should be read in conjunction with, the historical financial statements of
Sunshine, including the respective notes thereto, included elsewhere herein. The
following table also sets forth certain unaudited summary pro forma financial
data of Sunshine. The unaudited summary pro forma operating data give effect to
the Sunshine Acquisition as if the Sunshine Acquisition had occurred as of April
1, 1995. The unaudited summary pro forma balance sheet data give effect to the
Sunshine Acquisition as if the Sunshine Acquisition had occurred as of March 31,
1996.
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY-TWO
------------------------------------------------ WEEKS ENDED
1994 1995 1996 1996 JUNE 4, 1996
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA
---------- ---------- ---------- --------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross sales...................................... $665.4 $654.4 $649.8 $ 607.0 $237.6
Reclamations and discounts....................... 22.2 24.6 21.5 20.1 10.4
---------- ---------- ---------- --------- ------
Net sales........................................ 643.2 629.8 628.3 586.9 227.2
Cost of sales.................................... 335.4 350.3 340.0 311.0 118.5
---------- ---------- ---------- --------- ------
Gross profit..................................... 307.8 279.5 288.3 275.9 108.7
Selling, marketing and administrative expenses... 292.4 300.7 281.4 268.5 113.6
Restructuring charges (gains).................... -- 21.9 (16.5) (16.5) (9.1)
---------- ---------- ---------- --------- ------
Income (loss) from operations.................... 15.4 (43.1) 23.4 23.9 4.2
Interest expense................................. 6.5 8.4 9.3 11.3 4.7
---------- ---------- ---------- --------- ------
Income (loss) before income taxes................ 8.9 (51.5) 14.1 12.6 (0.5)
Income tax expense (benefit)..................... 4.0 (18.9) 6.2 5.5 (0.2)
---------- ---------- ---------- --------- ------
Income (loss) from continuing operations......... 4.9 (32.6) 7.9 7.1 (0.3)
Loss from discontinued operations................ (2.6) -- -- -- --
---------- ---------- ---------- --------- ------
Income (loss) before extraordinary item.......... 2.3 (32.6) 7.9 7.1 (0.3)
Extraordinary item--loss on early extinguishment
of debt (net of income tax).................... -- -- 2.8 -- --
---------- ---------- ---------- --------- ------
Net income (loss)................................ $ 2.3 $(32.6) $ 5.1 $ 7.1 $ (0.3)
---------- ---------- ---------- --------- ------
---------- ---------- ---------- --------- ------
OTHER DATA:
EBITDA--before restructuring charges (gains)..... $ 25.3 $ (8.3) $ 19.3 $ 24.7 $ 3.2
Depreciation, amortization and non-cash expenses
relating to retirement benefit programs.......... 9.9 12.9 12.4 17.3 8.1
Capital expenditures............................. $ 10.9 $ 10.7 $ 6.1 $ 6.1 $ 3.0
</TABLE>
<TABLE>
<CAPTION>
JUNE 4, 1996
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 5.4 $ (30.8)
Total assets................................................................. 203.8 346.8
Due to affiliate............................................................. 11.5 --
Total debt................................................................... 77.0 115.7
Shareholder's equity......................................................... $ 19.1 $ 23.6
</TABLE>
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
Noteholders should carefully consider the following information in evaluating
the Company and its business before tendering Notes in exchange for the Exchange
Notes offered hereby. The risk factors set forth below are generally applicable
to the Notes as well as the Exchange Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of such Notes as set forth in the legend thereon as a consequence of
the offer or sale of the Notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Notes under the Securities Act or any state securities
laws. Based on interpretations by the staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Notes may be offered for resale, resold or otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such Exchange Notes. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The interpretations by the
staff of the Commission on which the Company has relied were based on no-action
letters issued by the staff of Commission to third parties. The Company has not
sought, and does not intend to seek, its own no-action letter and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. See "Plan of Distribution."
SUBSTANTIAL LEVERAGE
At July 13, 1996, the Company's total debt was $451.0 million, and its total
debt to total capitalization ratio was 72.2%. In the ordinary course of
business, the Company has incurred and, subject to certain covenants and
financial tests set out in the Senior Credit Facility, will continue to incur
additional indebtedness to fund seasonal working capital requirements, capital
expenditures and cash restructuring costs.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including: (i) the Company's
ability to obtain financing in the future for working capital, acquisitions,
capital expenditures or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations will be required to be
dedicated to the payment of principal and interest on its indebtedness; and
(iii) the Company's high degree of leverage will make it more vulnerable to
economic downturns and may limit its ability to withstand competitive pressures.
The Company believes that, based upon current levels of operations and
availability under the Revolving Credit Facility, it will be able to meet its
principal and interest payment obligations. If, however, the Company cannot
generate sufficient cash flow from operations or borrow under the Revolving
Credit Facility to meet such obligations, then the Company may be required to
take certain
13
<PAGE>
actions including reducing capital expenditures, restructuring its debt, selling
assets or seeking additional equity in order to avoid an Event of Default. There
can be no assurance that such actions could be effected or would be effective in
allowing the Company to meet such obligations.
HISTORY OF DECLINING EARNINGS
Keebler has experienced a decline in earnings before interest, taxes,
depreciation, amortization, restructuring and non-cash expenses related to
retirement benefit programs ("EBITDA") during the past three years, from $167.6
million (before restructuring charges of $102.9 million) in fiscal 1993 to
$139.1 million in fiscal 1994 to $71.1 million in fiscal 1995. Sunshine's EBITDA
was $25.3 million in fiscal 1994, $(8.3) million (before restructuring charges
of $21.9 million) in fiscal 1995 and $19.3 million (or $24.7 million on a pro
forma basis) in fiscal 1996. The Company's business plan contemplates, and its
future success requires, among other things, that the Company operate at costs
significantly lower than the combined costs incurred by Keebler (or allocated to
Keebler while it was a subsidiary of United Biscuits) and Sunshine (while it was
a subsidiary of GFI). There can be no assurance that the Company will be able to
achieve or to operate at such lower costs.
INCREASES IN PRICES OF RAW MATERIALS
The principal raw materials used by the Company in the manufacture of its
products are flour, sugar, chocolate, shortening and milk. The Company also uses
paper products, such as corrugated cardboard, and plastics to package its
products. The prices of these materials have been and are expected to continue
to be subject to significant volatility. There can be no assurance that the
Company will be able to pass the effects of raw material price increases on to
its customers for any extended period of time, if at all. Although both Keebler
and Sunshine have mitigated the effects of such price increases through their
respective hedging programs, both Keebler and Sunshine have been materially
affected by increases in flour prices over the past two years, which resulted
from a more than 100% increase in the cost of wheat (the major ingredient of
flour), and increases in prices for other raw materials.
ADVERSE EFFECTS OF COMPETITION ON THE COMPANY'S PERFORMANCE
The Company operates in markets that are highly competitive. In certain of
the Company's product lines, there are competitors that are larger and/or have
greater financial resources than the Company, including the Company's primary
competitor, Nabisco. There can be no assurance that the Company will be able to
continue to compete successfully or that such competition will not have a
material adverse effect on the Company's business or financial results.
SUBORDINATION OF THE EXCHANGE NOTES TO ALL SENIOR INDEBTEDNESS OF THE COMPANY
The Exchange Notes and the Guarantees will be general unsecured obligations
of the Company and the Guarantors, respectively, and will be subordinated in
right of payment to all Senior Indebtedness of the Company (which includes all
indebtedness under the Senior Credit Facility and all indebtedness under the
Company's industrial revenue bonds) and will rank senior in right of payment to
all future Subordinated Indebtedness of the Company. As of July 13, 1996, Senior
Indebtedness of the Company was $451.0 million, and the Company would have had
borrowing availability of approximately $155.0 million under the Revolving
Credit Facility. The Senior Credit Facility permits, and the Indenture will
permit, the Company to incur additional Senior Indebtedness in the future,
subject to certain conditions. Moreover, the Indenture will not limit the
Company's ability to incur liens with respect to Senior Indebtedness. In the
event of the insolvency, liquidation, reorganization, dissolution or other
winding-up of the Company or upon a default in payment with respect to, or the
acceleration of, or if a judicial proceeding is pending with respect to any
default under, any Senior Indebtedness, the lenders under the Senior Credit
Facility (the "Lenders") and any other creditors who are holders of
14
<PAGE>
Senior Indebtedness must be paid in full before a holder of Notes may be paid.
Accordingly, there may be insufficient assets remaining after such payments to
pay principal of or interest on the Exchange Notes. In addition, the Company may
not pay principal of, premium, if any, interest on or any other amounts owing in
respect of the Exchange Notes, or purchase, redeem or otherwise retire the
Exchange Notes, (i) if any amounts payable under any Senior Indebtedness is not
paid when due, or (ii) any other default on Senior Indebtedness occurs and the
maturity of such indebtedness is accelerated in accordance with its terms
unless, in either case, such default has been cured or waived, and with respect
to clause (ii) above, such acceleration has been rescinded or such indebtedness
has been paid in full. In addition, under certain circumstances, if any
non-payment default exists with respect to Senior Indebtedness, the Company may
not make any payment on the Exchange Notes for a period of 180 days, unless such
default is cured or waived or such indebtedness has been repaid in full. See
"Description of Exchange Notes--Ranking."
The Company's obligations under the Senior Credit Facility are secured by
substantially all of the assets of the Company and its subsidiaries. If a
default occurs under the Senior Credit Facility and the Company is unable to
repay such borrowings, the Lenders would have the right to exercise the remedies
available to secured creditors under applicable law and pursuant to the Senior
Credit Facility. Accordingly, the Lenders would be entitled to payment in full
out of the assets securing such indebtedness prior to payment to holders of the
Exchange Notes. If the Lenders or the holders of any other secured indebtedness
were to foreclose on the collateral securing the Company's obligations to them,
it is possible that there would be insufficient assets remaining after
satisfaction in full of all such indebtedness to satisfy in full the claims of
holders of the Exchange Notes.
RESTRICTIONS IMPOSED BY SENIOR CREDIT FACILITY
The Senior Credit Facility contains a number of significant covenants that
will, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, pay dividends, prepay subordinated
indebtedness, enter into sale and leaseback transactions, create liens, make
capital expenditures and make certain investments or acquisitions and otherwise
restrict corporate activities. In addition, under the Senior Credit Facility,
the Company will be required to satisfy specified financial covenants, including
cash flow to total debt, interest coverage, and consolidated net worth tests.
The ability of the Company to comply with such provisions may be affected by
events beyond the Company's control. In order to comply with certain of these
covenants, the Company will be required to achieve financial and operating
results that are significantly better than those achieved by Keebler in fiscal
1995 and Sunshine in fiscal 1996, and there can be no assurance that improved
results will be achieved. The breach of any of these covenants could result in a
default under the Senior Credit Facility. In the event of any such default,
depending upon the actions taken by the Lenders, the Company and the Guarantors
could be prohibited from making any payments of principal of or interest on the
Exchange Notes. See "Description of Exchange Notes--Ranking." In addition, the
Lenders could elect to declare all amounts borrowed under the Senior Credit
Facility, together with accrued interest, to be due and payable. These
restrictions, in combination with the Company's significant leverage, could
limit the Company's ability to respond to changing market and economic
conditions and to provide for capital expenditures. If the Company is unable to
generate sufficient cash flow from operations, it may be required to refinance
its outstanding debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that would be favorable or acceptable to
the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company or any Guarantor, as the case may be, at the time it issued the Exchange
Notes or the Guarantees, as the case may be, (a) incurred such
15
<PAGE>
indebtedness with the intent to hinder, delay or defraud creditors, or (b)(i)
received less than reasonably equivalent value or fair consideration and (ii)(A)
was insolvent at the time of such incurrence, (B) was rendered insolvent by
reason of such incurrence (and the application of the proceeds thereof), (C) was
engaged or was about to engage in a business or transaction for which the assets
remaining with the Company or such Guarantor, as the case may be, constituted
unreasonably small capital to carry on its business, or (D) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they mature, then, in each such case, a court of competent jurisdiction could
avoid, in whole or in part, the Exchange Notes or Guarantees, as the case may
be, or, in the alternative, subordinate the Exchange Notes or Guarantees, as the
case may be, to existing and future indebtedness of the Company or such
Guarantor, as the case may be. The measure of insolvency for purposes of the
foregoing would likely vary depending upon the law applied in such case.
Generally, however, the Company or a Guarantor would be considered insolvent if
the sum of its debts, including contingent liabilities, was greater than all of
its assets at a fair valuation, or if the present fair saleable value of its
assets was less than the amount that would be required to pay the probable
liabilities on its existing debts, including contingent liabilities, as such
debts become absolute and matured. The Company believes that, for purposes of
the United States Bankruptcy Code and state fraudulent transfer or conveyance
laws, the Exchange Notes and the Guarantees are being issued without the intent
to hinder, delay or defraud creditors and for proper purposes and in good faith,
and that the Company and the Guarantors will receive reasonably equivalent value
or fair consideration therefor, and that after the issuance of the Exchange
Notes and the application of the net proceeds therefrom, the Company and the
Guarantors will be solvent, will have sufficient capital for carrying on their
business and will be able to pay their debts as they mature. However, there can
be no assurance that a court passing on such issues would agree with the
determination of the Company.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Notes. The Notes
were offered and sold in June 1996 to a small number of institutional investors
and are eligible for trading in the Private Offerings, Resales and Trading
through Automatic Linkages ("PORTAL") market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the Exchange Notes
to sell their Exchange Notes or the price at which such holders would be able to
sell their Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities. Although there is currently no market for the Exchange
Notes, the Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so, and any market making with respect to the Exchange
Notes may be discontinued at any time without notice.
CONTROL OF INFLO BY ARTAL AND FLOWERS
Artal and Flowers each owns 45.2% (or 39.1% on a fully diluted basis) of the
outstanding INFLO Common Stock, which in turn owns 100% of the outstanding
common stock of the Company. Accordingly, Artal and Flowers control the Company
and have the power to elect all of its directors, appoint management and,
subject to Bermore's rights under the GFI Stockholder's Agreement (as defined in
"Certain Related Transactions--GFI Stockholder's Agreement"), approve any action
requiring the approval of the Company's stockholders, including adopting
amendments to the Company's Certificate of Incorporation and approving mergers
or sales of substantially all of the Company's assets. Pursuant to the Investor
Stockholders' Agreement, each of Artal and Flowers has the right to require the
sale of INFLO after January 26, 1999, and both have certain demand and other
incidental
16
<PAGE>
registration rights. There can be no assurance that the interests of Artal and
Flowers will not conflict with the interests of holders of the Notes. See
"Sponsors," "Management," "Principal Stockholders" and "Certain Related
Transactions."
RELIANCE ON NEW MANAGEMENT
Immediately after the Keebler acquisition, a new management team led by Mr.
Sam K. Reed was installed. Implementation of the Company's business strategy and
the future performance of the Company will be closely tied to the ongoing
employment of the new management team by the Company. There can be no assurance
that any or all of the members of the new management team will continue to be
employed by the Company. See "Business--History of Keebler, the Keebler
Acquisition and New Management" and "Management".
THE ACQUISITIONS
KEEBLER ACQUISITION
On January 26, 1996, INFLO, a newly formed Delaware corporation owned by
Artal, Flowers and certain members of Keebler's current management, acquired all
of the shares of Keebler for an aggregate consideration of $454.9 million
(excluding related fees and expenses and after receipt of $32.6 million cash as
a post-closing working capital adjustment) through Keebler Acquisition Corp., a
wholly owned subsidiary of INFLO. Immediately after the Keebler Acquisition,
Keebler Acquisition Corp. merged with and into Keebler with the surviving entity
later being named Keebler Corporation. Prior to the Keebler Acquisition, Keebler
was an indirect, wholly owned subsidiary of United Biscuits. For the fiscal
years ended January 1, 1994, December 31, 1994 and December 30, 1995, Keebler
had $1,453.8 million, $1,452.9 million and $1,486.8 million in gross sales,
respectively, and $167.6 million (before restructuring charges of $102.9
million), $139.1 million and $71.1 million in EBITDA, respectively.
Financing for the Keebler Acquisition was comprised of (i) a $157.5 million
capital contribution provided by INFLO, (ii) a $200.0 million advance under the
Senior Credit Facility, which is provided by Lenders for whom Scotiabank acts as
administrative agent, (iii) $125.0 million of proceeds from the sale of the 12%
Increasing Rate Extendable Senior Subordinated Notes (the "Increasing Rate
Notes") to an affiliate of Nomura Securities International, Inc. ("Nomura"), and
(iv) the assumption of $20.3 million of senior indebtedness. The Company
refinanced the Increasing Rate Notes with the proceeds of the issuance of the
Notes. See "Use of Proceeds."
17
<PAGE>
The following table sets forth the sources and uses of funds for the Keebler
Acquisition but does not include the effect of the Offering and related
expenses.
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES
Capital contribution from INFLO(1)......................... $ 157.5
Advances under the Senior Credit Facility.................. 200.0
Increasing Rate Notes...................................... 125.0
Assumed senior indebtedness................................ 20.3
-------
Total................................................ $ 502.8
-------
-------
USES
Purchase price(2).......................................... $ 487.5
Transaction fees and expenses(3)........................... 15.3
-------
Total................................................ $ 502.8
-------
-------
</TABLE>
- ------------
(1) The source of the funds for the capital contribution by INFLO was provided
by the issuance by INFLO of a $32.5 million subordinated note to United
Biscuits (the "UB Note") and the sale by INFLO for $125.0 million of the
INFLO Common Stock to Artal, Flowers and members of the Company's management
team. The UB Note has been discounted in accordance with GAAP and was
recorded at $24.4 million on Keebler's consolidated balance sheet. See
"Description of the Senior Credit Facility and the UB Note--the UB Note."
(2) An affiliate of United Biscuits has paid a $32.6 million post-closing
working capital adjustment pursuant to the stock purchase agreement between
INFLO and such affiliate of United Biscuits, which is reflected on the
Company's balance sheet but is not reflected in the purchase price set forth
above.
(3) An additional $1.2 million of fees and expenses in connection with the
Keebler Acquisition were financed from Keebler's operating cash.
SUNSHINE ACQUISITION
On June 4, 1996, the Company acquired Sunshine for an aggregate
consideration of $171.6 million (excluding related fees and expenses of $2.2
million). Prior to the Sunshine Acquisition, Sunshine was a wholly owned
subsidiary of GFI, a privately held corporation headquartered in San Mateo,
California. For the fiscal years ended March 31, 1994, 1995 and 1996,
respectively, Sunshine had $665.4 million, $654.4 million and $649.8 million (or
$607.0 million on a pro forma basis) in gross sales, respectively, and $25.3
million, $(8.3) million (before restructuring charges of $21.9 million) and
$19.3 million before restructuring gains of $16.5 million (or $24.7 million on a
pro forma basis) in EBITDA, respectively.
The Sunshine Acquisition was funded by (i) $150.2 million in cash, of which
$36.2 million was provided by Keebler's existing cash and $114.0 million (net of
cash acquired of $5.4 million) was provided by borrowings under the Senior
Credit Facility and (ii) the issuance to GFI of approximately $23.6 million of
INFLO Common Stock and warrants, which was accounted for as a capital
contribution.
18
<PAGE>
The following table sets forth the sources and uses of funds for the
Sunshine Acquisition.
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES
Available cash............................................. $ 36.2
Advances under the Senior Credit Facility.................. 114.0
Capital contribution from INFLO(1)......................... 23.6
-------
Total................................................ $ 173.8
-------
-------
USES
Purchase price............................................. $ 171.6
Transaction fees and expenses(2)........................... 2.2
-------
Total................................................ $ 173.8
-------
-------
</TABLE>
- ------------
(1) The source of the capital contribution from INFLO was provided for by the
sale to GFI for $23.6 million of shares of INFLO Common Stock and warrants
to purchase additional shares of INFLO Common Stock.
(2) Estimated.
SPONSORS
Artal and Flowers each owns 45.2% (or 39.1% on a fully diluted basis) of the
outstanding INFLO Common Stock, and INFLO owns 100% of the outstanding common
stock of the Company. Bermore owns 7.3% of the outstanding INFLO Common Stock
and warrants to purchase additional shares, which together with Bermore's
existing shares would represent approximately 13.2% of the shares of INFLO
Common Stock on a fully diluted basis. Members of Keebler's management own the
remaining 2.3% of the outstanding INFLO Common Stock and will have the right to
purchase through options (two-thirds of which will vest upon the attainment of
certain performance criteria) an additional number of shares of INFLO Common
Stock, which together with management's existing shares would represent up to
approximately 8.6% of the shares of INFLO Common Stock on a fully diluted basis.
Both Artal and Flowers have extensive experience in the U.S. baking industry and
intend to work closely with management to execute the Company's strategic plan.
ARTAL
Artal is a private Luxembourg investment company, which is controlled by a
group of Belgian families who are the former owners of Raffinerie Tirlemontoise,
the leading Belgian sugar company. In 1985, Invus was independently formed in
New York and engaged by Artal to develop and implement an investment strategy
through acquisitions in the U.S. food industry on behalf of Artal.
Invus focuses Artal's investments within the U.S. food industry, often
through acquisitions of seemingly mature companies, where significant value can
be created by implementing a well defined business plan to leverage a strategic
opportunity that has been identified. Previous investments include taking
regional brands national (i.e., Polaner All-Fruit jams and jellies),
consolidating a fragmented industry (i.e., Stella Foods), integrating
quasi-competitors to rationalize costs and leverage management skills (i.e.,
Metz/Heileman), or adjusting a faulty corporate strategy to take advantage of a
fundamentally sound strategic position (i.e., Mother's). Based on Invus' advice,
Artal assembles experienced management teams, who generally co-invest along with
Artal, to help develop and implement its business plan.
19
<PAGE>
A significant portion of Artal's investments in the U.S. has been made in
the baking industry. Based on Invus' advice, Artal formed the leading full-line
direct-store delivery baking company in the upper Mid-West region, through the
acquisition, merger and integration of Heileman Baking Company and Metz Baking
Company. Under the Metz management team, production was rationalized and the
logistics system streamlined. Separately, Artal, on Invus' advice, also acquired
Mother's in September 1990, working with Sam K. Reed as a management investor
and partner. Mother's produces and markets cookies in 13 western states through
a DSD sales and distribution system. Several key executives were recruited to
form a new senior management team along with executives retained from prior
management. Based on Invus' advice, Artal and the new management group developed
and implemented a new marketing strategy, which emphasized brand profitability
while reducing marketing expenses. Based on Invus' advice, Artal and the new
management controlled fixed costs and improved bakery efficiencies, which
combined with the new marketing strategy, improved operating earnings during the
first year under new ownership, which improvement continued each year through
Artal's sale of Mother's in August 1993.
By 1993, Artal, on Invus' advice, had acquired over 25 businesses, which
were grouped into eight core companies in sectors ranging from wholesale baking
and cookies and crackers to specialty cheeses and meats, with consolidated sales
of approximately $2.0 billion. During that year, Artal sold substantially all
the acquired businesses in two separate transactions.
FLOWERS
Flowers, a New York Stock Exchange-listed company, began business in 1919 as
Flowers Baking Company, Inc. in Thomasville, Georgia. Flowers operates in the
packaged foods industry and serves the grocery, deli/bakery, foodservice,
restaurant and fast food markets. In fiscal 1995, the company generated sales of
$1.1 billion. In terms of fresh branded retail bread and roll market shares as
reported by A.C. Nielsen in 1995, Flowers ranks number one in ten of its fifteen
major markets and number two in its remaining five major markets. In addition,
Flowers' Nature's Own brand is the number one brand of wheat/variety bread in
the United States based on 1995 supermarket sales as reported by IRI.
Today, Flowers is one of the country's largest manufacturers and marketers
of fresh and frozen baked goods. Flowers has attained this position through its
focus on five core strategies: (1) producing and marketing a wide variety of
consumer, value added, high quality products; (2) a continuing focus on lowering
production and distribution costs, through both cost reductions and capital
investment; (3) building an efficient product distribution network; (4)
acquiring and integrating fresh and frozen baked goods businesses; and (5)
developing a broad mix of sales channels, including grocery chains, wholesalers,
foodservice distributors and fast food chains.
Since 1967, Flowers has made over 75 acquisitions in the U.S. food industry
with an aggregate value of over $300 million. With most of these acquisitions,
Flowers has combined manufacturing, marketing, sales and distribution systems of
the acquired businesses with those of Flowers' existing businesses. The $61.1
million Flowers has invested in the Company is currently its single largest
investment in another company.
Among other projects, the Company is currently developing and taking
advantage of purchasing synergies with Flowers and exploring possible reciprocal
co-packaging and distribution arrangements with Flowers. However, there can be
no assurances that such synergies or arrangements will be realized. See
"Business--Company Strategy" and "--Raw Materials."
20
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
The net proceeds from the offering of the Notes (the "Notes Offering"),
estimated to be approximately $120.25 million after deducting discounts,
commissions and estimated fees and expenses incurred in connection therewith,
were applied (together with cash and/or borrowings under the Revolving Credit
Facility) to repay approximately $125 million in indebtedness outstanding under
the Increasing Rate Notes (including accrued interest) incurred in connection
with the Keebler Acquisition, of which approximately $77.5 million were then
held by an affiliate of Nomura.
The Increasing Rate Notes would have matured on January 26, 1998, subject to
exchange at such time for additional notes of the Company. The Increasing Rate
Notes bore interest at 12% per annum at such time. The proceeds from the sale of
the Increasing Rate Notes were used to finance the Keebler Acquisition. See "The
Acquisitions" and "Plan of Distribution."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Notes were originally issued and sold on June 25, 1996. The offer and
sale of the Notes was not required to be registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act. In
connection with the sale of the Notes, the Company and the Guarantors agreed to
file with the Commission a registration statement relating to an exchange offer
pursuant to which new senior subordinated notes of the Company covered by such
registration statement and containing terms identical in all material respects
to the terms of the Notes would be offered in exchange for Notes tendered at the
option of the holders thereof, or, if applicable interpretations of the staff of
the Commission did not permit the Company to effect such an exchange offer, the
Company and the Guarantors agreed to file a shelf registration statement
covering resales of the Notes (the "Shelf Registration Statement") and use their
best efforts to have such Shelf Registration Statement become effective under
the Securities Act on or prior to the later of (x) the 120th calendar day after
June 25, 1996 or (y) the 45th calendar day after the publication of the change
in law or interpretation and to keep effective the Shelf Registration Statement
until the earlier of three years from June 25, 1996 or such shorter period
ending when all Notes covered by the Shelf Registration Statement have been sold
in the manner set forth and as contemplated in the Shelf Registration Statement
or when the Notes become eligible for resale pursuant to Rule 144 under the
Securities Act without volume restrictions.
The purpose of the Exchange Offer is to fulfill certain of the Company's and
the Guarantors' obligations under the Registration Rights Agreement. This
Prospectus may not be used by any holder of the Notes or any holder of the
Exchange Notes to satisfy the registration and prospectus delivery requirements
under the Securities Act that may apply in connection with any resale of such
Notes or Exchange Notes. See "Terms of the Exchange" below.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
21
<PAGE>
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of Notes.
The terms of the Exchange Notes are identical in all material respects to the
terms of the Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the Exchange Notes will generally be freely transferable by
holders thereof and will not be subject to any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and will be
entitled to the benefits of the Indenture. See "Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Notes
may be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Notes may be offered for resale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is an "affiliate" or the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any other such person is
engaging in or intends to engage in the distribution of such Exchange Notes.
Since the Commission has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. Any
holder who is an affiliate of the Company or who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes cannot
rely on such interpretation by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each holder must acknowledge that it has
no arrangement or understanding with any person to participate in the
distribution of Exchange Notes. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Notes, where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "--Terms and Conditions of the
Letter of Transmittal" and "Plan of Distribution."
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Notes so surrendered or, if no interest
has been paid on such Notes, from June 25, 1996.
Tendering holders of the Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Notes pursuant
to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1996, unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date on which the Exchange Offer, as so extended by the Company, shall
expire. The Company reserves the right to extend the Exchange Offer at any time
and from time to time
22
<PAGE>
by giving oral or written notice to United States Trust Company of New York (the
"Exchange Agent) and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Notes
previously tendered and not withdrawn pursuant to the Exchange Offer will remain
subject to the Exchange Offer.
The term "Exchange Date" means the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Notes if any of the events set
forth below under "Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is advantageous
to the holders of the Notes, whether before or after any tender of the Notes.
Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date, the Company will exchange the Exchange Notes
for the Notes on the Exchange Date.
TENDER PROCEDURE
The tender to the Company of Notes by a holder thereof pursuant to one of
the procedures set forth below and the acceptance thereof by the Company will
constitute a binding agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent out on or about , 1996, to all holders of Notes known
to the Company and the Exchange Agent.
A holder of Notes may tender the same by (i) properly completing and signing
the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Notes being tendered and any required signature guarantees and
any other documents required by the Letter of Transmittal, to the Exchange Agent
at its address set forth on the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Notes are registered in the name of the signer of the Letter of
Transmittal and the Exchange Notes to be issued in exchange therefor are to be
issued (and any untendered Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office, branch, agency or correspondent in the United States, or by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the Exchange Notes and/or Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Notes, the signature in
the Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE OBTAINED, AND THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR
NOTES SHOULD BE SENT TO THE COMPANY.
23
<PAGE>
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of Notes by causing such book-entry transfer facility to transfer such
Notes into the Exchange Agent's account with respect to the Notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Notes may be effected through book-entry transfer into the Exchange
Agent's accounts at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth on the Letter of Transmittal on or prior
to the Expiration Date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Notes to reach the Exchange Agent before the Expiration
Date or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if the Exchange Agent has received at its office
listed on the Letter of Transmittal on or prior to the Expiration Date a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Notes are registered and, if possible, the certificate numbers of the Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that three New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at the
book-entry facility), will be delivered by such Eligible Institution together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Notes being tendered by the above-described method
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Notes (or a confirmation of book-entry transfer of such Notes
into the Exchange Agent's account at the book-entry transfer facility) is
received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Notes will be determined
by the Company, whose determination will be final and binding. The Company
reserves the absolute right to reject any Notes not properly tendered or the
acceptance for exchange of which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Notes. Unless waived, any defects or irregularities in connection with
tenders of Notes for exchange must be cured within such reasonable period of
time as the Company shall determine. None of the Company, the Exchange Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
24
<PAGE>
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Notes to the Company and irrevocably constitutes and appoints
the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the
Notes to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Notes and to acquire Exchange Notes issuable upon the exchange of
such tendered Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Notes or transfer ownership of such Notes on the account
books maintained by a book-entry transfer facility. The Transferor further
agrees that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of certain of their obligations under the Registration Rights Agreement.
All authority conferred by the Transferor will survive the death or incapacity
of the Transferor and every obligation of the Transferor shall be binding upon
the heirs, legal representatives, successors, assigns, executors and
administrators of such Transferor.
By tendering, each holder of Notes will represent to the Company that, among
other things, (i) Exchange Notes to be acquired by such holder of Notes in
connection with the Exchange Offer are being acquired by such holder in the
ordinary course of business of such holder, (ii) such holder has no arrangement
or understanding with any person to participate in the distribution of the
Exchange Notes, (iii) such holder acknowledges and agrees that any person who is
a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters issued to third parties, (iv) such holder
understands that a secondary resale transaction described in clause (iii) above
and any resales of Exchange Notes obtained by such holder in exchange for Notes
acquired by such holder directly from the Company should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (v) such holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If the holder is a broker-dealer
that will receive Exchange Notes for such holder's own account in exchange for
Notes that were acquired as a result of market-making activities or other
trading activities, such holder will be required to acknowledge in the Letter of
Transmittal that such holder will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See "Plan of Distribution." This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
will, for a period of 180 days after the Expiration Date, make copies of this
Prospectus available to any broker-dealer for use in connection with any such
resale.
25
<PAGE>
WITHDRAWAL RIGHTS
Tenders of Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the Letter of Transmittal, and with respect to a facsimile
transmission, must be confirmed by telephone and an original delivered by
guaranteed overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Notes to be
withdrawn, the certificate numbers of Notes to be withdrawn, the principal
amount of Notes to be withdrawn, a statement that such holder is withdrawing his
election to have such Notes exchanged, and the name of the registered holder of
such Notes, and must be signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Notes promptly following receipt of notice of withdrawal. If Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Notes or otherwise comply
with the book-entry transfer procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Issuer, and such determination will be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Notes tendered by
book-entry transfer into the Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
Notes will be credited to an account with such book-entry transfer facility
specified by the holder) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Notes may be
retendered by following one of the procedures described under "--Tender
Procedure" above, at any time on or prior to the Expiration Date.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the satisfaction or waiver of all the terms and conditions of the
Exchange Offer, the acceptance for exchange of Notes validly tendered and not
withdrawn and issuance of the Exchange Notes will be made on the Exchange Date.
For the purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Notes when, as and if the Company has
given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Notes for
the purposes of receiving Exchange Notes from the Company and causing the Notes
to be assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Notes. Tendered Notes not accepted for exchange by
the Company will be returned without expense to the tendering holders promptly
following the Expiration Date or, if the Company terminated the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is so
terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the
26
<PAGE>
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service), or, at its option, modify or otherwise amend the Exchange Offer,
if any of the following events occur:
(a) any law, rule or regulation or applicable interpretations of the
staff of the Commission which, in the good faith determination of the
Company, do not permit the Company to effect the Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangements with any person to participate in the
distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(d) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Notes or the Exchange Notes;
which, in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The Company expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Notes upon the occurrence of any of the foregoing
conditions (which represent all of the material conditions to the acceptance by
the Company of properly tendered Notes). In addition, the Company may amend the
Exchange Offer at any time prior to the Expiration Date if any of the conditions
set forth above occur. Moreover, regardless of whether any of such conditions
has occurred, the Company may amend the Exchange Offer in any manner which, in
its good faith judgment, is advantageous to holders of the Notes.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in the reasonable judgment of the
Company. Any determination made by the Company concerning an event, development
or circumstance described or referred to above will be final and binding on all
parties.
The Company is not aware of the existence of any of the foregoing events.
27
<PAGE>
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer, Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the Letter of Transmittal. United
States Trust Company of New York also acts as Trustee and Registrar (the
"Registrar") under the Indenture.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and related documents to the
beneficial owners of the Notes and in handling or forwarding tenders for their
customers.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holder of Notes in
such jurisdiction. In any jurisdiction in which the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
TRANSFER TAXES
Holders who tender their Notes for exchange will not be obligated to pay any
transfer taxes in connection therewith, except that holders who instruct the
Company to register Exchange Notes in the name of, or request that Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of such Notes as set forth in the legend thereon as a consequence of
the offer or sale of the Notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
28
<PAGE>
applicable state securities laws. The Company does not currently anticipate that
it will register the Notes under the Securities Act based on interpretations by
the staff of the Commission issued to third parties. The Company has not sought,
and does not intend to seek, its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. The Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of such
Exchange Notes, where such Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Notes
should carefully consider whether to participate. Holders of the Notes are urged
to consult their financial and tax advisors in making their own decisions on
which action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Notes pursuant to the terms of, this Exchange Offer, the
Company and the Guarantors will have fulfilled certain covenants contained in
the Registration Rights Agreement. Holders of Notes who do not tender their
Notes in the Exchange Offer will continue to hold such Notes and will be
entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for such rights under the Registration Rights Agreement that
by their terms terminate or cease to have further effectiveness as a result of
the making of this Exchange Offer. See "Description of Exchange Notes." All
untendered Notes will continue to be subject to the restrictions on transfer set
forth in the Indenture. To the extent that Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Notes which are not
tendered in the Exchange Offer.
29
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of July 13, 1996. The information contained in this table should
be read in conjunction with the financial data under "Selected Unaudited Pro
Forma Consolidated Financial Data," the financial data under "Selected
Historical Consolidated Financial Data" and the historical audited consolidated
financial statements of Keebler and Sunshine, each with the related notes
thereto and included elsewhere herein.
<TABLE>
<CAPTION>
AS OF
JULY 13, 1996
-------------
(DOLLARS IN
MILLIONS)
<S> <C>
Cash and cash equivalents...................................................... $ 2.6
-------------
-------------
Short-term debt and current maturities of long-term debt....................... $ 36.7
Long-term debt:
Senior Credit Facility:
Revolving Credit Facility ($13.6 million included in current maturities)... --
Term Loans................................................................. 279.1
Other long-term debt......................................................... 10.2
Notes........................................................................ 125.0
-------------
Total debt (including current maturities).................................. 451.0
-------------
Shareholder's equity:
Common Stock (1,000,000 shares outstanding,
$1.00 par value)........................................................... 1.0
Additional paid-in capital................................................. 172.0
Retained earnings.......................................................... 0.5
-------------
Total shareholder's equity................................................. 173.5
-------------
TOTAL CAPITALIZATION........................................................... $ 624.5
-------------
-------------
</TABLE>
30
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
COMPANY
The following unaudited pro forma consolidated financial data of the Company
have been derived by the application of pro forma adjustments to the unaudited
pro forma consolidated financial data of Keebler and Sunshine included elsewhere
herein. The unaudited pro forma operating data for the periods presented give
effect to the Sunshine Acquisition and the related financing transactions, as if
the transactions had occurred as of the beginning of the periods presented. The
unaudited pro forma balance sheet of the Company gives effect to the Sunshine
Acquisition and the related financing transactions and the Notes Offering
(excluding related fees and expenses) as if the transaction occurred as of the
date presented.
COMPANY UNAUDITED PRO FORMA OPERATING DATA
<TABLE>
<CAPTION>
FIRST
FISCAL YEAR ENDED TWENTY-FOUR TWENTY-TWO FIRST
----------------------- WEEKS ENDED WEEKS TWENTY-FOUR
DECEMBER 30, MARCH 31, JULY 13, ENDED JUNE 4, WEEKS
1995 1996 1995 1996 1996 1996
KEEBLER SUNSHINE COMPANY KEEBLER(1) SUNSHINE(1) COMPANY(1)
PRO FORMA PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
------------ --------- --------- ----------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross sales......................... $1,486.8 $ 607.0 $2,093.8 $ 741.4 $ 237.6 $ 979.0
Reclamations and discounts.......... 43.9 20.1 64.0 22.4 10.4 32.8
------------ --------- --------- ----------- ------ ------
Net sales........................... 1,442.9 586.9 2,029.8 719.0 227.2 946.2
Cost of sales....................... 673.5 311.0 984.5 343.4 118.5 461.9
------------ --------- --------- ----------- ------ ------
Gross profit........................ 769.4 275.9 1,045.3 375.6 108.7 484.3
Selling, marketing and
administrative
expenses........................... 745.1 268.5 1,013.6 353.6 113.6 467.2
Restructuring charges (gains)....... -- (16.5) (16.5 ) -- (9.1) (9.1)
------------ --------- --------- ----------- ------ ------
Income (loss) from operations....... 24.3 23.9 48.2 22.0 4.2 26.2
Interest expense.................... 32.1 11.3 43.4 16.6 4.7 21.3
------------ --------- --------- ----------- ------ ------
Income (loss) before income taxes... (7.8) 12.6 4.8 5.4 (0.5) 4.9
Income tax expense (benefit)........ -- 5.5 5.5 3.0 (0.2) 2.8
------------ --------- --------- ----------- ------ ------
Net income (loss)................... $ (7.8) $ 7.1 $ (0.7 ) $ 2.4 $ (0.3) $ 2.1
------------ --------- --------- ----------- ------ ------
------------ --------- --------- ----------- ------ ------
OTHER DATA:
EBITDA--before restructuring charges
(gains)............................. $ 71.1 $ 24.7 $ 95.8 $ 45.7 $ 3.2 $ 48.9
Depreciation, amortization and
non-cash expenses relating to
retirement benefit programs........ 46.8 17.3 64.1 23.7 8.1 31.8
Capital expenditures................ $ 52.2 $ 6.1 $ 58.3 $ 9.1 $ 3.0 $ 12.1
Ratio of EBITDA to interest
expense............................. 2.2 x 2.3x
Ratio of earnings to fixed
charges(2).......................... 1.1 x 1.2x
</TABLE>
- ------------
(1) The Company's first twenty-four weeks 1996 comprises the 24 weeks ended July
13, 1996 for Keebler and the twenty-two weeks ended June 4, 1996 for
Sunshine. Keebler's fiscal year consists of thirteen four-week periods, with
the first quarter consisting of four four-week periods and the second
quarter consisting of three four-week periods. The Keebler Acquisition
closed on the last day of the first four-week period of Keebler's fiscal
1996, and therefore the first quarter 1996 consists of the three four-week
periods ending April 20, 1996.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
(including capitalized interest) on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest.
31
<PAGE>
COMPANY BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
JULY 13, 1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2.6
Trade accounts and notes receivable........................................... 143.0
Inventories................................................................... 114.5
Deferred income taxes......................................................... 49.3
Other......................................................................... 19.5
-------------
Total current assets...................................................... 328.9
Property, plant and equipment, net.............................................. 495.3
Goodwill........................................................................ 261.7
Prepaid pension................................................................. 34.4
Other assets.................................................................... 21.7
-------------
TOTAL ASSETS.................................................................... $ 1,142.0
-------------
-------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt...................... $ 36.7
Trade accounts payable........................................................ 105.1
Other accrued liabilities..................................................... 196.7
Restructuring reserves........................................................ --
-------------
Total current liabilities................................................. 338.5
Long-term debt.................................................................. 414.2
Deferred income taxes........................................................... 72.7
Pension liability............................................................... 39.2
Postretirement and employment obligations....................................... 74.2
Restructuring reserves.......................................................... --
Deferred compensation........................................................... 17.4
Other liabilities............................................................... 12.3
-------------
Total liabilities......................................................... 968.5
Shareholder's equity
Contributed capital........................................................... 173.0
Retained earnings............................................................. .5
-------------
Total shareholder's equity................................................ 173.5
-------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................................... $ 1,142.0
-------------
-------------
</TABLE>
32
<PAGE>
KEEBLER
The following unaudited pro forma consolidated financial data of Keebler
have been derived by the application of pro forma adjustments to the historical
consolidated financial statements of Keebler included elsewhere herein. The
unaudited pro forma operating data for the periods presented give effect to the
Keebler Acquisition and the Notes Offering (excluding related fees and
expenses), as if all related transactions had occurred on January 1, 1995.
KEEBLER UNAUDITED PRO FORMA OPERATING DATA
<TABLE>
<CAPTION>
FOR THE TWENTY-
FOUR WEEKS
FOR THE YEAR ENDED DECEMBER 30, 1995 ENDED
---------------------------------------- JULY 13, 1996
PRO FORMA -----------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL
---------- ----------- --------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Gross sales................................ $ 1,486.8 $-- $1,486.8 $ 741.4
Reclamations and discounts................. 43.9 -- 43.9 22.4
---------- ----------- --------- ------
Net sales.................................. 1,442.9 -- 1,442.9 719.0
Cost of sales.............................. 672.8 0.7(a) 673.5 343.4
---------- ----------- --------- ------
Gross profit............................... 770.1 (0.7) 769.4 375.6
Selling, marketing and administrative
expenses................................. 738.9 6.2(b) 745.1 353.6
---------- ----------- --------- ------
Income (loss) from operations.............. 31.2 (6.9) 24.3 22.0
Interest expense........................... 28.2 3.9(c) 32.1 16.6
---------- ----------- --------- ------
Income (loss) before income taxes.......... 3.0 (10.8) (7.8 ) 5.4
Income tax expense......................... -- -- (d) -- 3.0
---------- ----------- --------- ------
Net income (loss).......................... $ 3.0 $ (10.8) $ (7.8 ) $ 2.4
---------- ----------- --------- ------
---------- ----------- --------- ------
OTHER DATA:
EBITDA..................................... $ 71.1 -- $ 71.1 $ 45.7
Depreciation, amortization and non-cash
expenses relating to retirement benefit
programs................................. 39.9 $ 6.9 46.8 23.7
Capital expenditures....................... $ 52.2 -- $ 52.2 $ 9.1
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Adjustments reflect increased depreciation of factory equipment due to preliminary fixed
assets revaluation ($0.7 per year).
(b) Adjustments reflect (i) the amortization of goodwill of $138.9 over a 40-year period
($3.5 per year, net of Keebler's historical goodwill amortization of $1.7 per year),
(ii) increased depreciation of buildings and delivery/administrative equipment due to
preliminary fixed asset revaluation ($3.3 per year) and (iii) amortization of
organizational expense of $5.5 over a 5-year period ($1.1 per year).
(c) The pro forma adjustment to net interest expense reflects the following:
</TABLE>
<TABLE>
<S> <C>
Borrowings under the Senior Credit Facility--$200.0 @ various
rates............................................................. $ 16.5
Senior Subordinated Notes due 2006--$125.0 @ 10 3/4%............. 13.4
Industrial revenue bonds--$20.3 @ various rates.................. 1.0
------
30.9
Elimination of historical net interest expense................... (28.2)
Amortization of debt issuance costs.............................. 1.2
------
$ 3.9
------
------
</TABLE>
<TABLE>
<C> <S>
(d) No income tax benefit has been ascribed to the pro forma 1995 pretax loss because
Keebler had no available tax loss carryback.
</TABLE>
33
<PAGE>
Note: The following provides a preliminary allocation of the purchase price.
<TABLE>
<S> <C> <C>
Purchase Price................................................. $ 487.5
Less: Discount recorded on seller note of $32.5................ (8.2)
Less: Assets acquired.......................................... (814.0)
Plus: Liabilities assumed...................................... 767.9
Preliminary Purchase Price Allocation
. Assets.................................................... $ 101.1
. Liabilities............................................... (395.4) (294.3)
------- -------
Unallocated excess purchase price over net assets acquired..... $ 138.9
-------
-------
</TABLE>
34
<PAGE>
SUNSHINE
The following unaudited pro forma financial data of Sunshine have been
derived by the application of pro forma adjustments to the historical financial
statements of Sunshine included elsewhere herein. The unaudited pro forma
operating data for the periods presented give effect to the Sunshine
Acquisition, the closing of Sunshine's Oakland bakery, the sale of Sunshine's
Salerno cookie and cracker division and the sale of Salerno's bakery near
Chicago, as if such transactions had occurred as of the beginning of the periods
presented. The unaudited pro forma balance sheet gives effect to the Sunshine
Acquisition and such other transactions, as if such transactions had occurred as
of the dates presented. As Sunshine's year-end is March 31st, the fourth quarter
financial data of Sunshine have been utilized for the historical basis of the
quarter ended March 31, 1996 as Sunshine's fiscal year was prospectively
conformed as of the date of the Sunshine Acquisition.
SUNSHINE UNAUDITED PRO FORMA OPERATING DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31, FOR THE TWENTY-TWO WEEKS ENDED JUNE
1996 4, 1996
-------------------------------------- ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross sales............................... $649.8 $ (42.8)(a) $ 607.0 $240.4 $ (2.8)(a) $ 237.6
Reclamations and discounts................ 21.5 (1.4)(a) 20.1 10.6 (0.2)(a) 10.4
----- ----- --------- ----- ----- ---------
Net sales................................. 628.3 (41.4) 586.9 229.8 (2.6) 227.2
Cost of sales............................. 340.0 (29.0)(b) 311.0 119.7 (1.2)(b) 118.5
----- ----- --------- ----- ----- ---------
Gross profit.............................. 288.3 (12.4) 275.9 110.1 (1.4) 108.7
Selling, marketing and administrative
expenses................................. 281.4 (12.9)(c) 268.5 114.9 (1.3)(c) 113.6
Restructuring charges (gains)............. (16.5) (16.5) (9.1) -- (9.1)
----- ----- --------- ----- ----- ---------
Income (loss) from operations............. 23.4 0.5 23.9 4.3 (0.1) 4.2
Interest expense.......................... 9.3 2.0(d) 11.3 3.0 1.7(d) 4.7
----- ----- --------- ----- ----- ---------
Income (loss) before income taxes......... 14.1 (1.5) 12.6 1.3 (1.8) (0.5)
Income tax expense (benefit).............. 6.2 (0.7)(e) 5.5 0.6 (.8)(e) (0.2)
----- ----- --------- ----- ----- ---------
Net income (loss)......................... $ 7.9 $ (0.8) $ 7.1 $ 0.7 $ (1.0) $ (0.3)
----- ----- --------- ----- ----- ---------
----- ----- --------- ----- ----- ---------
OTHER DATA:
EBITDA--before restructuring (gains)...... $ 19.3 $ 5.4 $ 24.7 $ 1.2 $ 2.0 $ 3.2
Depreciation, amortization and non-cash
expenses relating to retirement benefit
programs................................. 12.4 $ 4.9 17.3 6.0 $ 2.1 8.1
Capital expenditures...................... $ 6.1 -- $ 6.1 $ 3.0 -- $ 3.0
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) The adjustment to gross sales, reclamations and discounts and net sales resulted from
the sale of Sunshine's Salerno cookie and cracker division prior to the Sunshine
Acquisition.
(b)
</TABLE>
<TABLE>
<CAPTION>
TWENTY-TWO
WEEKS ENDED
FISCAL YEAR ENDED JUNE 4,
MARCH 31, 1996 1996
----------------- -----------
<S> <C> <C>
Cost of sales of Salerno cookie and cracker division
and related bakery.................................. $ (29.4) $(1.8)
Savings resulting from closing Oakland plant......... (1.5) --
Additional depreciation of stepped-up property, plant
and equipment (10 year composite life).............. 2.9 1.1
Amortization of postretirement benefit transition
obligation.......................................... (1.0) (0.5)
----- ---
$ (29.0) $(1.2)
----- ---
----- ---
</TABLE>
(Notes continued on following page)
35
<PAGE>
<TABLE>
<CAPTION>
TWENTY-TWO
WEEKS ENDED
FISCAL YEAR ENDED JUNE 4,
MARCH 31, 1996 1996
----------------- -----------
<S> <C> <C>
(c)
Reduction in selling and administrative expenses as a
result of the sales of Sunshine's Salerno cookie and
cracker division and related bakery................. $ (15.4) $(3.5)
Elimination of historical goodwill amortization...... (0.7) (0.3)
Amortization of new goodwill (40 year amortization
period)............................................. 3.2 1.3
Other................................................ -- 1.2
----- ---
$ (12.9) $(1.3)
----- ---
----- ---
</TABLE>
<TABLE>
<C> <S>
(d)
Borrowings under the Senior Credit Facility--$114.0
at various interest rates........................... $ 10.2 $ 4.4
Elimination of historical interest expense........... (9.3) (3.0)
Amortization of debt issuance costs and other........ 1.1 0.3
----- ---
$ 2.0 $ 1.7
----- ---
----- ---
</TABLE>
<TABLE>
<C> <S>
(e) The income tax effect of the pro forma adjustments on income (loss) before income taxes
is based on the effective tax rate for fiscal 1996 of 43.8% and the effective rate for
the twenty-two weeks ended June 4, 1996 of 45.8%.
</TABLE>
Note. Income (loss) from operations for the fiscal year ended March 31, 1996 and
for the twenty-two weeks ended June 4,, 1996 include amounts classified as
restructuring charges (gains) that relate to:
<TABLE>
<S> <C> <C>
Gains on the sales of the Salerno cookie and cracker
division and related bakery......................... $ (13.6) $(6.2)
Gains from reducing restructuring cost, accrued in
fiscal 1995.......................................... (2.9) (2.9)
----- ---
$ (16.5) $(9.1)
----- ---
----- ---
</TABLE>
36
<PAGE>
SUNSHINE UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 4, 1996
--------------------------------------
SUNSHINE
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade accounts and notes receivable......................... $ 33.4 $-- $ 33.4
Receivables from affiliates................................. 2.8 (2.8)(b) --
Inventories................................................. 38.7 3.9(c) 42.6
Deferred income taxes....................................... 7.0 13.2(d) 20.2
Other....................................................... 4.5 -- 4.5
---------- ----------- ---------
Total current assets.................................... 86.4 14.3 100.7
Property, plant and equipment, net............................ 89.7 29.4(e) 119.1
Goodwill and other intangibles................................ 14.3 108.6(f) 122.9
Prepaid pension............................................... 10.6 (10.6)(g) --
Other assets.................................................. 2.8 1.3(h) 4.1
---------- ----------- ---------
TOTAL ASSETS.................................................. $203.8 $ 143.0 $ 346.8
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Cash overdraft.............................................. $ (5.4) $ 36.2(a) $ 30.8
Short-term debt and current maturities of long-term debt.... 5.0 (1.5)(i) 3.5
Trade accounts payable...................................... 34.6 -- 34.6
Other accrued liabilities................................... 23.2 -- 23.2
Restructuring reserves...................................... -- 38.8(j) 38.8
Due to affiliated companies................................. 11.5 (11.5)(b) --
---------- ----------- ---------
Total current liabilities............................... 68.9 62.0 130.9
Long-term debt................................................ 72.0 40.2(i) 112.2
Deferred income taxes......................................... 9.9 (9.9)(d) --
Pension liability............................................. 19.2 6.9(g) 26.1
Postretirement and employment obligations..................... 11.9 18.0(g) 29.9
Restructuring reserves........................................ 1.7 21.3(j) 23.0
Other liabilities............................................. 1.1 -- 1.1
---------- ----------- ---------
Total liabilities....................................... 184.7 138.5 323.2
Shareholder's equity
Contributed capital......................................... 34.7 (11.1)(k) 23.6
Retained earnings (deficit)................................. (15.6) 15.6(k) --
---------- ----------- ---------
Total shareholder's equity.................................... 19.1 4.5 23.6
---------- ----------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................... $203.8 $ 143.0 $ 346.8
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Available cash to be provided by Keebler.
(b) Sunshine had certain receivables from and payables to affiliates which have been largely
eliminated as a result of the Sunshine Acquisition.
(c) The adjustment of inventory to its estimated fair market value represents the
elimination of the historical LIFO reserve.
(d) Reflects the recording of estimated opening deferred income taxes resulting from the
Sunshine Acquisition.
(e) Reflects the estimated step-up in property, plant and equipment to fair value. Buildings
are depreciated over a useful life of ten to thirty-nine years. Machinery and equipment
is depreciated over a useful life of six to twenty-five years. Office furniture and
fixtures are depreciated over a useful life of five years. Delivery equipment is
depreciated over a useful life of six years. Land is not depreciated.
</TABLE>
(Notes continued on following page)
37
<PAGE>
<TABLE>
<C> <S>
(f) The Sunshine Acquisition will be accounted for as a purchase. Under purchase accounting,
the total purchase price will be allocated to the tangible and intangible assets of the
Company. The final allocation of the purchase price could differ significantly from the
pro forma amounts included herein. Based on preliminary estimates, goodwill consists of
the following:
</TABLE>
<TABLE>
<S> <C> <C>
Purchase Price............................................................. $171.6
Less: Assets acquired...................................................... (209.1)
Plus: Liabilities assumed.................................................. 190.1
Preliminary Purchase Price Allocation
. Assets.................................................................. $ 58.2
. Liabilities............................................................. (87.9) (29.7)
------- ------
Unallocated excess purchase price over net assets acquired................. 122.9
Less: Historical goodwill.................................................. (14.3)
------
$108.6
------
------
</TABLE>
<TABLE>
<C> <S>
(g) Reflects the following adjustments to pension and postretirement accounts:
</TABLE>
<TABLE>
<S> <C> <C>
Elimination of historical intangible pension
asset........................................... $ (10.6)
------
------
Required pension liability...................... $ 26.1
Historical pension liability.................... (19.2)
------
$ 6.9
------
------
Required postretirement liability............... $ 29.9
Historical postretirement liability............. (11.9)
------
$ 18.0
------
------
</TABLE>
<TABLE>
<C> <S>
(h) Reflects the elimination of certain historical other non-current assets to conform to
Keebler's accounting policies and the capitalization of incremental deferred financing
fees resulting from the Sunshine Acquisition:
</TABLE>
<TABLE>
<S> <C> <C>
Deferred plate charges.......................... $ (0.8)
Deferred package design......................... (0.9)
Incremental deferred financing fees............. 3.0
------
$ 1.3
------
------
</TABLE>
<TABLE>
<C> <S>
(i) Reflects the elimination of debt assumed by the seller and the recording of the new
financing:
</TABLE>
<TABLE>
<CAPTION>
NONCURRENT CURRENT
---------- -------
<S> <C> <C>
Elimination of historical current portion of long term
debt...................................................... -- $ (5.0 )
Elimination of historical long term debt................... $(72.0) --
Borrowings under the Senior Credit Facility................ 114.0 --
Other...................................................... 1.7 --
----- -------
Net adjustment............................................. 43.7 (5.0 )
Less current portion of debt............................... (3.5) 3.5
----- -------
$ 40.2 $ (1.5 )
----- -------
----- -------
</TABLE>
<TABLE>
<C> <S>
(j) Reflects the recording of management's estimate of accruals for non-recurring expenses
following the consummation of the Sunshine Acquisition including (i) a $29.8 million
provision for integrating Sunshine's retail branded volume into Keebler's DSD system,
(ii) a $12.0 million provision for eliminating redundant corporate overhead functions,
(iii) a $1.0 million provision for eliminating bakery overhead functions, and (iv) a
$19.0 million provision for rationalizing manufacturing.
</TABLE>
<TABLE>
<C> <S>
(k) Reflects the elimination of historical equity and the recording of the new equity:
</TABLE>
<TABLE>
<S> <C> <C>
Recording of new equity............................ $ 23.6
Historical equity.................................. (34.7)
-----
$ (11.1)
-----
-----
</TABLE>
38
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
KEEBLER
The following selected historical financial data for fiscal 1993, 1994 and
1995 were derived from, and should be read in conjunction with, the historical
audited consolidated financial statements of Keebler, including the respective
notes thereto, included elsewhere herein. The selected historical financial data
as of January 26, 1996 and for the four weeks ended January 28, 1995 and January
26, 1996 were derived from the unaudited financial statements of Keebler. The
selected historical financial data as of July 15, 1995 and July 13, 1996 and for
the twelve weeks then ended were derived from the unaudited financial statements
of Keebler. The historical consolidated financial statements of Keebler exclude
financial data relating to certain businesses of Keebler that were sold prior to
the Keebler Acquisition.
<TABLE>
<CAPTION>
TWENTY
FOUR
WEEKS
YEAR ENDED FOUR WEEKS ENDED ENDED
---------------------------------------- ------------------------- ---------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 28, JANUARY 26, JULY 15,
1994 1994 1995 1995 1996 1995
---------- ------------ ------------ ----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross sales............................ $1,453.8 $1,452.9 $1,486.8 $ 93.1 $ 106.5 $ 670.4
Reclamations and discounts............. 41.9 40.4 43.9 3.1 4.9 18.7
---------- ------ ------ ----- ----- ---------
Net sales.............................. 1,411.9 1,412.5 1,442.9 90.0 101.6 651.7
Cost of sales.......................... 610.3 626.1 672.8 42.0 54.2 309.7
---------- ------ ------ ----- ----- ---------
Gross profit........................... 801.6 786.4 770.1 48.0 47.4 342.0
Selling, marketing and administrative
expenses............................... 662.5 675.0 738.9 52.6 59.0 340.5
---------- ------ ------ ----- ----- ---------
Income (loss) from operations before
restructuring charges................. 139.1 111.4 31.2 (4.6) (11.6) 1.5
Restructuring charges.................. 102.9 -- -- -- -- --
---------- ------ ------ ----- ----- ---------
Income (loss) from operations.......... 36.2 111.4 31.2 (4.6) (11.6) 1.5
Interest expense....................... 81.5 74.5 28.2 2.2 1.9 13.4
---------- ------ ------ ----- ----- ---------
Income (loss) before income taxes and
cumulative effect of accounting
changes................................ (45.3) 36.9 3.0 (6.8) (13.5) (11.9)
Income tax expense..................... 14.0 10.6 -- -- -- --
---------- ------ ------ ----- ----- ---------
Income (loss) before cumulative effect
of accounting changes................. (59.3) 26.3 3.0 (6.8) (13.5) (11.9)
Cumulative effect of accounting
changes................................ 20.7 1.2 -- -- -- --
---------- ------ ------ ----- ----- ---------
Net income (loss)...................... $ (80.0) $ 25.1 $ 3.0 $ (6.8) $ (13.5) $ (11.9)
---------- ------ ------ ----- ----- ---------
---------- ------ ------ ----- ----- ---------
OTHER DATA:
EBITDA--before restructuring charges
(gains)................................ $ 167.6 $ 139.1 $ 71.1 $ (1.5) $ (9.4) $ 20.2
Depreciation, amortization and non-cash
expenses relating to retirement
benefit programs....................... 28.5 27.7 39.9 3.1 2.2 18.7
Capital expenditures................... $ 25.5 $ 48.3 $ 52.2 $ 2.1 $ 3.2 $ 20.1
<CAPTION>
JULY 13,
1996
---------
<S> <C>
OPERATING DATA:
Gross sales............................ $ 741.4
Reclamations and discounts............. 22.4
---------
Net sales.............................. 719.0
Cost of sales.......................... 343.4
---------
Gross profit........................... 375.6
Selling, marketing and administrative
expenses............................... 353.6
---------
Income (loss) from operations before
restructuring charges................. 22.0
Restructuring charges.................. --
---------
Income (loss) from operations.......... 22.0
Interest expense....................... 16.6
---------
Income (loss) before income taxes and
cumulative effect of accounting
changes................................ 5.4
Income tax expense..................... 3.0
---------
Income (loss) before cumulative effect
of accounting changes................. 2.4
Cumulative effect of accounting
changes................................ --
---------
Net income (loss)...................... $ 2.4
---------
---------
OTHER DATA:
EBITDA--before restructuring charges
(gains)................................ $ 45.7
Depreciation, amortization and non-cash
expenses relating to retirement
benefit programs....................... 23.7
Capital expenditures................... $ 9.1
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 26, JULY 15, JULY 13,
1994 1994 1995 1996 1995 1996
---------- ------------ ------------ ----------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 6.4 $ 12.5 $ 2.9 $ 5.3 $ 5.6 $ 2.6
Total assets.......................... 669.0 673.7 677.9 675.3 666.0 1,142.0
Due to affiliate...................... 850.0 525.0 105.0 105.0 105.6 --
Total debt............................ 135.5 205.1 312.0 249.6 270.4 451.0
Shareholder's equity (deficit)........ $ (700.2) $ (438.9) $ (70.7) $ (13.2) $ (44.7) $ 173.5
</TABLE>
39
<PAGE>
SUNSHINE
The following selected historical financial data were derived from, and
should be read in conjunction with, the historical audited financial statements
of Sunshine, including the respective notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
31,
--------------------------
1994 1995 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING DATA:
Gross sales...................................................... $665.4 $654.4 $649.8
Reclamations and discounts....................................... 22.2 24.6 21.5
------ ------ ------
Net sales........................................................ 643.2 629.8 628.3
Cost of sales.................................................... 335.4 350.3 340.0
------ ------ ------
Gross profit..................................................... 307.8 279.5 288.3
Selling, marketing, administrative and other expenses............ 292.4 300.7 281.4
Restructuring charges (gains).................................... -- 21.9 (16.5)
------ ------ ------
Income (loss) from operations.................................... 15.4 (43.1) 23.4
Interest expense................................................. 6.5 8.4 9.3
------ ------ ------
Income (loss) before income taxes, discontinued operations and
extraordinary item............................................... 8.9 (51.5) 14.1
Income tax expense (benefit)..................................... 4.0 (18.9) 6.2
------ ------ ------
Income (loss) before discontinued operation and extraordinary
item............................................................. 4.9 (32.6) 7.9
Loss from discontinued operations................................ (2.6) -- --
------ ------ ------
Income (loss) before extraordinary item.......................... 2.3 (32.6) 7.9
Extraordinary item--loss on early extinguishment of debt (net of
income tax)...................................................... -- -- 2.8
------ ------ ------
Net income (loss)................................................ $ 2.3 $(32.6) $ 5.1
------ ------ ------
------ ------ ------
OTHER DATA:
EBITDA--before restructuring charges (gains)..................... $ 25.3 $ (8.3) $ 19.3
Depreciation, amortization and non-cash expenses relating to
retirement benefit programs...................................... 9.9 12.9 12.4
Capital expenditures............................................. $ 10.9 $ 10.7 $ 6.1
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------
1995 1996
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 2.1 $ 1.8
Total assets.............................................................. 240.3 212.7
Due to affiliates......................................................... 2.8 0.4
Total debt................................................................ 93.8 86.7
Shareholder's equity...................................................... $ 17.6 $ 22.7
</TABLE>
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KEEBLER
Set forth below is a discussion of the financial condition and results of
operations of Keebler for the fiscal years ended January 1, 1994, December 31,
1994 and December 30, 1995 and for the twenty-four weeks ended July 13, 1996 and
July 15, 1995. The financial results exclude the financial information relating
to the frozen food and salty snacks businesses, which were sold by Keebler prior
to the consummation of the Keebler Acquisition. The following discussion of
Keebler's results of operations and of its liquidity and capital resources
should be read in conjunction with the Selected Financial Data and the Financial
Statements of Keebler and related notes thereto appearing elsewhere in this
Prospectus. References herein to fiscal 1993, 1994 and 1995 refer to Keebler's
fiscal years ended January 1, 1994, December 31, 1994 and December 30, 1995,
respectively, unless the context otherwise requires.
RESULTS OF OPERATIONS OF KEEBLER
Operational results in 1996 reflect the impact of additional expense
associated with the acquisition of Keebler Cookie/Cracker Company by INFLO
Holdings Corporation. As a result of the acquisition, there will be $3.3 million
of additional depreciation expense recognized in 1996. In addition, the Company
has more debt than the predecessor company. The additional debt was entered into
to finance the acquisition. The higher debt balance and the amortization of debt
issuance cost will result in interest charges in 1996 being $3.9 million higher
as compared to prior year. Under a preliminary allocation of the purchase price,
$138.9 million of intangibles, including goodwill, was recorded which will
account for $3.5 million in amortization expense per year over the next forty
years compared to amortization of $1.7 million in prior years.
Keebler's results of operations expressed as a percentage of net sales for
fiscal 1993, 1994 and 1995 and for the twenty-four weeks ended July 15, 1995 and
July 13, 1996 are set forth below:
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
FISCAL YEAR ENDED ENDED
---------------------------------------- -------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 13, JULY 15,
1994 1994 1995 1996 1995
---------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 43.2 44.3 46.6 47.8 47.5
----- ----- ----- -------- --------
Gross profit.................................. 56.8 55.7 53.4 52.2 52.5
Selling, marketing and admin. expenses........ 46.9 47.8 51.2 49.2 52.3
Restructuring charges......................... 7.3 -- -- -- --
----- ----- ----- -------- --------
Income from operations........................ 2.6 7.9 2.2 3.0 0.2
Net interest expense.......................... 5.8 5.3 2.0 2.3 2.0
----- ----- ----- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting changes..... (3.2) 2.6 0.2 0.7 (1.8)
Income tax expense............................ 1.0 0.7 -- 0.4 --
Cumulative effect of accounting changes....... 1.5 0.1 -- -- --
----- ----- ----- -------- --------
Net income (loss)............................. (5.7)% 1.8% 0.2% 0.3% (1.8)%
----- ----- ----- -------- --------
----- ----- ----- -------- --------
</TABLE>
COMPARISON OF FIRST TWENTY-FOUR WEEKS 1996 AND 1995
NET SALES. For the first twenty-four weeks of 1996, net sales of $719.0
million were $67.4 million, or 10.3% higher than the same period in 1995. The
increase was principally due to the inclusion of
41
<PAGE>
Sunshine's revenues for one month, selected price increases in Keebler branded
cookies and crackers, and sales volume increases in both Keebler's private label
products and baked products custom manufactured ("custom products") for other
marketers of branded foods. Sunshine's net sales from the acquisition date to
June 30, 1996 were $51.3 million. Sales of Keebler private label products
increased significantly as a result of new products and the broadened
distribution of the private label cracker program begun in late 1995. Increased
sales of custom products benefited from the increased demand of a major
customer.
GROSS PROFIT. For the first twenty-four weeks of 1996, gross profit margins
of 52.2% are slightly below those of the same period for the prior year. The
decrease was principally attributable to higher raw material prices and the
inclusion of sales of Sunshine products, which generally carry a lower gross
margin than Keebler products. Sunshine's gross profit for the second quarter of
1996 was $23.7 million or 46.1% of Sunshine net sales. These factors more than
offset significant gross profit margin improvements achieved through more
balanced production, reductions in fixed overhead costs, and selected price
increases on certain Keebler products.
SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and
administrative costs, while increased by $18.8 million, decreased 12 percentage
points as a percent of net sales in second quarter 1996 compared to second
quarter 1995. Selling, marketing and administrative expenses as a percentage of
net sales were approximately 49.2% for the first twenty-four weeks of 1996 as
compared to 52.3% for the comparable period of 1995. The dollar increase was
primarily due to the inclusion of Sunshine, which contributes $22.1 million to
selling, marketing and administrative costs of the Company in the second quarter
1996. The improvement as a percent of net sales was principally accomplished
through a targeted marketing strategy behind Keebler products and the Company's
cost reduction program.
INCOME FROM OPERATIONS. For the first twenty-four weeks of 1996, income from
operations of $22.0 million was up $20.5 million over the amount earned in the
comparable period in 1995. The increase has resulted mainly from improved gross
profit margins, more effective and efficient marketing expenditures, reduced
selling and corporate overhead costs, and $1.6 million of Sunshine operating
income. Year-to-date, income from operations as a percentage of net sales
increased from 0.2% to 3.0%.
INTEREST EXPENSE. Net interest expense was $16.6 million for the first
twenty-four weeks of 1996 compared to $13.3 million for the first twenty-four
weeks of 1995. The increase was due to increased borrowings to finance the
acquisitions of Keebler and Sunshine.
INCOME TAXES. The Company provided for income tax at an effective tax rate
of 55.3% for the first twenty-four weeks of 1996. The effective tax rate was
higher than the statutory rate because of nondeductible expenses (principally,
intangibles including goodwill). In 1995, there was no provision for income
taxes due to operating losses and no ability to carryback the losses to recover
taxes paid in prior years.
EXTRAORDINARY ITEM NET OF INCOME TAXES. A before-tax extraordinary loss of
$3.2 million on the early extinguishment of debt was recognized in the first
twenty-four weeks of 1996. The loss consisted primarily of bank fees incurred
when the Company refinanced the Increasing Rate Notes with 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). For the first twenty-four weeks of 1996, net income of
$0.5 million was up $12.4 million over the net loss recorded in the comparable
period a year ago. The increase was attributable to both operating improvements
and the inclusion of Sunshine's net income of $0.7 million. The full benefit,
however, was somewhat offset by the extraordinary loss on the early debt
extinguishment.
42
<PAGE>
COMPARISON OF FISCAL 1995 AND 1994
NET SALES. Net sales in fiscal 1995 were $1.443 billion, which represented
an increase of 2.1% over net sales of $1.413 billion in fiscal 1994. This
increase resulted from increased private label sales, increased sales of custom
products and price increases on certain Keebler products. Despite more than 30
new product introductions and increased marketing support, combined branded
cookie and cracker sales were essentially unchanged from sales in fiscal 1994.
Sales of branded cookies increased 3.2%, benefiting from price increases for
certain products, new products and line extensions. Branded cracker sales
decreased 2.2% from fiscal 1994 because the restaging of box snack crackers and
graham crackers failed to stimulate sales gains. Private label cookie and
cracker sales increased 7.7% primarily due to increased account penetration and
expansion of the private label cracker program. Sales of custom products
increased as a result of increased demand by a major customer.
GROSS PROFIT. Gross profit decreased to $770.1 million (53.4% of net sales)
in fiscal 1995 from $786.4 million (55.7% of net sales) in fiscal 1994.
Increased raw and packaging material prices (particularly flour, shortening and
corrugated and carton materials) resulted in increased costs to Keebler of
approximately $17 million, or 1.2 percent of net sales, which were not fully
passed on to Keebler's customers. The restaging of box snack crackers and
cracker packs, which resulted in a net reduction in sales price and a shift to
products with lower margins, such as private label products and custom products,
also reduced gross profit.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES. Selling, marketing and
administrative expenses were $738.9 million (51.2% of net sales) in fiscal 1995,
compared to $675.0 million (47.8% of net sales) in fiscal 1994. Marketing
spending increased $39.4 million over fiscal 1994 expenditures because Keebler
followed a marketing plan designed to increase sales through aggressive
advertising and consumer spending to support new product introductions and
through increased trade spending. Selling and distribution costs increased to
19.7% of net sales in fiscal 1995 from 19.1% in fiscal 1994, largely due to the
overcapacity of Keebler's DSD system. Total administrative spending was $58.0
million in fiscal 1995 compared to $52.0 million in fiscal 1994, principally due
to increases in spending on information systems.
INCOME FROM OPERATIONS. Income from operations was $31.2 million in fiscal
1995, compared to $111.4 million in fiscal 1994. This decrease primarily
resulted from the decline in gross profit and increased marketing and selling
distribution expenses. Income from operations as a percentage of net sales was
2.2% in fiscal 1995 and 7.9% in fiscal 1994.
INTEREST EXPENSE. Net interest expense in fiscal 1995 was $28.2 million,
compared to $74.5 million in fiscal 1994. This decrease was due to the full year
impact of the recapitalization of $300 million in intercompany debt in September
1994, as well as the recapitalization of an additional $445 million of
intercompany debt in February 1995. The benefit of these recapitalizations was
partially offset by increased borrowings to finance operations.
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES. Income before income taxes and accounting changes was $3.0 million in
fiscal 1995, compared to $36.9 million in fiscal 1994.
INCOME TAXES. There was no income tax provision in fiscal 1995 because a net
operating loss could not be recovered through carryback to taxes previously
paid. In addition, net deferred tax assets had been previously fully reserved as
their realization was not considered likely. The effective tax rate in fiscal
1994 was 28.7% of income before income taxes and accounting changes. The tax
rate was less than the statutory rate due to a reduction in the required
deferred tax valuation allowance because previously fully reserved deferred tax
assets resulted in reductions in the 1994 current tax provision.
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES AND NET INCOME. Income
before cumulative effect of accounting changes in fiscal 1995 was $3.0 million
compared to $26.3 million in fiscal
43
<PAGE>
1994. There were no accounting changes in fiscal 1995. In fiscal 1994, the
cumulative effect of accounting changes was a net charge of $1.2 million. The
net charge consisted of a $4.0 millon charge upon the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," offset in part by a $2.8
million benefit for a change in the method of accounting for spare machinery and
equipment parts. After the cumulative effect of accounting changes, net income
was $3.0 million in fiscal 1995, compared to $25.1 million in fiscal 1994.
COMPARISON OF FISCAL 1994 AND 1993
NET SALES. Net sales in fiscal 1994 were $1.413 billion, essentially
unchanged from $1.412 billion in fiscal 1993. An increase in sales of private
label products resulted in part from the introduction of a private label cracker
program and was offset by decreased sales of branded cookies and crackers and a
decrease in sales of custom products. Sales of branded cookies increased in the
second half of fiscal 1994 as a result of new product introductions and
promotions. Sales for the year decreased, however, due to low branded cookie
sales in the first half of fiscal 1994 and to a shift in the mix of branded
cookies sold to lower priced items. Branded cracker sales decreased due to lower
sales of box snack crackers, which were not offset by the increases in sales of
certain of Keebler's other major cracker brands. A change in product mix to
lower priced items contributed to a branded cracker sales decline. Sales of all
branded products in fiscal 1994 benefited from new product introductions and
expansion of "better-for-you," reduced-fat and reduced-sodium products. These
better-for-you products accounted for approximately $133 million of net sales.
Sales of custom products declined in fiscal 1994 because of decreased demand by
a major customer.
GROSS PROFIT. Gross profit decreased to $786.4 million (55.7% of net sales)
in fiscal 1994, from $801.6 million (56.8% of net sales) in fiscal 1993. The
decrease in gross profit was due to a change in product mix to lower margin
items and higher raw material and packaging costs that were not passed on to
Keebler's customers, higher sales of private label products, which generally
have lower margins, and lower realized net prices for custom products. Raw
material costs increased approximately $11.3 million, or 0.8 percent of net
sales, primarily because of price increases for flour, shortening and corrugated
and carton materials. Higher new product start-up costs, particularly for
reduced-fat products, also contributed to decreased gross profit. Realized
manufacturing cost savings of $5.7 millon primarily related to labor reduction
programs partially offset the increased raw material costs and changes in
product mix.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES. Selling, marketing and
administrative expenses were $675.0 million (47.8% of net sales) in fiscal 1994,
compared to $662.5 million (46.9% of net sales) in fiscal 1993. Marketing
spending increased due to expanded use of promotional events such as a tie-in to
the movie "Miracle on 34th Street" and the sponsorship of country and western
music star Clint Black's tour. Total administrative spending was $52.0 million
in fiscal 1994, compared to $47.5 million in fiscal 1993. This increase resulted
from the start-up of human resource and information systems initiatives, and
favorable incentive adjustments recorded in fiscal year 1993.
INCOME FROM OPERATIONS. Income from operations in fiscal 1994 was $111.4
million, compared to $36.2 million in fiscal year 1993. The increase was
primarily due to restructuring charges of $102.9 million recorded in fiscal 1993
for the reorganization and streamlining of the selling and distribution network,
plant closing costs, and the write-down of certain fixed assets to net
realizable value. Excluding the impact of restructuring charges, operating
income in fiscal 1993 was $139.1 million. The decline in operating income before
restructuring charges was due to the decline in gross profit and the increase in
operating expenses discussed above.
INTEREST EXPENSE. Net interest expense in fiscal 1994 was $74.5 million,
compared to $81.5 million in fiscal 1993. The decline in net interest expense in
fiscal 1994 was due to the recapitalization of $300.0
44
<PAGE>
million in intercompany debt in September, 1994, offset partially by increased
borrowings to finance operations.
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES. Income before income taxes and cumulative effect of accounting changes
was $36.9 million in fiscal 1994, compared to a loss of $45.3 million in fiscal
1993.
INCOME TAXES. The provision for income taxes in fiscal 1994 was 28.7% of
income before income taxes and accounting changes, compared to a provision of
$14.0 million on a loss of $45.3 million in fiscal 1993. The tax provision in
both years was affected by the valuation allowance for deferred tax assets. In
fiscal 1993, Keebler established a $26.6 million valuation allowance, primarily
as a result of deferred tax assets generated by restructuring charges. In fiscal
1994, the required valuation allowance was reduced, resulting in a reduction in
the effective tax rate.
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES AND NET
INCOME. Income before cumulative effect of accounting changes was $26.3 million
in fiscal 1994, compared to a loss of $59.3 million in fiscal year 1993. In
fiscal 1994, the cumulative effect of accounting changes was a net charge of
$1.2 million. The net charge consisted of a $4.0 million charge upon the
adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
which was offset in part by a $2.8 million benefit for a change in the method of
accounting for spare machinery and equipment parts. In fiscal 1993, the
cumulative effect of accounting changes was a charge of $20.7 million upon the
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." After the cumulative effect of accounting changes, net
income was $25.1 million in fiscal 1994, compared to a loss of $80.0 million in
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES OF KEEBLER
<TABLE>
<CAPTION>
TWENTY-FOUR
YEAR ENDED WEEKS ENDED
------------------------------------------ -----------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 13,
1994 1994 1995 1996
---------- ------------ ------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash provided by operating activities... $108.5 $ 45.7 $ 12.9 $ 9.0
Cash used by investing activities....... (83.3) (45.4) (49.7) (139.7)
Cash provided from (used by) financing
activities.............................. (36.8) 5.8 27.2 131.2
---------- ------ ------ -------
Increase (decrease) in cash
equivalents............................. $(11.6) $ 6.1 $ (9.6) $ 0.5
---------- ------ ------ -------
---------- ------ ------ -------
</TABLE>
Cash provided by operating activities in 1996 will be benefited by higher
revenues compounded by reduced spending. Increased revenues are attributed to
price increases and higher volumes. Lower spending will result from lower fixed
overhead, reduced selling and administrative expense resulting from headcount
reductions, and more effective marketing spending.
Included in the cash provided by investing activities in 1996, is the
benefit of a working capital adjustment of $32.6 million paid by United Biscuits
in connection with INFLO's acquisition of Keebler. Capital expenditures are down
significantly from the prior years due to tighter restrictions on additional
capital spending by new management.
Cash flow provided by financing activities in 1996 will reflect the impact
of additional borrowings of $345.0 million entered into to fund the acquisition
of Keebler by INFLO.
The decline in cash provided from operations in fiscal 1995 to $12.9 million
from $45.7 million in fiscal 1994 was primarily due to the decrease in income
from operations, the receipt of $23.7 million in income and withholding tax
refunds in fiscal 1994 and spending on Keebler's restructuring initiatives in
45
<PAGE>
fiscal 1995. These increased cash needs were partially offset by lower
intercompany interest expense, reduced working capital needs and the avoidance
of pension contributions in fiscal 1995. The decrease in cash provided from
operating activities in fiscal 1994 to $45.7 million, from $108.5 million in
fiscal 1993, was due to a decrease in operating income before restructuring
charges and a partial settlement of intercompany balances in fiscal 1993. This
decline in cash provided by operating activities was partially offset by lower
pension contributions, lower spending on divestiture accruals, and the
non-recurrence of the payment of certain deferred compensation agreements in
fiscal 1993. Included in cash provided by operating activities for the twelve
weeks ended April 20, 1996 is a $32.6 million working capital adjustment
provided by an affiliate of United Biscuits related to the Keebler Acquisition.
Cash used by investing activities increased in fiscal 1995 to $49.7 million
from $45.4 million in fiscal 1994. Capital expenditures increased $3.9 million
in fiscal 1995 to $52.2 million, which included $22.4 million for development of
a new technology platform and $8.7 million for a redesign of the selling and
distribution network. The decline in cash used by investing activities in fiscal
1994, from $83.3 million in fiscal year 1993, was due to the acquisition of
Bake-Line Products, Inc., a producer of private label cookies ("Bake-Line"), in
January 1993. Capital expenditures in fiscal 1994 were $48.3 million, an
increase of $22.8 million from fiscal 1993. Capital spending in fiscal 1994
included $12.1 million for the technology platform development and $4.7 million
for capacity increases at Keebler's Atlanta bakery. In fiscal 1993, capital
spending consisted primarily of ongoing and ordinary manufacturing and
distribution projects.
Cash flow provided by financing activities in fiscal 1995 was $27.2 million,
compared to cash provided of $5.8 million in fiscal 1994, and cash uses of $36.8
million in fiscal 1993. The primary source of financing liquidity in all years
was commercial paper and revolving credit facilities guaranteed by or made
available through United Biscuits. The primary uses of the cash generated from
financing activities was cash flow support for affiliated businesses excluded
from the Keebler financial statements, and the payment of long-term borrowings.
Keebler's liquidity was provided primarily by a commercial paper program
that was supported by a line of credit agreement guaranteed by United Biscuits,
the ultimate parent of Keebler prior to the Keebler Acquisition. The line of
credit agreement in support of the commercial paper program totaled $100.0
million as of the end of 1994, and was expanded to $200.0 million in June 1995.
Borrowings under the commercial paper program were $184.0 million, $94.5 million
and $73.2 million at the end of fiscal 1995, 1994 and 1993, respectively. In
addition to the commercial paper program, Keebler, along with other affiliates
of United Biscuits, had access to a revolving credit agreement, which was also
guaranteed by United Biscuits. Maximum borrowings under the agreement were
$300.0 million as of the end of fiscal 1995 and 1994. Keebler had approximately
$100 million and $55 million of borrowings outstanding under this program as of
the end of fiscal 1995 and 1994, respectively. There were no borrowings
outstanding at the end of fiscal 1993. Both the commercial paper and revolving
credit agreements could be canceled at any time and were no longer available
after the Keebler Acquisition.
SEASONALITY
Keebler's net sales, net income, and cash flows are affected by the timing
of new product introductions, promotional activities, price increases, and a
seasonal sales bias toward the second half of the year. The seasonality of sales
is largely due to promotional activities surrounding second half of the year
events such as back-to-school, Halloween, 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.
46
<PAGE>
SELF INSURANCE
The Company purchases insurance coverage for worker's compensation, general,
product and vehicle liability maintaining certain levels of retained risk
(self-insured portion).
Potential losses relating to claims under the self-insured portion of the
policies are accrued in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies".
There are no unasserted claims that require a reserve or disclosure in
accordance with SFAS No. 5.
SUNSHINE
Set forth below is a discussion of the financial condition and results of
operations of Sunshine for the years ended March 31, 1994, 1995 and 1996,
respectively. The following discussion of Sunshine's historical results of
operations and of its liquidity and capital resources should be read in
conjunction with the Selected Financial Data and the Financial Statements of
Sunshine and related notes thereto appearing elsewhere in this Prospectus.
References herein to fiscal 1994, 1995, and 1996 refer to Sunshine's fiscal
years ended March 31, 1994, 1995 and 1996, respectively.
RESULTS OF OPERATIONS OF SUNSHINE
GENERAL. Sunshine's results of operations, expressed as a percentage of net
sales, for each of fiscal 1994, 1995 and 1996, are set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
---------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................. 52.2 55.6 54.1
----- ----- -----
Gross profit................................................... 47.8 44.4 45.9
Selling and marketing.......................................... 41.6 43.3 41.1
General and administrative..................................... 3.7 3.7 3.6
Restructuring charges (gains) and other........................ 0.1 4.3 (2.5)
----- ----- -----
Income (loss) from operations.................................. 2.4 (6.9) 3.7
Interest expense............................................... 1.0 1.3 1.5
----- ----- -----
Income (loss) before income taxes, discontinued operations and
extraordinary item............................................. 1.4% (8.2)% 2.2%
----- ----- -----
----- ----- -----
</TABLE>
COMPARISON OF FISCAL 1996 AND 1995
NET SALES. Consolidated net sales in fiscal 1996 were $628.3 million, a
decrease of 0.2% versus prior year. The sales decrease was attributable to price
competition from Sunshine's major competitors, lower reduced-fat and fat-free
product sales and the impact of Sunshine's product rationalization program,
partially offset by an increase in core brand sales.
Notwithstanding the aforementioned items, Sunshine experienced modest sales
growth through supermarket, mass merchandiser, warehouse, club store,
foodservice and vending distributor channels. The sale of Sunshine's regional
Salerno cookie and cracker division and Sunshine's product rationalization
program, however, had an unfavorable impact on revenues of $9.5 million and
$13.2 million, respectively, versus fiscal 1995. Sunshine experienced unit sales
increases from most of its core brands, including Cheez-it, Cheez-it Party Mix,
Krispy, Hi Ho deluxe crackers and Hydrox and Vienna Fingers sandwich cookies.
47
<PAGE>
GROSS PROFIT. Gross profit increased to $288.3 million or by 3.1%, and the
gross profit was 45.9% of net sales compared to 44.4% in fiscal 1995 due to
Sunshine's emphasis on its more profitable core products, the elimination of 168
of its lower volume and lower profit products, and the closure of its Oakland
bakery. These various "rightsizing" initiatives were offset to a large degree by
significant price increases in flour and in corrugated packaging. Sunshine
incurred a $5.7 million increase in raw material and packaging costs over such
costs in fiscal 1995.
OPERATING EXPENSES. Excluding fiscal 1995 restructuring and other charges,
operating expenses decreased by 5.1% to $280.6 million, primarily as a result of
reductions in selling and marketing expenses and G&A expenses of $14.5 million
and $0.6 million, respectively. Total selling costs declined 8.3% to $101.2
million due to aggressive cost containment programs. Total marketing
expenditures declined $5.4 million (or 3.3%) to $156.8 million as a result of
Sunshine's decision to reduce consumer promotions, which were partially offset
by increases in trade-related marketing expenditures. Sunshine's incremental
trade spending was aimed at preserving unit sales in direct response to
competitive pricing in the marketplace by Nabisco and Keebler.
RESTRUCTURING CHARGES (GAINS) AND OTHER. Sunshine had a gain of $16.5
million in fiscal 1996, comprised of $13.6 million from the sales of the Salerno
cookie and cracker division and the related bakery, including related
post-retirement savings, and $2.9 million in reserve adjustments from the
Oakland bakery closure.
INCOME (LOSS) FROM OPERATIONS. Fiscal 1996 income from operations of $23.4
million represented an increase of $66.5 million as compared to the prior year.
Income from operations was driven by increases in unit sales of Sunshine's core
products, the Oakland bakery closure, the sales of the Salerno cookie and
cracker division and the related bakery and managed reductions in ongoing
operating expenses. In addition, gains between years in restructure-related
items had a significant impact.
PRO FORMA INCOME FROM OPERATIONS. Sunshine recast the annualized impact of
the elimination of the Oakland bakery, the Salerno bakery near Chicago, and the
Salerno cookie and cracker division, and made certain non-cash adjustments.
Fiscal 1996 pro forma income from operations was $7.4 million, excluding
restructuring gains of $16.5 million and incorporating the annualized impact of
related savings of $5.9 million ($1.5 million resulting from closing of the
Oakland bakery as if such closing had occurred at the beginning of fiscal 1996,
$3.4 million resulting from the sales of the Salerno cookie and cracker division
and related bakery as if such sales had occurred at the beginning of fiscal 1996
and $1.0 million resulting from eliminating the amortization of postretirement
benefit transition obligation related to the Sunshine Acquisition) less
incremental depreciation and amortization related to the Sunshine Acquisition of
$5.4 million.
INTEREST EXPENSE. Interest expense of $9.3 million was 10.7% higher than
fiscal 1995 due to default interest paid. At the end of fiscal 1995 and through
January 31, 1996, Sunshine was in default of certain covenants prescribed in the
borrowing agreements with its lenders. As a result of its default status,
Sunshine was obligated to pay default interest. Sunshine refinanced its
operations at lower interest rates on February 1, 1996.
INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM. Fiscal 1996 income before allocated income taxes was $14.1 million, as
compared to a loss of $(51.5) million in fiscal 1995.
COMPARISON OF FISCAL 1995 AND 1994
NET SALES. Net sales in fiscal 1995 declined to $629.8 million or by 2.1%
from $643.2 million in fiscal 1994 due to lower sales of Sunshine's core
products. The declines were primarily the result of Sunshine's attempt in
mid-fiscal 1995 to improve marketing efficiency by reducing deep trade
discounting. These reductions in trade expenditures were replaced with
aggressive consumer couponing but the
48
<PAGE>
coupons failed to maintain unit sales. In addition, the success of Nabisco's
SnackWell's(R) introductions adversely affected consumer acceptance of
Sunshine's reduced-fat products. In response, Sunshine redesigned the packaging
of certain of its reduced-fat products in fiscal 1996. Net sales were further
decreased by $2.6 million as a result of repurchased and distressed product
attributable to the discontinuance of Sunshine's Classic Cookie line.
GROSS PROFIT. Fiscal 1995 gross profit declined by $28.3 million to $279.5
million from $307.8 million in fiscal 1994. Gross profit declined to 44.4% of
net sales from 47.8%. The decline in gross profit and margin resulted from
Sunshine's aggressive new product introductions and a significant increase in
costs of sales. During fiscal 1995, Sunshine launched 19 new products nationally
in the reduced-fat and single-serve categories to capitalize on industry and
consumer trends. These higher cost items competed to some degree against
Sunshine's established core products and depressed gross profit by approximately
$4.4 million. Decreases in unit sales of Sunshine's core products, related to
the unsuccessful mid-fiscal 1995 change in marketing strategies, price
competition and higher fixed plant absorption rates, reduced gross profit by
nearly $7.5 million. Cost of sales increased by approximately $13.8 million as a
result of commodity and packaging price increases, including a change to
metalized foil on Hydrox and Vienna Fingers cookies, increased freight and
shipping (primarily from new products), and charges from contract manufacturers
on certain Sunshine products (related to single-serve items).
OPERATING EXPENSES. Before restructuring and other charges, operating
expenses increased by $4.3 million or by 1.5% from fiscal 1994 amounts, to
$295.7 million in fiscal 1995. The increases were driven by consumer marketing
expense of $24.1 million in fiscal 1995 versus $16.1 million in fiscal 1994,
which were only partially offset by a $2.4 million reduction in fiscal 1995
trade-related spending of $138.1 million. Sunshine management effected the
mid-fiscal 1995 change in marketing strategy in an attempt to improve efficiency
of trade expenditures and enhance brand equity through couponing. The deep and
sudden reduction in trade rates, however, had a negative impact on unit sales,
which decreased operating profit. Selling expenses of $110.3 million in fiscal
1995 were 0.8% lower than fiscal 1994 expenditures of $111.2 million, and
general and administrative expenses decreased by 1.7% to $23.2 million in fiscal
1995. Both selling and general and administrative expenses were reduced through
cost containment programs.
RESTRUCTURING CHARGES (GAINS) AND OTHER. In December 1994, GFI and Sunshine
engaged outside consulting services to assist Sunshine in improving its cash
position and developing internal operating and management plans to restore
Sunshine's operating performance. As a result, Sunshine announced the closure of
the Oakland bakery, effective July 14, 1995, and absorbed related plant
restructuring charges and certain obsolete materials related to Sunshine's
product line rationalization program, together totaling $21.9 million.
Sunshine also accepted write-off amounts totaling $2.6 million from
affiliate companies related to the uncollectability of specified accounts
receivable and $1.7 million in guarantees from auto fleet and warehouse leases
as co-lessee for GFI snack companies on the west coast. These write-offs were
the result of GFI's decision to exit the salty snack food business.
INCOME (LOSS) FROM OPERATIONS. After restructuring and other costs,
Sunshine's income from operations declined to a loss of $43.1 million in fiscal
1995 from an income of $15.4 million in fiscal 1994.
INTEREST EXPENSE. Interest expense increased by $1.9 million to $8.4 million
in fiscal 1995 because of the increased levels of revolving credit borrowing and
interest rate changes.
INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM. Fiscal 1994 pretax income of $8.9 million decreased to a loss of $51.5
million in fiscal 1995, driven by the decline in operating earnings, restructure
and other costs, and higher interest charges.
49
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES OF SUNSHINE
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-----------------------
1994 1995 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash provided by (used in) operating activities....................... $ 4.9 $12.0 $(8.3)
Cash provided by (used in) investing activities....................... (10.9) (10.6) 17.2
Cash provided by (used in) financing activities....................... 5.8 (1.5) (9.2)
----- ----- -----
Decrease in cash equivalents.......................................... $(0.2) $(0.1) $(0.3)
----- ----- -----
----- ----- -----
</TABLE>
OPERATING ACTIVITIES. In fiscal 1995, cash provided by operations aggregated
$12.0 million versus $4.9 million in fiscal 1994. Fiscal 1994 cash from
operations was driven by positive net income of $2.3 million, depreciation of
$9.0 million, and changes in balance sheet items reducing cash by $9.0 million.
In addition, Sunshine transferred its salty snack food operations to GFI, which
resulted in a loss of $2.6 million and offset the changes in the balance sheet
items.
Fiscal 1995 cash provided by operations was primarily affected by favorable
changes in working capital of $29.6 million because of increased focus on cash
management, particularly related to accounts receivables, inventory and accounts
payables. Non-current assets and long-term liabilities together increased by
$3.3 million. These items, together with depreciation of $8.8 million offset the
net loss of $32.6 million. The non-cash impact of the restructuring accruals was
almost totally offset by the tax benefit.
Sunshine used $8.3 million in cash in fiscal 1996, resulting from
expenditures of $5.4 million related to the closure of the Oakland bakery and
reductions in other accrued liabilities of $12.6 million. Cash was generated by
managed decreases in inventories of $9.1 million. The remaining changes in
assets and liabilities offset Sunshine's net income of $5.1 million.
INVESTING ACTIVITIES. Sunshine used cash of $10.9 million and $10.7 million
for capital expenditures in fiscal 1994 and 1995, respectively. Capital
expenditures were reduced to $6.1 million in fiscal 1996 to accommodate the cash
requirements of the Oakland bakery closure and Sunshine's refinancing. The
fiscal 1996 capital expenditures, however, were favorably offset by the proceeds
of $22.0 million from the sales of the Salerno cookie and cracker division and
the related bakery.
FINANCING ACTIVITIES. In fiscal 1994, Sunshine refinanced its debt facility
with Wells Fargo and entered into an agreement with senior secured noteholders.
The net proceeds from this transaction were $5.8 million. On February 1, 1996,
Sunshine again refinanced its total senior debt with BankAmerica Business
Credit, Inc., which resulted in reduced interest rates. Sunshine reduced its
total outstanding debt by $7.2 million upon the sales of the Salerno cookie and
cracker division and the related bakery and through other principal payments.
SEASONALITY
See "Keebler--Seasonality" above.
SELF-INSURANCE
See "Keebler--Self Insurance" above.
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COMPANY
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
As of July 13, 1996, the Company's long-term debt after giving effect to the
Sunshine Acquisition and the related transactions and the Notes Offering
(excluding related fees and expenses) was $414.2 million, and the Company's pro
forma short-term debt and current maturities on long-term debt would have
totalled $36.7 million. The Company plans approximately $28 million in capital
expenditures in fiscal 1996. As of July 13, 1996, the Company would have had
approximately $155.0 million in borrowing availability under the Revolving
Credit Facility, and $2.6 million in cash and cash equivalents. The Company
believes that, based upon current levels of operations and availability under
the Revolving Credit Facility, it can adequately meet its present cash needs.
If, however, the Company cannot generate sufficient cash flow from operations or
borrow under the Revolving Credit Facility to meet its cash needs, then the
Company may be required to take certain actions including reducing capital
expenditures, restructuring its debt, selling assets or seeking additional
equity. There can be no assurance that such actions could be effected or would
be effective in allowing the Company to meet its cash needs.
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BUSINESS
Unless stated otherwise, figures provided for market share percentages and
rank in any market are based on retail sales (measured by weight) in 1995, as
reported by IRI (which tracks retail sales through scanner data in U.S. grocery
stores with annual revenue greater than $2.0 million dollars). In those
instances where market share data is stated to be based on dollar sales, these
dollar sales represent retail sales (measured in dollars) in 1995 as reported by
IRI. The IRI data excludes sales through other channels in which the Company has
a lesser position and, therefore, may overstate the Company's share of the
overall cookie and cracker market. See "--Keebler Strategy--Targeted Marketing
Strategy--Expand Non-supermarket Business."
OVERVIEW
The Company is the second largest cookie and cracker manufacturer in the
United States with a 23.2% share of the retail cookie and cracker market
(including private label sales) for the year ended December 31, 1995. The
Company had approximately $2.1 billion in gross sales in fiscal 1995 on a pro
forma basis including the gross sales of Keebler and Sunshine. Keebler alone was
the second largest cookie and cracker manufacturer in the United States with a
16.4% share of the retail cookie and cracker market (including private label
sales) in 1995. Sunshine alone was the third largest cookie and cracker
manufacturer in the United States with a 6.8% market share in 1995. The Company
produces and markets nine of the top 25 selling cookies and ten of the top 25
selling crackers based, in each case, on dollar sales. In addition, the Company
is the leading manufacturer and marketer of cookies and crackers (combined) to
the foodservice market based on 1995 sales as reported by IFMATRAC.
KEEBLER
Keebler on a stand alone basis had approximately $1.5 billion in gross sales
for the fiscal year ended December 30, 1995. The Keebler name, aided by its
popular brand imagery, which includes Ernie, the Keebler Elf, and Keebler's
Hollow Tree logo, has a national brand awareness rate of 97% based on data
compiled by Luhrs Marketing Research Corporation on behalf of Keebler in 1992.
IRI estimated that 70% of all U.S. households purchased at least one product
with the Keebler(R) brand name during the twelve months ended May 22, 1994.
Keebler manufactures and distributes branded and private label cookies,
crackers, pie crusts and ice cream cones for the retail and foodservice markets.
In addition, Keebler produces custom products for other marketers of branded
food products.
Keebler's gross sales of retail branded products were approximately $1.1
billion in 1995, accounting for approximately 74% of Keebler's total gross
sales. Keebler's major brands include Chips Deluxe, Fudge Shoppe, Elfin
Delights, Sandies, Wheatables, Munch'ems, Zesta, Town House and Club, among
others. Keebler is also the exclusive U.S. importer, distributor and licensee of
the Carr's line of cookies and crackers, which is the top selling premium
cracker brand in the U.S. Keebler, with its Ready-Crust products, has over a 70%
dollar share of the pre-formed retail pie crust market.
Keebler directly services more than 30,000 grocery accounts through its own
national DSD system that employs more than 3,400 persons. Keebler's DSD system
distributes its retail branded cookie and cracker products directly to the
retail location, where these products are then merchandised by Keebler's own
sales force.
Keebler's sales force visits such grocery outlets an average of 1.1 times
per week per store, meeting directly with and taking orders from store managers,
as well as arranging for extra in-store display space. Keebler's trucks then
deliver the orders directly to such grocery outlets, where Keebler's own sales
force then stocks and arranges its products on the retailers' shelves and builds
end-aisle and free standing displays within the stores. While strengthening
retailer relationships, the frequent store
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presence of Keebler's sales force also provides Keebler the ability to monitor
competitors' in-store product promotions. In addition, the sales force is able
to oversee and execute Keebler's in-store promotional programs.
The Company believes that Keebler's DSD system gives it a number of distinct
advantages over competitors that lack a DSD system. Keebler's DSD system (i)
enables Keebler to sell and promote a wide variety of products and to introduce
new products at a lower cost to the retail customer, because the customer's
warehouse space, transportation and in-store labor are not required, (ii)
results in high display levels of Keebler products and well stocked displays
during major promotion periods through the efforts of Keebler's in-store sales
force and (iii) enables Keebler's products to be available in supermarkets
representing 99% of ACV.
Management believes that the critical success factors in the grocery store
cookie and cracker business are (1) a broad product line with well recognized
brand names and (2) high levels of in-store display activity. Purchases of
cookies and crackers are impulse driven, with over 25% of volume purchased in
connection with in-store displays in 1995 as reported by IRI. Keebler views its
DSD system as a principal factor in maintaining its number two share of the
cookie and cracker market.
Keebler and Nabisco are the only cookie and cracker producers that have
national wholly owned DSD sales and distribution systems, although Pepperidge
Farms operates a national DSD system through independent distributors. Keebler's
competitors who operate without a DSD system, including producers of private
label products, must rely on store employees to order, stock and display their
cookie and cracker products.
In addition to its retail branded products, Keebler also produces private
label cookies and crackers, products for the foodservice market and various
baked products for other branded food companies. Keebler's gross sales to
private label customers, the foodservice market, and other branded food
companies were approximately $389 million in fiscal year 1995, accounting for
approximately 26% of Keebler's total gross sales. Keebler is the leading
supplier of private label cookie products to supermarkets, with approximately a
30% share of the private label cookie market based on 1995 sales.
Keebler was the second leading supplier of cookies and crackers purchased by
the foodservice market based on 1995 sales as reported by the data tracking
system maintained by the International Foodservice Manufacturers Association
(such data tracking system being referred to herein as "IFMATRAC").
Keebler also manufactures a number of custom products for other marketers of
branded food products including Kellogg's, McDonald's, Oscar Mayer, Heinz and
Gerber.
In addition to Keebler's DSD system, Keebler uses a network of independent
distributors to sell and distribute its products through other major trade
channels, including convenience stores, some club stores, vending distributors,
some mass merchandisers, drug stores and foodservice companies. Finally, Keebler
uses a warehouse sales and distribution system to sell and distribute Ready
Crust pie crusts and private label cookies and crackers to its customers,
including grocery outlets otherwise served by Keebler's DSD system.
SUNSHINE
At the time of the Sunshine Acquisition, Sunshine was the third largest
cookie and cracker manufacturer in the United States with a 6.8% market share
and approximately $607 million in gross sales on a pro forma basis for fiscal
1996. Sunshine manufactures well known cookie and cracker brands such as
Cheez-It, the best-selling snack cracker; Cheez-It Party Mix, the second leading
party mix brand; Vienna Fingers, the leading non-chocolate sandwich cookie;
Hydrox, the original chocolate-based sandwich cookie; Sunshine Golden Fruit, a
fruit-filled bar; Hi Ho Deluxe, a traditional topping
53
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cracker; and Krispy saltine crackers. Sunshine held the number three share
position in the foodservice market for 1995 based on sales as reported by
IFMATRAC.
Sunshine sells its retail branded products throughout the United States
primarily to grocery stores, mass merchandisers, membership clubs and drugstore
chains. Unlike Keebler's grocery customers, Sunshine's grocery customers are
largely served through a customer warehouse sales and distribution system. This
system involves the delivery of products by Sunshine to its customers'
warehouses, not to their individual stores. In contrast to Keebler's DSD system,
Sunshine's customers move purchased products from their warehouses to their
stores at their own expense, and their own employees (rather than Sunshine's)
stock Sunshine's products on the stores' shelves. Only in Philadelphia, New York
and New Jersey does Sunshine operate its own DSD sales and distribution system.
In those markets, Sunshine maintains a higher market share than in most other
areas of the country. Sunshine employs approximately 700 persons in its sales
and distribution system.
HISTORY OF KEEBLER, THE KEEBLER ACQUISITION AND NEW MANAGEMENT
Keebler was founded by Godfrey Keebler in 1853 as a small Philadelphia
bakery. In 1927, Keebler along with four other independent regional bakeries
formed United Biscuit Company of America, which functioned as a business
federation comprised of independent operators. In 1966, Keebler's predecessor
company changed its name to Keebler and began to market its products under the
Keebler name, creating a consistent, nationally-recognized brand name.
By 1974, having grown to $311.0 million in annual revenues, Keebler was
acquired by United Biscuits (unrelated to the former United Biscuit Company of
America), one of the largest food manufacturers in the United Kingdom. Under the
direction of United Biscuits, Keebler grew to over $1.3 billion in gross sales
in 1992. Keebler expanded its presence in the cookie and cracker market in 1993
by acquiring Bake-Line, the largest manufacturer of private label cookies in the
United States.
In the early 1980's, Keebler introduced salty snack products. Keebler's
salty snack products and existing cookie and cracker products shared Keebler's
DSD sales and distribution system and Keebler's R&D, sales and general
administrative resources. During the late 1980's and early 1990's, Keebler
expanded its sales, distribution and corporate infrastructure in anticipation of
future growth in sales of salty snacks products. The expansion included the
implementation of a separate DSD system dedicated primarily to selling salty
snacks and cookies and crackers to convenience stores, which are typically
served by third party distributors. However, after experiencing initial growth,
sales of Keebler's salty snack products began to decline in 1993. In response,
Keebler embarked on a strategy aimed at increasing its market shares for its
other products (i.e., cookies and crackers) through increased marketing
expenditures, price promotions, and new product introductions, which reached a
peak in 1995 with more than 30 new product introductions and record marketing
expenditures.
However, as a result of competitive responses to Keebler's actions, Keebler
did not increase its share of the cookie and cracker markets. Gross sales
(excluding sales of salty snacks) grew only marginally for the three years ended
December 30, 1995, and EBITDA declined substantially from $167.6 million (before
restructuring charges of $102.9 million) in 1993 to $139.1 million in 1994 to
$71.1 million in 1995. Prior to the Keebler Acquisition, Keebler disposed of its
salty snack business and closed its dedicated DSD system to convenience stores.
INFLO acquired Keebler on January 26, 1996. Immediately following the
Keebler Acquisition, a new management team was installed with the industry
expertise necessary to implement a new strategic plan at Keebler. This
management team is led by Mr. Sam K. Reed who is the new president and chief
executive officer of Keebler. Mr. Reed had previously worked with Artal and
Invus as the president and chief executive officer of Mother's Cake and Cookie
Co. from 1990 to 1993. The members of the new senior management team have an
average of 20 years in the U.S. food industry (see "Management" below) and have
played an active part in designing and implementing similar strategies at other
baked
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goods companies, many of which were acquired through leveraged buy-outs. In
addition, Invus and Flowers, each with their own substantial experience in the
cookie and cracker and related industries, intend to work closely with
management to execute Keebler's new strategic plan. Management currently owns
2.3% of the INFLO Common Stock and will have the right to purchase through
options (two-thirds of which will vest upon the attainment of certain
performance criteria) an additional number of shares, which together with
management's existing shares would represent up to 8.6% of the shares of INFLO
Common Stock on a fully diluted basis.
KEEBLER STRATEGY
Since the Keebler Acquisition, management has been executing a strategic
plan to reduce inefficiencies and further capitalize on (i) the strength of
Keebler's DSD capabilities and (ii) the significant share positions of its
brands within the relatively stable cookie and cracker industry. The new
strategic plan is comprised of three key elements:
1. Cost reductions--immediately reduce costs, particularly in manufacturing
and corporate overhead.
2. Structural reorganization of sales and marketing--decentralize management
with regional teams led by regional vice presidents having increased
responsibility and accountability.
3. Targeted marketing--execute a new marketing strategy designed to
emphasize Keebler's relative strengths in its differing product segments
and regions in a way that emphasizes profits rather than sales volume
alone.
COST REDUCTIONS AT KEEBLER
The cost reductions described herein are based on management's budgets for
1996, 1997 and 1998. There can be no assurance that actual dollars spent will
not exceed management's budgets, that the budgets will not be revised or that
these cost savings will be realized at the times or in the amounts budgeted.
There can be no assurance that other costs and expenses of Keebler will not
increase, thereby lowering or offsetting management's projected cost savings.
Since the closing of the Keebler Acquisition, management accomplished a
series of fundamental structural changes in Keebler. These actions were designed
to immediately reduce fixed costs and establish new managerial and
organizational accountability. Actions already completed or announced are
expected to generate approximately $62 million of cost savings at an annual
rate, with a related one-time cost of approximately $35 million, which has been
reserved for on Keebler's balance sheet. As of July 13, 1996, $30.7 million of
such one-time costs had been paid from Keebler's available cash.
<TABLE>
<CAPTION>
PROJECTED
SAVINGS/(COSTS)
FOR THE PROJECTED
FISCAL YEAR ENDING ANNUALIZED
DECEMBER 28, 1996 SAVINGS/(COSTS)
------------------ ---------------
<S> <C> <C>
ACTIONS TAKEN IN 1996
Reduce corporate overhead..................................... $ 20.5 $22.3
Close the Atlanta plant and make other bakery staff
reductions.................................................... 5.9 13.7
Add regional general managers................................. (1.8) (2.0)
Reduce advertising and consumer promotion commitments......... 27.8 27.8
----- -----
Total(1)...................................................... $ 52.4 $61.8
----- -----
----- -----
</TABLE>
- ------------
(1) As a result of taking the actions shown above, Keebler expects to incur a
total of $34.7 million in one-time cash costs in 1996, which have been
reserved for on Keebler's consolidated balance sheet. As of July 13, 1996,
$30.7 million of such one-time costs had been paid from Keebler's available
cash.
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REDUCED CORPORATE OVERHEAD
Following the Keebler Acquisition, management took a series of actions to
reduce headquarters administration costs. At November 15, 1995, Keebler employed
690 persons at its corporate headquarters. As a result of attrition and
reductions made by current management after the Keebler Acquisition, the number
of persons employed at corporate headquarters was approximately 450 at August
31, 1996.
Savings at Corporate Headquarters. As a result of these actions, corporate
headquarter costs have been reduced by $14.8 million from the fiscal year 1995
level, which figure includes a reduction in non-personnel costs. The associated
personnel reductions resulted in severance costs of $12.2 million, which had
been reserved for on Keebler's consolidated balance sheet and as of April 20,
1996 had been paid out of Keebler's available cash.
Research and Development. Keebler has reduced the 1996 R&D budget by $5.7
million from the amount spent in 1995 (which figure includes reductions in
non-personnel costs) by concentrating R&D efforts on projects that are focused
on developing and reconfiguring products in Keebler's existing cookie and
cracker product lines rather than on developing products outside Keebler's
existing product lines. The one-time severance costs associated with this
reduction are $0.9 million, which had been reserved for on the consolidated
balance sheet and as of April 20, 1996 had been paid out of Keebler's available
cash. Prior to the Keebler Acquisition, Keebler pursued the development of
numerous new products (more than 30 in 1995), which resulted in few successes
and many inefficiencies. A senior level, multi-functional new products
development team has been assembled that will set priorities and streamline the
development process with the objectives of improving efficiency and product
success rates and accelerating new product development.
Keebler also plans to reduce the costs of future new product introductions
by using contract manufacturers during the initial stages of a product launch
and moving production in-house only once the new product has proven its
viability.
REDUCED MANUFACTURING OVERHEAD AND CLOSING OF ATLANTA PLANT
Reduced Manufacturing Costs. Keebler determined that its six major bakeries
were overstaffed and reduced bakery overhead and shipping department costs by
eliminating 75 positions in the bakeries and shipping departments, for
annualized personnel cost savings of $3.9 million. These personnel reductions
triggered severance payments of $1.1 million, which had been reserved for on the
consolidated balance sheet and as of July 13, 1996 had been paid out of
Keebler's available cash.
Closing of Atlanta Plant. As a result of overbuilding and automation,
Keebler's bakeries operated at approximately 75% of capacity in 1995 (based on
five day work weeks of three shifts per day). On March 1, 1996, Keebler
announced that its Atlanta manufacturing facility would be closed to reduce
excess capacity and completed the shutdown in June 1996. Management expects to
achieve net manufacturing savings in bakery costs of $9.8 million at an annual
rate. The majority of the volume produced at the Atlanta facility has been
relocated to the remaining facilities of the Company where capacity is
available. Management expects to incur a one-time cost of $18.0 million related
to the closing, which has been reserved for on the consolidated balance sheet of
Keebler.
REDUCED MEDIA ADVERTISING AND CONSUMER PROMOTION EXPENDITURES
In fiscal year 1995, Keebler increased its total marketing expenditures by
$39.4 million over fiscal year 1994 expenditures. Much of the increase in
spending from 1994 to 1995 resulted from the introduction of more than 30 new
products, most of which failed to meet sales projections. Certain new products
involved the introduction of new brands, which required a high level of initial
advertising and promotional spending. The new product introduction program for
1996 will emphasize line extensions of
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Keebler's existing products, which should not require a significant investment
in building new brand awareness.
In the future, Keebler's media and consumer spending will emphasize building
Keebler's brand equity. Management intends to return its total fiscal year 1996
brand marketing expenditures as a percentage of gross sales (including trade
spending) to approximately the fiscal year 1994 levels. Total Keebler brand
advertising and consumer promotion expenditures will be reduced by $27.8 million
from 1995 levels. Most of this reduction results from the elimination of
programs that management believes were either ineffective or inconsistent with
Keebler's strategy going forward.
OTHER COST REDUCTIONS
Package Weight Overfills. Prior to the Keebler Acquisition, package weight
overfills at the Keebler bakeries were running as much as 5% over the delivered
packaged weight in order to assure compliance with state package weight
regulations. Efforts are underway to bring Keebler's overfill levels to a
Company goal of 2%. A target for scrap reduction also is in place.
Purchasing. Among other projects, Keebler is currently developing and taking
advantage of purchasing synergies with Flowers. See "Raw Materials."
STRUCTURAL REORGANIZATION OF SALES AND MARKETING
Since the Keebler Acquisition, management reorganized its retail branded
sales and marketing functions into five separate regions, each led by a regional
vice president. The corporate headquarters sales and distribution staff has been
reduced significantly as the business emphasis and day-to-day management
responsibility has shifted to the regional management teams. Each regional
management team consists of a Vice President--General Manager, a sales director,
a distribution director, a marketing manager and a finance manager. The vice
president and finance positions are new positions.
While Keebler will continue to follow a national business plan, each region
has profit accountability and is charged with developing regional marketing
plans that are consistent with the overall Keebler strategy and total resource
allocation. The regional teams are also responsible for reducing distribution
inefficiencies.
Management is implementing incentive systems throughout Keebler that are
profit-based and not solely volume-based. Prior to the Keebler Acquisition, the
majority of the incentive programs were based on sales volume, which resulted in
a bias of Keebler's sales mix toward higher volume, lower margin items. These
programs resulted in unprofitable marketing spending to drive the sales volume
of such lower margin items. Keebler implemented its new sales incentive program
in the southeastern region in April 1996 and implemented the new sales incentive
program in the rest of the country in September 1996.
Corporate headquarters retains responsibility for the national business plan
and day-to-day planning and execution of advertising, major consumer promotions,
new product development and integration of corporate functions such as
manufacturing and logistics as well as communication among such business
functions.
TARGETED MARKETING STRATEGY
There are six key components to the new Keebler marketing strategy:
1. Focus marketing investments behind the Keebler brand umbrella.
2. Regionalize marketing efforts to reflect different market share levels
and regional cookie and cracker segmentation.
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3. Focus marketing resources on differentiated, higher margin items rather
than on lower margin, commodity-like items.
4. Allocate marketing resources to better leverage the DSD sales and
distribution system.
5. Aggressively pursue non-supermarket business.
6. Focused new product introductions.
Keebler Brand Umbrella Strategy. Keebler(R) is one of the most widely
recognized brands among U.S. households, enjoying a 97% brand awareness level
(based on data compiled by Luhrs Marketing Research Corporation on behalf of
Keebler in 1992) with 70% of households purchasing at least one product with the
Keebler(R) brand name during the twelve months ended May 22, 1994 as estimated
by IRI. Supporting and emphasizing the Keebler brand umbrella while allowing for
individual product brand distinctiveness will be the core of the new strategy.
Regionalize Marketing Efforts. Prior to the Keebler Acquisition, Keebler
followed a national marketing philosophy with plans developed at corporate
headquarters. Little recognition was given to Keebler's differing regional
market share levels or to regional segmentation within the cookie and cracker
markets. The new regional management structure will create opportunities not
previously identified by corporate headquarters. Corporate headquarters will
play a critical role in ensuring that the local marketing plans are compatible
with overall marketing strategy and consistent with manufacturing, sales and
distribution capabilities.
Focus on Differentiated, Higher Margin Items. The margin contribution
structure of Keebler's individual products varies widely. In the past, Keebler's
marketing focus and sales incentive system emphasized volume alone, which placed
undue emphasis on sales of Keebler's high tonnage, price-driven products.
Keebler has a portfolio of differentiated, higher margin items that, as a result
of previous incentive systems, have been undermarketed. The new Keebler
marketing strategy will reallocate marketing and selling resources behind a
product portfolio strategy that will emphasize total dollar contribution after
marketing expense. Sales incentive programs will be designed to motivate
Keebler's sales force to achieve the product portfolio strategy goals.
Leverage the DSD System. Prior to the Keebler Acquisition, Keebler's
organizational structure did little to encourage in-store promotions despite the
impulse dynamics of cookie and cracker buying with over 25% of volume purchased
in connection with in-store displays as reported by IRI. While some fully
integrated promotions were developed, the lack of shared objectives between
sales and marketing resulted in below optimum execution. In the new Keebler
organization, product advertising is fully integrated with consumer and trade
promotions.
Expand Non-supermarket Business. While at least $1.7 billion or 22% of
cookies and crackers were purchased outside of supermarkets in 1995 as reported
by IRI, Keebler believes that less than 14% of its sales were generated in
non-supermarket channels (which include club stores such as Sam's Club and Price
Costco, mass merchandisers such as Wal-Mart and Target, small grocery stores,
convenience stores and vending distributors) in 1995. Total industry
non-supermarket sales of cookies and crackers combined grew 8% in 1995 compared
to a decline in supermarket sales of cookies and crackers of 1.5%, in each case
based on dollar sales as reported by IRI. Non-supermarket channels require
programming and distribution strategies different from those needed for
supermarkets. Under Keebler's new management, a senior executive with experience
in non-supermarket channels has been recruited. Keebler believes that his
experience in developing products and programs that meet the specific needs of
the non-supermarket channels should increase Keebler's sales to these channels.
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Focused New Product Introductions. In recent years, prior to the Keebler
Acquisition, Keebler introduced a large number of new products that varied
greatly from Keebler's existing products and required a large marketing
investment. Many of these products were unsuccessful. Keebler performed best in
developing and introducing new products that represent line extensions with
variations or reconfigurations of Keebler's existing product lines. Accordingly,
management plans to focus its product development on new products that are
primarily variations of existing Keebler products, especially in those Keebler
segments that are well differentiated and have high profit margins. Packaging
format alternatives will be tailored to the needs of the growing non-supermarket
channels. Keebler will work closely with a network of contract manufacturers to
develop new products that are consistent with this strategy.
HISTORY OF SUNSHINE
The origins of Sunshine can be traced to 1882, when two brothers, Jacob and
Joseph Loose, entered the baking and confectionery business in Kansas City,
Missouri. In 1908, Sunshine expanded into the northeast, opened a bakery in
Boston, and introduced Hydrox, the original chocolate, creme-filled sandwich
cookie. In 1912, Sunshine opened what was at that time the largest bakery in the
world, in Long Island City, New York.
During the 1920s and 1930s, Sunshine introduced Krispy saltines, Cheez-It
snack crackers, Hi Ho Deluxe crackers, Sunshine Honey Graham crackers, Vienna
Fingers sandwich cookies, Hydrox and Chip-A-Roos chocolate chip cookies. In
April 1988, Sunshine was purchased by GFI.
As a result of a cost reduction program implemented during the early 1970's,
Sunshine converted its sales and distribution system from a DSD sales and
distribution system to a customer warehouse sales and distribution system.
However, Sunshine's primary competitors, Nabisco and Keebler, maintained their
respective DSD systems, and Sunshine's share of the cookie and cracker markets
has gradually declined. To address these declines in recent years, Sunshine
increased its rate of new product introductions, lowered prices and changed the
focus of its marketing expenditures. However, these efforts did not stop
Sunshine's market share erosion. In order to improve its internal cost
structure, Sunshine management took a series of steps in fiscal year 1996 to
downsize its business and to improve its profitability. Sunshine's decision to
close its Oakland bakery (completed in July 1995) and sell its Salerno bakery
near Chicago (completed in November 1995) increased system wide capacity
utilization and reduced fixed manufacturing overhead. In January 1996, Sunshine
sold its unprofitable regional Salerno cookie and cracker division, exited
certain other non-core businesses, including the ice cream wafer and private
label segments, and pruned its product line in order to focus on its core
national brands.
KEEBLER'S ACQUISITION OF SUNSHINE
On June 4, 1996, Keebler acquired Sunshine and has begun the process of
integrating the two companies. Sunshine's fiscal year end has been conformed, as
of the date of the Sunshine Acquisition, to Keebler's fiscal calendar. In
addition to the strategic value of combining Keebler and Sunshine, the Company's
management expects that such integration will provide economic efficiencies in
administration, purchasing, production, sales, distribution and marketing. In
particular, management believes that Keebler's DSD system will provide a more
effective vehicle for marketing the Sunshine branded retail products throughout
the United States.
LEVERAGING KEEBLER'S DSD SYSTEM.
In contrast to Nabisco and Keebler, Sunshine primarily employs a customer
warehouse sales and distribution system. Approximately 87% of Sunshine's retail
volume in 1995 was delivered to its customers' warehouses, while only 13% (in
Philadelphia, New Jersey and New York) was delivered
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<PAGE>
directly to retail stores by Sunshine's DSD sales and distribution system. The
Company intends to phase Sunshine's retail volume out of its current customer
warehouse sales and distribution system and into Keebler's national DSD sales
and distribution system on a region-by-region basis.
As a result of Keebler's exit from salty snacks in January 1996, Keebler's
DSD system has excess capacity. This excess capacity will enable Keebler to
absorb Sunshine's retail volume without significant investment in fixed assets.
Given that Keebler's DSD system (trucks, warehouses, and sales and distribution
personnel) currently services substantially all of the major stores where
Sunshine products are sold, the addition of Sunshine's retail volume will
decrease the system's excess capacity and increase its efficiency. Redundant
warehouses, vehicles and sales personnel costs will be reduced. Management
expects a one-time cost of $29.8 million associated with the integration of
Sunshine's retail volume into Keebler's DSD system, which has been reserved for
on the Company's consolidated balance sheet. These estimated costs include
severance costs, lease termination costs and temporary increases in
manufacturing costs. Also, the Company intends to temporarily increase marketing
expenditures in connection with this transition by an aggregate of $15 million
over the two years following the Sunshine Acquisition, which expenditures will
not be reserved for on the Company's consolidated balance sheet.
In addition, by distributing Sunshine's retail volume through Keebler's DSD
system, customer warehouse loading and slotting charges and customer deductions
will be reduced. During Sunshine's fiscal year ended March 31, 1996, more than
90% of Sunshine's retail volume was sold on promotion due, in part, to customer
forward buying (i.e., customer's buying large quantities of products on
promotion beyond current needs and holding such quantities as inventory), as
compared to Keebler's level of approximately 67% of retail volume in fiscal year
1995 sold on promotion. DSD systems, by bypassing customers' warehouses, prevent
these forward buying practices.
Management also believes that the improved in-store service provided by
Keebler's DSD system will allow for improved marketing and distribution of
Sunshine's core retail branded products.
ADDITIONAL SYNERGIES RESULTING FROM THE COMBINATION OF SUNSHINE AND KEEBLER
By combining Sunshine and Keebler, the Company expects to benefit in the
areas of sales and distribution (as discussed above), marketing, administration,
production and purchasing.
Marketing Sunshine Products under Keebler's Brand Umbrella Strategy. As
discussed above, Keebler has one of the most widely recognized brand names among
U.S. households, whereas the "Sunshine" name is not as well recognized. However,
some of Sunshine's individual products, such as Cheez-it, Vienna Fingers, Hydrox
and Krispy, are well known by consumers. Consequently, the marketing strategy
for Sunshine products under the Keebler brand umbrella will capitalize on
Keebler's overall brand name recognition as well as the brand name recognition
of Sunshine's individual products.
The individual product offerings of Keebler and Sunshine are well suited for
integration. Keebler is generally strong in cookie and cracker segments in which
Sunshine is weak or not present; while Sunshine's products are generally strong
where Keebler is weak. With respect to regional markets, Sunshine is strongest
on the east and west coasts, which historically have been Keebler's lower
relative share regions.
Combining Corporate Functions. The Company expects to close Sunshine's
corporate headquarters within the first year following the Sunshine Acquisition
and integrate all administrative and R&D functions into Keebler's corporate
headquarters and R&D facility. The general and administrative expenses
associated with Sunshine's corporate headquarters for fiscal year 1996 totaled
approximately $15 million. Management expects that these expenses will be
reduced through the integration of these functions into Keebler's corporate
headquarters and R&D facility, and management has reserved for $12.0 million of
one-time costs associated with this integration on the Company's consolidated
balance sheet.
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Unlike Keebler, Sunshine performs many of its administrative functions at
each of its bakeries. The Company plans to eliminate these positions at the
bakeries by centralizing these administrative functions at Keebler's corporate
headquarters. The general and administrative expenses associated with Sunshine's
bakeries totaled approximately $7 million in fiscal year 1996. Management
expects that these expenses will be reduced through the integration of these
functions into Keebler's corporate headquarters, and management has reserved for
$1.0 million of one-time costs associated with this integration on the Company's
consolidated balance sheet.
Rationalize Production. Sunshine's bakeries operated at approximately 64% of
capacity in fiscal 1996 (based on five day work weeks of three shifts per day).
Management believes that combining Keebler's and Sunshine's operations will
offer opportunities to rationalize the combined manufacturing system through the
closure of up to two manufacturing plants by the end of fiscal year 1998.
Management has reserved for $19.0 million of one-time costs associated with this
manufacturing rationalization.
Purchasing Synergies. With the addition of Sunshine, the Company's raw
material purchases will increase. Among other projects, the Company is currently
developing and taking advantage of purchasing synergies with Flowers. See "Raw
Materials."
PRODUCTS AND MARKETS
The individual product offerings of Keebler and Sunshine are well suited for
integration. Keebler is generally strong in cookie and cracker segments in which
Sunshine is weak or not present; while Sunshine's products are generally strong
where Keebler is weak. Together, the Company produces and markets nine of the
top 25 cookies and ten of the top 25 crackers in the United States based on
dollar sales and has a combined 20.4% share of the U.S. cookie market and 27.1%
of the U.S. cracker market.
Cookie Brands
Gross sales of Keebler's retail branded cookies amounted to $497.2 million,
$468.8 million and $473.3 million in 1995, 1994 and 1993, respectively, or
33.4%, 32.3% and 32.6%, respectively, of Keebler's total gross sales in each
such year. Keebler currently has seven of the top 25 cookie brands in the U.S.
cookie market based on dollar sales. Chips Deluxe is Keebler's largest cookie
brand and is available in a number of varieties including original, Rainbow,
Chocolate Lovers, Soft 'n' Chewy and a reduced fat version, and is the number
two brand in the chocolate chip cookie segment based on dollar sales. Fudge
Shoppe is Keebler's second largest cookie brand and is the leading brand in the
enrobed cookie category based on dollar sales. Other popular Keebler cookie
brands include Sandies, Soft Batch and Keebler vanilla wafers, which each rank
number one or number two in their respective cookie segments.
Gross sales of Sunshine's retail branded cookies amounted to $170.6 million,
$164.5 million and 183.0 million in the fiscal years ended March 31, 1996, 1995
and 1994, respectively, or 26.3%, 25.1% and 27.5%, respectively, of Sunshine's
total gross sales in each such year. Sunshine currently has two of the top 25
cookie brands in the U.S. cookie market based on dollar sales. Vienna Fingers is
Sunshine's largest and most successful cookie brand, and is the number one brand
in the non-chocolate sandwich cookie segment. Hydrox is Sunshine's second
largest cookie brand. Other popular Sunshine cookie products include Sunshine
Golden Fruit bars, Sunshine sugar wafers and Sunshine vanilla wafers.
Cracker Brands
Gross sales of Keebler's retail branded crackers (including imported
crackers sold under other branded labels) amounted to $551.5 million, $574.1
million and $578.6 million in 1995, 1994 and 1993, respectively, or 37.1%, 39.5%
and 39.8%, respectively, of Keebler's total gross sales in each such year.
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Keebler currently produces and markets eight of the top 25 selling cracker
brands in the U.S. based on dollar sales. Zesta saltines is Keebler's largest
selling cracker and is the second leading branded saltine cracker. Town House is
Keebler's second largest selling cracker. Other popular Keebler cracker brands
include Graham Selects, Wheatables, Club, Munch'ems and Toasteds. Club, Town
House and Graham Selects rank number two in their respective cracker segments.
Keebler imports and distributes Carr's crackers in the United States under
an exclusive long-term licensing and distribution agreement with United
Biscuits. Carr's crackers are manufactured by McVities, a subsidiary of United
Biscuits. Carr's crackers are the top selling premium crackers in the United
States. Pursuant to the licensing and distribution agreement, Keebler has the
right to produce new cookie and cracker products under the Carr's label, which
can be marketed throughout the United States. In addition to Carr's crackers,
Keebler imports a variety of other products including Ryvita crispbread and Finn
Crisp. Keebler's imported products are sold and merchandised by 75 specialty
distributors to approximately 30,000 retail stores.
Gross sales of Sunshine's retail branded crackers amounted to $315.6
million, $282.8 million and $286.9 million in the fiscal years ended March 31,
1996, 1995 and 1994, respectively, or 48.6%, 43.2% and 43.1%, respectively, of
Sunshine's total gross sales in each such year. Sunshine currently has two of
the top fifteen cracker brands based on dollar sales. Cheez-it is Sunshine's
largest selling cracker and is the leading branded snack cracker in the United
States based on dollar sales. Krispy is Sunshine's second largest selling
cracker. Other popular Sunshine cracker brands include Cheez-it Party Mix, Hi Ho
Deluxe and Graham Classics.
Pie Crusts
Preformed pie crusts, sold under the Keebler Ready-Crust brand name,
accounted for approximately 70% of the U.S. retail preformed pie crust market
based on dollar sales. Keebler introduced a reduced-fat Ready-Crust product in
the latter part of 1995. Keebler's dedicated Ready-Crust sales team, assisted by
a national system of independent brokers, markets Ready-Crust products, which
are shipped directly to customers' warehouses.
Ice Cream Cones
Management believes Keebler is the leading manufacturer of ice cream cones
in the United States based on 1995 sales. Keebler markets its ice cream cones
through retail and foodservice channels and produces cones for various
restaurants and ice cream retailers, such as McDonald's and TCBY.
New Products
Within the past few years, new products in the cookie and cracker markets
have primarily targeted the "better-for-you" segment, in which Keebler has
launched an Elfin Delights brand of "better-for-you" cookies, as well as
reduced-fat or fat-free versions of Chips Deluxe, Keebler vanilla wafers and
Pecan Sandies cookies, and Zesta, Town House, Wheatables, Munch'ems and Toasteds
crackers. Sunshine launched reduced-fat or fat-free versions of Vienna Fingers,
chocolate Graham Classics, Sunshine Golden Fruit bars, Cheez-it, Hi Ho and
Krispy over the past three fiscal years. Management intends to focus the
Company's new product efforts primarily on products in its existing cookie and
cracker lines. Management believes that these new product opportunities do not
require substantial investment in research and development, and provide a better
risk/reward trade-off. See "Keebler Strategy--Cost Reductions--Reduced Corporate
Overhead--Research and Development" and "--Targeted Marketing Strategy--Focused
New Product Introductions."
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Other Product Lines
In 1995, Keebler's products other than retail branded cookies and crackers
accounted for $438.1 million or 29.5% of Keebler's gross sales. Set forth below
is a description of Keebler's other product lines.
Private Label Products. In 1993, Keebler expanded into the private label
cookie and cracker market with its purchase of Bake-Line, a producer of private
label cookie products. While Bake-Line had historically concentrated on cookie
products, Keebler expanded into the private label cracker market in 1994.
Keebler is the industry's leading manufacturer of private label cookie products
in the U.S. with 1995 supermarket sales of $124.3 million and an approximate 30%
share of the private label cookie market in terms of dollar sales. Keebler
serves leading grocery chains in the U.S. with a variety of products ranging
from value-oriented standard products to premium items that compete with branded
alternatives. Keebler's plant in Des Plaines, Illinois is dedicated to producing
private label cookies, and is capable of producing a wide variety of products
with a multitude of packaging options to meet the wide-ranging demands of
Keebler's private label customers. Keebler's private label cookies and crackers
are shipped via common carrier directly to customer warehouses.
Products for the Foodservice Market. Keebler's sales to the foodservice
market in 1995 amounted to $103.1 million, led by cracker products which
represented over 70% of volume, and Sunshine's gross sales to the foodservice
market in the fiscal year ended March 31, 1996, amounted to $72.5 million or
11.9% of Sunshine's total gross sales. The Company is the leading supplier of
cookies and crackers purchased by the foodservice market in the United States
based on 1995 sales as reported by IFMATRAC. The Company's foodservice products
are sold by a national sales force dedicated exclusively to the foodservice
market, with the assistance of independent brokers.
Custom Products for Other Marketers of Branded Food Products. Keebler
manufactures a variety of custom products for other marketers of branded food
products. In particular, Keebler has manufactured Pop Tarts for Kellogg since
the product's introduction in 1963. Today, Kellogg is Keebler's largest
customer. Over the 32-year relationship, Keebler has manufactured a variety of
Kellogg branded products including Pop Tarts, Cracklin' Oat Bran and Nutri-Grain
bars. Sales to Kellogg in fiscal year 1995 grew as a result of the introduction
of a low-fat Pop Tart and strong demand for Nutri-Grain bars. While Keebler
expects its long-term relationship with Kellogg to continue, there can be no
assurance of a continued relationship. Other custom products produced for other
marketers of branded food products include crackers for Oscar Mayer Lunchables
and Starkist Charlie Tuna snack kits, Kraft Handi-Snacks, Gerber Biter biscuits
and McDonaldland cookies. These custom products are packaged under the other
companies' labels and shipped from Keebler's plants to the other companies'
regional warehouses or distribution centers via common carrier.
CUSTOMERS
The Company's top 10 customers in 1995 (on a pro forma basis) were Kellogg,
Kroger/Dillon, Wal-Mart, American Stores, Food Lion, Winn-Dixie, Albertson's,
Sysco, Safeway and SuperValu/Wetterau, which together accounted for 26.3% of the
Company's pro forma 1995 gross sales.
MANUFACTURING AND DISTRIBUTION FACILITIES
Manufacturing Facilities
Keebler owns and operates nine manufacturing facilities in the U.S., where
more than 425 thousand tons of product were manufactured on 41 primary
production lines in 1995. As a result of capital expenditures made by Keebler
over the past decade, management believes that Keebler's
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manufacturing facilities are state-of-the-art. Management has budgeted $20
million on capital expenditures for Keebler alone in fiscal year 1996. The six
largest facilities, responsible for over 78% of Keebler's total production with
over 335 thousand tons of output in 1994, are located in Grand Rapids, Michigan;
Cincinnati, Ohio; Denver, Colorado; Macon, Georgia; Atlanta, Georgia and Des
Plaines, Illinois. Keebler also owns and operates a small bakery in Florence,
Kentucky, which produces enrobed cookies and frozen cakes; an ice cream cone
plant in Chicago, Illinois and a co-packing operation in Athens, Georgia.
Keebler estimates that its manufacturing facilities ran at approximately 75% of
their total capacity in 1995 (based on five-day work weeks of three shifts per
day).
Sunshine owns and operates four bakeries located in Sayreville, New Jersey;
Kansas City, Kansas; Columbus, Georgia and Santa Fe Springs, California, where
more than 170 thousand tons of product were manufactured on 22 primary
production lines during Sunshine's fiscal 1996. Sunshine estimated that its
bakeries operated at approximately 64% of capacity during Sunshine's fiscal
1996. Sunshine also owns and operates a dairy in Fremont, Ohio that produced 4.4
thousand tons of cheese for Sunshine in its 1996 fiscal year. The dairy operated
at maximum capacity during Sunshine's fiscal 1996. Sunshine relies on outside
sources for its additional cheese requirements.
Distribution Facilities
Keebler's distribution facilities consist of seven bakery shipping centers
(six owned and one leased) and of 61 distribution centers (ten owned and 51
leased) throughout the United States. Keebler's fleet consists of over 1,000
trucks, most of which are leased. Sunshine leases thirteen distribution centers
and owns two distribution centers, which are primarily located on the east and
west coasts.
RAW MATERIALS
The primary raw materials used in the Company's food products consist of
flour, sugar, shortening, chocolate and milk. The Company uses corrugated
cardboard and plastics to package its products. Among other projects, the
Company is currently developing and taking advantage of purchasing synergies
created by combining the purchasing of Keebler and Flowers, with Sunshine's
purchasing to be included. Management believes that the most significant
opportunities are with packaging materials (corrugated shipping cartons, plastic
trays, wrapping film, etc.) where suppliers may grant price concessions in
exchange for guaranteed volume and long production runs. In raw materials
procurement (flour, sugar, shortening, etc.), the Company uses hedging
techniques to minimize the impact of price fluctuations and not for speculative
or trading purposes. There can be no assurance, however, that such strategies
will result in a reduction in the Company's raw material costs.
INFORMATION SYSTEMS
In 1994, Keebler upgraded its management information system to the SAP R/3
system and began installation of the new system in 1995. Keebler invested
approximately $33 million in the system prior to the Keebler Acquisition.
Current management expects to complete the implementation of the new system at
Keebler during 1996 with an additional investment of approximately $7 million.
Sunshine will be integrated into Keebler's information system on a timely basis.
Management believes that upon completion of such implementation Keebler will
realize significant improvement in its ability to deliver timely and accurate
information, thereby facilitating more informed management decisions.
EMPLOYEES
The Company employs approximately 11,400 persons, of which approximately
5,100 are represented by unions. The Company believes its relations with its
employees to be good.
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PATENTS, LICENSES AND TRADEMARKS
The Company owns a number of patents, licenses and trademarks. The Company's
principal trademarks include Keebler(R), Ernie the Keebler Elf(R), the Hollow
Tree logo, Cheez-It(R), Chips Deluxe(R), Chip-A-Roos(R), Club(R), Elfin
Delights(R), Fudge Shoppe(R), Graham Selects(R), Hydrox(R), Krispy(R),
Munch'ems(R), Ready-Crust(R), Sandies(R), Soft Batch(R), Toasteds(R), Town
House(R), Vienna Fingers(R), Wheatables(R), and Zesta(R). The Company is the
exclusive licensee of the Carr's(R) brand name in the United States. Such brand
names are considered to be of material importance to the business of the Company
since they have the effect of developing brand identification and maintaining
consumer loyalty. Management is not aware of any fact that would negatively
impact the continuing use of any of its patents, licenses, trademarks or trade
names.
ENVIRONMENTAL
The Company's operations and properties generally are subject to federal,
state and local laws and regulations relating to the storage, handling, emission
and discharge of materials into the environment. The Company expects to continue
to incur costs for its ongoing operations to comply with environmental laws.
An affiliate of United Biscuits, the former owner of Keebler, has agreed to
indemnify the Company for certain environmental losses relating to matters that
existed prior to the Keebler Acquisition, subject to, among other things, the
Company bearing the first $500,000 of such losses and the giving of notice of a
claim within three years of the Keebler Acquisition.
GFI has agreed to indemnify INFLO and the Company for certain environmental
losses relating to matters prior to the Sunshine Acquisition, subject to, among
other things, INFLO and the Company bearing the first $2.0 million of such
environmental losses and certain other indemnifiable losses and GFI's liability
for such environmental losses and certain other indemnifiable losses being
limited to an escrow account consisting of Bermore's shares of INFLO Common
Stock and Bermore's warrants to purchase shares of INFLO Common Stock plus $10.0
million in cash and the giving of notice of such claim within 18 months of the
Sunshine Acquisition.
Although it is difficult to estimate the cost of complying with
environmental laws, the Company does not believe that compliance with or
liability under any environmental laws will have a material adverse effect on
its results of operations or financial condition.
LITIGATION
The Company is involved in routine litigation, none of which it believes
will have a material adverse effect on its results of operations or financial
condition.
REGULATORY
The Company is subject to regulation by the Food and Drug Administration,
the United States Department of Agriculture, the Federal Trade Commission, the
Environmental Protection Agency, the Interstate Commerce Commission, the
Department of Commerce, as well as by various state agencies with respect to the
production, packing, labeling and distribution of its food products. The Company
believes it is in compliance in all material respects with the applicable rules
and regulations of such agencies.
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THE INDUSTRY
MARKET SIZE
In 1995, the U.S. retail cookie and cracker market generated sales of more
than $7.9 billion, of which $6.2 billion was through supermarkets as reported by
IRI. Cookies accounted for $3.6 billion, or 58.1% of the retail cookie and
cracker sales through supermarkets in 1995 and crackers accounted for $2.6
billion, or 41.9%.
INDUSTRY TRENDS
The U.S. combined cookie and cracker market has been relatively stable,
experiencing slow but steady growth over the last twenty years. The following
graphs illustrate the historical cookie and cracker industry trends in the
United States based on sales (measured by weight and dollars) in supermarkets.
U.S. COOKIE AND CRACKER SALES
(BY WEIGHT)
Pounds (in millions)
2,000
1,500
1,112 1,417 -0.8% +2.2% -1.4% +0.9 -1.3% +2.6% -2.2% -3.2%
1,000
500
0
1991 1992 1993 1994 1995
U.S. COOKIE AND CRACKER SALES
(BY DOLLARS)
Revenue (in millions)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$4,500
$3,000 $2,593 $3,217 +0.3% +3.3% +1.1% +4.8% -1.1% +5.0% -0.7% -2.1%
$1,500
$ 0
1991 1992 1993 1994 1995
</TABLE>
While changing consumer preference can lead to shifts among cookie and
cracker categories, overall cookie and cracker sales have remained steady. For
example, the better-for-you cookie and cracker categories experienced
significant growth between 1991 and 1995. However, the growth rate of
better-for-you products slowed in 1995 to a 26% annual growth rate and decreased
4% for the first 24 weeks of 1996 compared to the first 24 weeks of 1995, in
each case based on supermarket sales (measured by weight) as reported by IRI.
The Company believes growth in the better-for-you category has resulted from
consumers' attention to the "healthiness" of products. In order to capitalize on
this trend, major branded producers and private label sellers introduced
numerous reduced-fat, low-fat and fat-free products. Better-for-you cookie and
cracker products have increased from 155 million pounds sold in supermarkets in
1993 to 360 million pounds sold in supermarkets in 1995 as reported by IRI.
Growth in the U.S. private label market has exceeded that of the overall
cookie and cracker market over the last three years. Private label cookie and
cracker products represented a 16.6% share of the market based on sales
(measured by weight) in supermarkets for the year ended December 31, 1995, up
1.5 share percentage points over the 1992 share. The principal reason for this
growth has been the advent of private label products that are similar in quality
to branded products but are often available at significantly lower prices than
national brands.
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COMPETITION
Below is a summary of the market share trends of each of the major category
competitors based on sales (measured by weight and dollars) in supermarkets. As
the tables show, the shares of the Company and its primary competitor, Nabisco,
within the cookie and cracker industry have not changed significantly in the
period from January 1, 1992 through June 15, 1996.
U.S. COMBINED COOKIE AND
CRACKER MARKET SHARE TRENDS
Pound Market Share (%)
60.0%
50.0%
40.0%
Nabisco
30.0%
[PLOT POINTS TO COME]
Keebler and Sunshine
20.0% Combined
10.0% Private Label
Pepperidge Farms
0.0%
1992 1993 1994 1995 1996 (52 Weeks
ended
August 11)
U.S. COMBINED COOKIE AND
CRACKER MARKET SHARE TRENDS
Revenue Market Share (%)
60.0%
50.0%
40.0%
Nabisco
30.0%
[PLOT POINTS TO COME]
Keebler and Sunshine
20.0% Combined
10.0% Private Label
Pepperidge Farms
0.0%
1992 1993 1994 1995 1996 (52 Weeks
ended
August 11)
Source: IRI
Note: Figures for Keebler include its private label sales, but exclude sales of
Carr's products. Private Label includes Bake-Line for years not owned by
Keebler.
The U.S. cookie and cracker market is highly competitive. The U.S. branded
cookie and cracker industry is led by two competitors, Nabisco and the Company,
which together account for nearly 60% of cookie and cracker sales. The Company,
as the number two competitor, has more than four times the cookie and cracker
sales of the number three competitor. Smaller competitors include numerous
national, regional and local manufacturers of both branded and private label
products, which together accounted for approximately 40% of the U.S. cookie and
cracker sales in 1995. Competition for sales is based primarily on price, brand
recognition, brand loyalty, quality and in-store execution of promotional
programs.
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MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth the name, age, positions and offices held (as
of the date hereof) and a brief account of the business experience of each of
the Company's current executive officers. Except as otherwise indicated, no
family relationship exists between any executive officer or director of the
Company. No executive officer of the Company serves as a director of any company
whose securities are registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Executive officers of the Company are elected by
and serve at the discretion of the Board of Directors of the Company. The
address of each of the executive officers of the Company is Keebler Corporation,
One Hollow Tree Lane, Elmhurst, Illinois 60126.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Sam K. Reed................ 49 President, Chief Executive Officer and Director of the
Company since January 1996. Mr. Reed has participated
in several leveraged buyouts during his 21 years in the
snack and baking industries. He served as CEO of
Specialty Foods Corporation's $450.0 million Western
Bakery Group division until January 1995. Prior to
that, he was President and CEO 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 Quaker Oats rice cake
division. He started his career in 1975 with Oroweat
Foods Company where he spent 10 years in finance,
manufacturing and general management. Mr. Reed received
a B.A. from Rice University and an M.B.A. from
Stanford.
David B. Vermylen.......... 46 President-Keebler Brands since January 1996. Mr. Vermylen
manages Keebler's branded cookies and crackers, pie
crust and imported products sector. He has 22 years
experience in marketing consumer packaged goods
including cookies, cereals, beverages and convenience
foods. Mr. Vermylen spent 14 years in product
management at General Foods from 1974 to 1988 managing
a diversity of businesses, including being Vice
President of Marketing for Post Cereals. He served as
Vice President--Marketing at Mother's Cake & Cookie Co.
from 1991 to 1994, then President and COO from 1994 to
1995, then in 1995 as Chairman/President/CEO of
Brothers Gourmet Coffee, a publicly traded specialty
beverage manufacturer and retailer. Mr. Vermylen was
also a founding partner of a consulting firm
specializing in food marketing and grocery
distribution. He holds a B.A. in economics from
Georgetown University and an M.B.A. from New York
University.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------
<S> <C> <C>
E. Nichol McCully.......... 42 Chief Financial Officer and Senior Vice President-Finance
of the Company since January 1996. Mr. McCully has over
eight years experience as a senior financial executive
in food industry leveraged buyouts, most recently as
group CFO for the Western Bakery Group of Specialty
Foods Corporation from 1993 to 1995. Mr. McCully was
Vice President, Finance for Mother's Cake & Cookie Co.
from 1991 until its acquisition by Specialty Foods 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 UC Berkeley and an M.B.A. from
UCLA. He is also a Certified Public Accountant.
Jack M. Lotker............. 52 President-Specialty Products of the Company since
January, 1996. Mr. Lotker has worked in the food industry
for 20 years, most recently at Homeland Stores of
Oklahoma from 1988 to 1995. His experience in the
baking industry and with DSD systems includes two years
at CPC International as Vice President of Dry Products
from 1986 to 1988 and eight years at Arnold Food
Company as Vice President & 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 as a manager in three
leveraged buyouts since 1983. Mr. Lotker received his
B.A. from Queens College and his M.B.A. from Long
Island University.
James Willard.............. 55 Senior Vice President-Operations of the Company since
July 1996. With 32 years 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 (1980 to 1983 and 1975
to 1978), General Manager-Fruits, Tomatoes & Meats
(1978 to 1980), Division Manager-Manufacturing (1971 to
1975), Assistant Manager-Quality Control (1970 to 1972)
and Microbiologist and Chemist-Regional Laboratory
(1964 to 1970). Mr. Willard received an M.S. from Ohio
State University and a B.S. from Capital University.
</TABLE>
The executive officers of INFLO are Mr. Reed, Chief Executive Officer and
President, and Mr. McCully, Vice President, Treasurer and Secretary.
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<PAGE>
DIRECTORS
The following table sets forth the names, ages, other positions and offices
held and a brief account of the business experience of each of the Company's
directors. Unless otherwise noted, no director of the Company serves as a
director of any company whose securities are registered under the Exchange Act.
All directors serve until a successor is elected. All directors of the Company
also serve and have served as directors of INFLO since January 1996, except for
Mr. Debbane, who was appointed as a director of INFLO in May 1996.
<TABLE>
<CAPTION>
NAME AGE OTHER POSITIONS
- --------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Sam K. Reed................ 49 See "Executive Officers."
Robert P. Crozer........... 49 Director of the Company since March 1996. Mr. Crozer has
served as Vice Chairman of the Board of Flowers since
1989. He joined Flowers in 1973, and has been a Director
of Flowers since 1979. Mr. Crozer served as a Director of
Marketing and Planning of Flowers from 1979 to 1985,
President and Chief Operating Officer, Convenience
Products Group of Flowers from 1979 to 1989, and Vice
President-- Marketing of Flowers from 1985 to 1989. Mr.
Crozer also serves on the board of directors of Davis
Water & Waste Industries Incorporated.(1)(2)
Raymond Debbane............ 41 Director of the Company since May 1996. Mr. Debbane has
served as the President of Invus since 1985. From 1982 to
1985, Mr. Debbane was a Manager in the Paris office of
The Boston Consulting Group, where he was employed since
1979.(3)
Sacha Lainovic............. 40 Director of the Company since March 1996. Mr. Lainovic
has served as an Executive Vice President of Invus since
1985. Mr. Lainovic was a Manager in the Paris office of
The Boston Consulting Group from 1984 to 1985, where he
was employed since 1981.(3)
Amos R. McMullian.......... 59 Director of the Company since March 1996. Mr. McMullian
has served as Chief Executive Officer of Flowers since
April 1981 and Chairman of the Board of Flowers since
January 1985. Mr. McMullian joined Flowers in 1963 and
served as assistant controller, data processing
coordinator, assistant plant manager, plant manager,
plant president, regional vice president and President of
the Bakery and Snack Groups of Flowers. In 1976, he was
appointed President and Chief Operating Officer of
Flowers and was elected to the Board of Directors of
Flowers. He served as Vice Chairman of the Board of
Flowers from 1984 to 1985.(1)
Christopher J. Sobecki..... 38 Director of the Company since March 1996, Mr. Sobecki has
served as a Managing Director of Invus since 1993 after
joining Invus in 1989.(3)
C. Martin Wood III......... 52 Director of the Company since March 1996. Mr. Wood has
served as Senior Vice President and Chief Financial
Officer of Flowers since September 1978. Mr. Wood joined
Flowers in 1970 as Director of New Product Development.
He was appointed Director of Marketing Services of
Flowers the following year, Director of Finance in 1973,
and Vice President-Finance in 1976. Mr. Wood has been a
Director of Flowers since 1975.(1)
</TABLE>
- ------------
(1) The address of Messrs. Crozer, McMullian and Wood is Flowers Industries,
Inc., 11796 U.S. Highway 19 South, Thomasville, Georgia 31792.
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<PAGE>
(2) Messrs. Crozer and Wood are brothers-in-law.
(3) The address of Messrs. Debbane, Lainovic and Sobecki is The Invus Group,
Ltd., 135 East 57th Street, 30th Floor, New York, New York 10022.
In addition, pursuant to the GFI Stockholder's Agreement, Bermore has
designated Mr. Michael R.B. Uytengsu as a non-voting, ex-officio representative
to the Board of Directors of INFLO. See "Certain Related Transactions--GFI
Stockholder's Agreement." Mr. Uytengsu's address is G.F. Industries, Inc., 999
Baker Way, Suite 200, San Mateo, California 94404.
COMPENSATION OF OFFICERS
The Company paid no remuneration to its current executive officers for the
fiscal year ended December 30, 1995. The following table sets forth the initial
annual cash compensation that is expected to be paid to the five executive
officers of the Company (the "Named Executive Officers") and the number of
shares of INFLO Common Stock underlying Options (as defined under "1996 Stock
Purchase and Option Plan and Non-Qualified Option Agreement") that have been
granted to date, and to all executive officers of the Company as a group for
services in all capacities to be rendered to the Company.
<TABLE>
<CAPTION>
SHARES OF INFLO
COMMON
CASH STOCK UNDERLYING
NAME POSITION COMPENSATION(1) OPTIONS GRANTED
- --------------------------------- ----------------------------- --------------- ----------------
<S> <C> <C> <C>
Sam K. Reed...................... President, Chief Executive $ 650,000 225,000
Officer and Director
David B. Vermylen................ President--Keebler Brands $ 325,000 52,500
E. Nichol McCully................ Chief Financial Officer and $ 240,000 52,500
Senior Vice President--
Finance
Jack M. Lotker................... President--Specialty Products $ 225,000 52,500
James Willard.................... Senior Vice President-- $ 280,000 52,500
Operations
All executive officers as a
group, consisting of the five
persons named above............ $ 1,720,000 435,000
</TABLE>
- ------------
(1) Amounts listed for the named individuals and all executive officers as a
group are annual base salaries, including amounts to be deferred in
accordance with any deferred salary option plan of the Company.
The Company has no employment agreement with Mr. Reed. The Company intends
to enter into severance agreements ("Severance Agreements") with Messrs.
Vermylen, McCully, Lotker and Willard (the "Executives") to clarify and
memorialize the employment arrangements and understandings with the Executives.
It is expected that the Severance Agreements will provide for a term extending
to 1999, which will automatically be extended for successive one year periods
unless either party gives at least 30 days written notice prior to the end of
the term of their intent not to renew. It is expected that the Company or each
Executive may terminate such Executive's employment for any reason upon thirty
days' written notice (other than a termination by the Company for cause or due
to the Executive's death or permanent disability). Each Severance Agreement will
provide for continuation of salary and coverage under the Company's health plans
for the balance of the term in the event of the termination of an Executive's
employment by the Company without "Cause" (as defined) or by the Executive for
"Good Reason" (as defined). It is expected that Mr. Willard's Severance
Agreement will provide for certain retirement benefits which take into account
benefits he would have received had he remained in the employ of his prior
employer.
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<PAGE>
COMPENSATION OF DIRECTORS
No director of the Company receives remuneration for serving as a director.
MANAGEMENT INCENTIVE PROGRAM
Since the Keebler Acquisition, INFLO has sold 2.3% of its common stock and
granted Options to purchase additional shares to members of Keebler's management
(each, a "Purchaser"), which together with management's existing shares would
represent 8.6% of the INFLO Common Stock on a fully diluted basis. The INFLO
Common Stock purchased and Options granted are governed by the agreements
described below.
Management Stockholder's Agreement. Principal terms of the management
stockholder's agreement (the "Management Stockholder's Agreement") include:
Restrictions on Transfer. Each Purchaser's INFLO Common Stock (including
shares acquired pursuant to the exercise of Options) will be nontransferable for
5 years from the date of delivery of the shares to the Purchaser (the "Purchase
Date") unless transferred pursuant to (i) an effective registration statement
(subject to restrictions on transfer immediately preceding and following the
effective date thereof), (ii) the sale participation agreement (the "Sale
Participation Agreement"), (iii) the provisions described below under "--Right
of First Refusal," "--'Put' of INFLO Common Stock and Options upon Purchaser's
Death or Disability" or "--'Call' of INFLO Common Stock and Options", (iv) a
transfer to the estate of the Purchaser, (v) the establishment of certain trusts
or (vi) a testamentary transfer.
Right of First Refusal. After five years following the Purchase Date if a
public offering of INFLO Common Stock has not occurred, INFLO will have a right
of first refusal to repurchase any of the Purchaser's INFLO Common Stock on
terms and in amounts identical to those offered to the Purchaser; if the right
is not exercised, the Purchaser may sell all (but not less than all) of such
offered shares to the prospective purchaser.
"Put" of INFLO Common Stock and Options Upon Purchaser's Death or
Disability. If, prior to a public offering, the Purchaser dies or becomes
permanently disabled while (i) either an employee of INFLO or its subsidiaries
or (ii) retired after age 65 and after 3 years' service (in either case, "Death
or Disability"), the Purchaser or his estate or trust may require INFLO to (i)
repurchase on one occasion during the following six months any of the
Purchaser's INFLO Common Stock at the greater of $10.00 or the book value (or,
if a public offering occurs during such period, market value) for each such
share (the "Put Price") or (ii) pay for each Option exercisable by the Purchaser
at such time (including Time Options (as defined below) and, if the cumulative
EBITDA target (as defined in the non-qualified stock option agreements described
below) is met for the previous plan year, Performance Options (as defined below)
accelerated because of such Death or Disability) any excess of the Put Price
over $10.00 (the "Excess Amount"), subject to any prohibition of such repurchase
under any indenture, other loan document or state law provision, in which case
such payment will occur following the elimination of such restriction at a price
based upon the then prevailing Put Price.
"Call" of INFLO Common Stock and Options. If the Purchaser's employment with
INFLO or its subsidiaries terminates for any reason prior to the fifth
anniversary of the Purchase Date, INFLO may repurchase all (but not less than
all) of the Purchaser's INFLO Common Stock at a "Call Repurchase Price" per
share equal to (i) if the Purchaser's termination is due to Death or Disability,
the Put Price, (ii) if the Purchaser retires after age 65 after at least three
years service with INFLO and its subsidiaries or is terminated without cause or
quits for good reason, the book value (or, if a public offering has occurred,
market value), (iii) if the Purchaser is terminated for cause or the Purchaser's
INFLO Common Stock is transferred in violation of the Management Stockholder's
Agreement, the lesser of (A) book value (or, if a public offering has occurred,
market value) and (B) $10.00 or (iv) if the
72
<PAGE>
Purchaser is terminated for any other reason, the lesser of (A) book value (or,
if a public offering has occurred, market value) and (B) $10.00 plus 20% of the
Excess Amount for each year following the Purchase Date. If INFLO exercises its
right to repurchase the Purchaser's INFLO Common Stock, INFLO may also redeem
and cancel the Purchaser's exercisable Options at the amount, if any, by which
the Call Repurchase Price exceeds $10.00.
Registration Rights. Until the later of five years following the Purchase
Date or the first occurrence of a qualified public offering of INFLO Common
Stock for the account of Artal or Flowers, the Purchaser will have limited
"piggyback" registration rights with respect to the Common Stock, subject to
standard conditions and limitations; however, the Purchaser will not have
"demand" registration rights.
Non-Compete and Confidentiality Covenants. Following any termination of
employment, at the option of the Company, the Purchaser will be subject to a
non-compete covenant on a month-to-month basis for up to two years, in exchange
for payment of an amount equal to such employee's monthly base salary on such
termination date, subject to reduction and/or reimbursement to the extent such
Purchaser is compensated for permitted employment. The Purchaser is also subject
to a confidentiality covenant with regard to information obtained in his/her
capacity as an employee of the Company.
1996 Stock Purchase and Option Plan and Non-Qualified Stock Option
Agreement. The 1996 Stock Purchase and Option Plan (the "Plan") provides for
awards of non-qualified options, incentive stock options and other equity-based
awards covering an aggregate of 2,000,000 shares of INFLO Common Stock.
Non-qualified options under the Plan to purchase 1,123,200 shares of INFLO
Common Stock (the "Options") were issued pursuant to non-qualified stock option
agreements (the "Non-Qualified Stock Option Agreements"). Such Options have an
exercise price of $10.00 per share and are either "Time Options" or "Performance
Options". Time Options vest 20% per year over the five year period following the
Purchase Date, while Performance Options vest 25% per year for the first three
years and 12.5% per year for the following two years in which certain annual and
cumulative EBITDA targets are achieved, subject to "catch-up vesting" for unmet
target years upon the attainment of EBITDA targets in subsequent years.
Regardless of performance against EBITDA targets, all Performance Options vest
nine years from the date of the Keebler Acquisition. Vesting ceases upon
termination of the Purchaser's employment; however, Time Options (and
Performance Options, if and only if the cumulative EBITDA target was met for the
preceding plan year) vest in full upon Death or Disability. The Options expire
upon the earlier of (i) 10 years following the Keebler Acquisition, (ii) the
first anniversary of Death or Disability, (iii) a specified period following any
termination of employment other than for Cause, Death or Disability, (iv)
termination for Cause and (v) in certain circumstances, the date of any merger
or reconsolidation. Exercisability of Time Options (and Performance Options, if
and only if the cumulative EBITDA target was met for the preceding plan year)
will accelerate upon a change of control of INFLO.
Sale Participation Agreement. Each Purchaser will be a party to a Sale
Participation Agreement, which will entitle the Purchaser to participate on a
pro rata basis in certain sales of INFLO Common Stock by Artal or Flowers prior
to the fifth anniversary of INFLO's first public offering.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The Company is a direct, wholly owned subsidiary of INFLO. The following
table sets forth certain information regarding the beneficial ownership of INFLO
Common Stock by (i) all persons known by the Company to own beneficially more
than 5% of INFLO's Common Stock, (ii) each director who is a stockholder, (iii)
the Chief Executive Officer and each of the Named Executive Officers and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES COMMON STOCK
- --------------------------------------------------------------- ---------------- ------------
<S> <C> <C>
Artal Luxembourg S.A.(1)....................................... 6,105,469 45.2%
39 Boulevard Royal
Luxembourg City, Luxembourg 2449
Flowers Industries, Inc.(2).................................... 6,105,469 45.2
11796 U.S. Highway 19 South
P.O. Box 1338
Thomasville, Georgia 31792
Bermore Ltd.(3)................................................ 990,076 7.3
c/o G.F. Industries, Inc.
999 Baker Way, Suite 200
San Mateo, California 94404
Sam K. Reed.................................................... 100,000 0.7
David B. Vermylen.............................................. 17,500 --
E. Nichol McCully.............................................. 17,500 --
Jack M. Lotker................................................. 17,500 --
James Willard.................................................. 17,500 --
All directors and executive officers as a group
(consisting of eleven persons)............................... 170,000 1.3%
</TABLE>
- ------------
(1) The parent entity of Artal Luxembourg S.A. is Artal Group S.A. ("Artal
Group"), a Luxembourg company. Approximately 45% of the issued and
outstanding capital stock of Artal Group is in the form of bearer shares and
the other 55% of the shares of capital stock is held by Stichting
Administratiekantoor Artal, a foundation organized under Dutch law (the
"Foundation"). The address of the Foundation is The Netherlands,
Zypendaalsweg 25, 6814 CC Arnhem. This Dutch foundation is a pass-through
entity that issues certificates of interest in the foundation to its
beneficial owners. All decisions with respect to the capital stock held by
the Foundation are made by the Foundation's board of directors. The members
of the board of directors of the Foundation are Eric Wittouck, Chairman;
Philippe M.J.B. Guillaume; Mrs. Astrid van der Meerschen-Ullens de Schooten;
Alain E.M. Jolly; Jean-Charles A. Ullens de Schooten; Emile Vogt; Mrs.
Brigitte P. Wittouck; Philippe Ch.J.M.E. Ullens de Schooten; Ravilex Trust
Reg., a legal entity and Euramagro n.v., a legal entity. See
"Sponsors--Artal."
(2) Flowers Industries, Inc. is currently subject to the periodic reporting and
other information requirements of the Exchange Act. Flower's common stock is
listed on the New York Stock Exchange. See "Sponsors--Flowers."
(3) Bermore Ltd. is a privately held Bermuda limited company and the parent of
GFI. Bermore owns a warrant to purchase an additional 1,070,352 shares of
INFLO Common Stock which together with Bermore's existing shares would
represent approximately 13.2% of the shares of INFLO Common Stock on a fully
diluted basis.
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<PAGE>
CERTAIN RELATED TRANSACTIONS
The summaries of the Investor Stockholders' Agreement and the GFI
Stockholder's Agreement set forth below do not purport to be complete and are
qualified in their entirety by reference to all the provisions of the Investor
Stockholders' Agreement and the GFI Stockholder's Agreement, respectively,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
INVESTOR STOCKHOLDERS' AGREEMENT
Simultaneously with the closing of the Keebler Acquisition, Artal, Flowers
and INFLO entered into an Investor Stockholders' Agreement (the "Investor
Stockholders' Agreement") governing the relationships between and among INFLO
and Artal and Flowers, as holders of the INFLO Common Stock. Subsequent
transferees of Artal and Flowers must, subject to certain limited exceptions,
agree to be bound by the Investor Stockholders' Agreement (Artal, Flowers and
such transferees, the "Investor Stockholders").
The Investor Stockholders' Agreement imposes on the Investor Stockholders
certain restrictions on the transfer of INFLO Common Stock until the seventh
anniversary of the Keebler Acquisition, subject to certain exceptions. The
Investor Stockholders' Agreement provides that, at any time after the third
anniversary of the Keebler Acquisition, either Artal or Flowers may notify the
other that it wishes to dispose of its equity interest in INFLO. In such event,
Artal will have the authority to solicit offers for and negotiate the sale of
INFLO (or, in certain circumstances, the requesting party's interest therein) to
a third party or to commence a public offering (each a "Liquidity Transaction").
Each of Artal and Flowers will have the right (and, in the case of a sale of a
controlling interest in, or a sale of all or substantially all of the assets of,
INFLO, the obligation) to participate pro rata in any such Liquidity
Transaction. A Liquidity Transaction may result in a Change of Control under the
Indenture. See "Description of Notes--Certain Covenants--Change of Control." In
addition, the Investor Stockholders' Agreement grants the Investor Stockholders
certain demand and incidental rights to register their shares of INFLO Common
Stock for public sale under the Securities Act.
The Investor Stockholders' Agreement provides that the Board of Directors of
INFLO shall consist of three Artal designees, three Flowers designees and the
Chief Executive Officer of INFLO. The number of designees for each of Artal and
Flowers is subject to decrease if its respective equity ownership in INFLO falls
below certain threshold levels. The Investor Stockholders' Agreement also
provides that certain significant corporate actions (as well as certain
related-party transactions) are subject to supermajority board approval.
GFI STOCKHOLDER'S AGREEMENT
Simultaneously with the closing of the Sunshine Acquisition, Artal, Flowers,
INFLO and GFI entered into a Stockholder's Agreement (the "GFI Stockholder's
Agreement") governing the relationships between Artal, Flowers and INFLO, on the
one hand, and GFI, on the other. Subsequent to the closing of the Sunshine
Acquisition, GFI assigned its rights, duties and obligations under the GFI
Stockholder's Agreement to Bermore. Subsequent transferees of Bermore must,
subject to certain limited exceptions, agree to be bound by the GFI
Stockholder's Agreement (GFI, Bermore and such transferees, the "GFI
Stockholders.")
The GFI Stockholder's Agreement provides that, subject to certain limited
exceptions, the GFI Stockholders may not transfer their shares of INFLO Common
Stock until the seventh anniversary of the Keebler Acquisition without the prior
consent of both Artal and Flowers, which consent shall not be unreasonably
withheld after the third anniversary of the Sunshine Acquisition. Bermore shall
have the right to participate pro rata in any Liquidity Transaction (as defined
in the Investor Stockholders'
75
<PAGE>
Agreement), and Artal and Flowers together may require Bermore to participate
pro rata in any such Liquidity Transaction. In addition, the GFI Stockholder's
Agreement grants the GFI Stockholders certain demand and incidental registration
rights to register their shares of INFLO Common Stock for public sale under the
Securities Act.
The GFI Stockholder's Agreement provides that Bermore shall be entitled to
designate one individual as a non-voting, ex-officio representative to the Board
of Directors of INFLO (the "GFI Representative"). However, Bermore shall not be
entitled to designate a GFI Representative if, at any time, Bermore, its
affiliates and certain permitted transferees cease to own at least 90% of that
number of shares of INFLO Common Stock (subject to adjustments resulting from
certain corporate restructurings) that GFI originally acquired pursuant to the
GFI Stockholder's Agreement. The GFI Stockholder's Agreement also provides that
certain charter or by-law amendments that would adversely affect (except in
immaterial respects) Bermore's rights under the GFI Stockholder's Agreement (as
well as certain related-party transactions) will require the prior approval of
the GFI Representative. See "Management--Directors."
OTHER
In connection with the sale of 312,500 shares of INFLO Common Stock to
members of management, INFLO repurchased from each of Artal and Flowers 94,531
shares of INFLO Common Stock at $10.00 per share, the original purchase price
paid by Artal and Flowers to INFLO.
76
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
AND THE UB NOTE
The summaries of the Senior Credit Facility and the UB Note set forth below
do not purport to be complete and are qualified in their entirety by reference
to all the provisions of the Senior Credit Facility and the UB Note, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
SENIOR CREDIT FACILITY
The Senior Credit Facility is provided by a syndicate of banks and other
financial institutions led by Scotiabank, as administrative agent, syndication
agent and documentation agent. The Senior Credit Facility provides for
$292,875,000 in Term Loans and a $155.0 million revolving credit facility
("Revolving Credit Facility"), which includes borrowing capacity available for
letters of credit ("Letters of Credit") of up to $45.0 million and for
borrowings of up to $20.0 million on same-day notice ("Swingline Loans"). The
Term Loans are comprised of Term A Loans ($138,125,000), which mature six years
after the Keebler Acquisition, Term B Loans ($89,850,000), which mature seven
and one-half years after the Keebler Acquisition, and Term C Loans ($64.9
million), which mature eight and one-half years after the Keebler Acquisition.
The Revolving Credit Facility commitment terminates six years after the date of
the Keebler Acquisition.
At the Company's option, the Revolving Loans and the Term A Loans bear
interest at either (i) Scotiabank's alternate base rate plus 1.75%, or (ii)
Scotiabank's reserve-adjusted London interbank offering ("LIBO") rate plus
2.75%. Swingline Loans bear interest at Scotiabank's alternate base rate plus
1.75%. The above margins for Revolving Loans and Term A Loans will be subject to
performance based step-downs, on or after December 4, 1996.
At the Company's option, the Term B Loans bear interest at either (i)
Scotiabank's alternate base rate plus 2.25%, or (ii) Scotiabank's
reserve-adjusted LIBO rate plus 3.25%. At the Company's option, the Term C Loans
bear interest at either (i) Scotiabank's alternate base rate plus 2.50%, or (ii)
Scotiabank's reserve-adjusted LIBO rate plus 3.50%.
Effective as of February 1, 1996, the Company entered into an interest rate
swap agreement with Scotiabank pursuant to which the Company has agreed to pay a
fixed rate of approximately 5.02% per annum for 3 years on $170.0 million and
Scotiabank has agreed to pay the applicable 3-month LIBO rate for such time on
such amount, which may be extended for an additional two years at the option of
Scotiabank.
For each standby Letter of Credit, the Company pays to each Lender with a
commitment to make Revolving Loans a per annum fee equal to the margin for
Revolving Loans that accrue interest at the reserve adjusted LIBO rate, payable
quarterly in arrears. For each trade Letter of Credit, the Company pays to each
Lender with a commitment to make Revolving Loans a fee equal to 1 3/8% per annum
on the face amount of such trade Letter of Credit, payable quarterly in arrears.
Interest periods for reserve-adjusted LIBO rate Loans are, at the Company's
option, one, two, three or six months (or, if available to each relevant Lender,
nine or twelve months). Interest on LIBO rate Loans is payable on the last
business day of the applicable interest period for such Loans and, if earlier,
each three-month anniversary following the commencement of such interest period.
Interest on alternate base rate Loans is payable quarterly in arrears.
Outstanding Loans are voluntarily payable without penalty and applied pro
rata to the remaining Term A Loans, Term B Loans and Term C Loans, pro-rata in
accordance with each remaining amortization payment, and then to a reduction in
the Revolving Loan commitment amount (the
77
<PAGE>
"Revolving Loan Commitment Amount"); provided, however, that LIBO rate breakage
costs, if any (including as a result of any mandatory repayments), shall be for
the account of the Company.
The Term Loans and Revolving Loan Commitment Amount are subject to mandatory
prepayment with (i) 100% of the net proceeds of asset sales, subject to certain
exceptions, (ii) 100% of the net proceeds of debt issuances, subject to certain
exceptions, (iii) 100% of the net proceeds of equity issuances, subject to
certain exceptions, and (iv) 75% of annual excess cash flow, in each case
applied pro-rata to the remaining Term A Loans, Term B Loans and Term C Loans,
pro-rata in accordance with each remaining amortization payment, and then to a
reduction in the Revolving Loan Commitment Amount.
Each Lender of Term B Loans has the right to decline to have its Term B
Loans prepaid with the amounts set forth above, in which case the amounts that
would have been applied to a prepayment of the Term B Loans shall instead be
applied first to a prepayment of the Term A Loans (until paid in full), second,
to a prepayment of Term B Loans and Term C Loans owing to those Lenders that
agree to accept such additional prepayments, and then to a reduction in the
Revolving Loan Commitment Amount. Each Lender of Term C Loans has the right to
decline to have its Term C Loans prepaid with the amounts set forth above, in
which case the amounts that would have been applied to a prepayment of the Term
C Loans shall instead be applied first to a prepayment of the Term A Loans
(until paid in full), second, to a prepayment of Term B Loans and Term C Loans
owing to those Lenders that agree to accept such additional prepayments, and
then to a reduction in the Revolving Loan Commitment Amount.
The Senior Credit Facility is secured by a first-priority perfected security
interest (subject to customary permitted encumbrances) in all tangible and
intangible personal property (including trademarks and licenses) and all
material real property of the Company and certain of its direct and indirect
subsidiaries, whenever acquired and wherever located. The Lenders have received
guarantees from INFLO and all direct and indirect subsidiaries of the Company
(the "Guarantors"). The Senior Credit Facility is also secured by a first
priority pledge of 100% of the capital stock of the Company and all of its
subsidiaries (whether direct or indirect), in addition to a first priority
pledge of all notes evidencing intercompany indebtedness of the Company or its
subsidiaries.
The Senior Credit Facility contains affirmative covenants, including that
the Company maintain interest rate protection agreements in amounts and with
terms satisfactory to the Administrative Agent.
The Senior Credit Facility contains certain negative covenants that
restrict, among other things, the Company's ability to (i) incur additional debt
(including subordinated debt), sale leasebacks and contingent liabilities; (ii)
make dividends or similar distributions or pay management or consulting fees,
provided, however, that the Company will be permitted to pay a one time cash
dividend payment of $25,000,000, but only if no default shall have occurred and
be continuing (or would result therefrom) and the ratio of total debt/EBITDA (as
defined in the Senior Credit Facility) is less than 3.0:1 (on a pro forma basis
after giving effect to such $25,000,000 dividend) for the two most recent
consecutive fiscal quarters; (iii) repurchase capital stock; (iv) incur liens or
other encumbrances; (v) sell assets or make similar transfers, other than
inventory in the ordinary course of business or unless net proceeds from such
asset sales are used to repay the Loans, in the manner described therein; (vi)
make investments or acquisitions (in a single transaction or in a series of
related transactions); (vii) merge, consolidate and or similarly combine or
change its business conduct; or (viii) refinance, defease, repurchase or prepay
the UB Note, except with other unsecured subordinated debt and certain equity
proceeds.
The Senior Credit Facility also contains covenants that restrict the
Company's ability to amend the terms of the Indenture, and prohibits the Company
from refinancing the Notes or the Exchange Notes (subject to certain
exceptions), making any non-mandatory payments in respect of the Notes or the
Exchange Notes or making any optional redemption, purchase or defeasance of the
Notes or the Exchange Notes.
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The Senior Credit Facility contains certain financial covenants that require
the Company, among other things, to (i) maintain a minimum net worth (as defined
in the Senior Credit Facility); (ii) maintain a maximum ratio of total funded
debt to EBITDA (as defined in the Senior Credit Facility); (iii) maintain a
minimum ratio of EBITDA to interest expense; (iv) maintain a minimum ratio of
EBITDA minus capital expenditures to the sum of cash taxes, cash interest and
mandatory amortization of indebtedness; and (v) limit capital expenditures.
The Term A Loans are amortized over a 6 year period, the Term B Loans over a
7 1/2 year period and the Term C Loans over an 8 1/2 year period.
Events of default under the Senior Credit Facility include, among other
things: (i) failure of the Company to pay principal thereunder or reimbursement
obligations or deposit cash for collateral when due, or to pay interest or any
other amount due within three business days after the date due; (ii) material
inaccuracies in any representations, warranties or other statements in the
credit documents; (iii) default in the performance of any covenants after the
applicable grace period, if any; (iv) default under certain other agreements
governing indebtedness; (v) certain events of bankruptcy or insolvency; (vi)
failure to satisfy certain material ERISA requirements; (vii) unfavorable
judgments; (viii) certain events with respect to the Company's pension plans;
and (ix) the occurrence of a Change of Control (as defined therein).
THE UB NOTE
In connection with the Keebler Acquisition, INFLO issued to United Biscuits
the UB Note in the principal amount of $32.5 million bearing interest at 10% per
annum commencing January 26, 1999. Interest on the UB Note is payable in kind
until December 31, 2001, after which interest becomes payable in cash. The
principal amount of the UB Note is due on January 26, 2007.
Pursuant to the terms of the UB Note, all amounts payable with respect to
the UB Note are subordinated in right of payment to the Notes and the Exchange
Notes to the same extent that the Notes and the Exchange Notes are subordinated
to the Senior Credit Facility. No payment on the UB Note may be made if (i) a
payment default has occurred and is continuing with respect to the obligations
under the Notes or the Exchange Notes (or the other obligations that are senior
to the UB Note), or (ii) upon written notice to INFLO after any other default
permitting acceleration of amounts outstanding with respect to the Company's
obligations under the Notes or the Exchange Notes (or the other obligations that
are senior to the UB Note) shall have occurred and be continuing (but such
restriction on payment shall not continue beyond 180 days from such default or
notice).
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes are to be issued under the indenture dated as of June 15,
1996 (the "Indenture") between the Company, the Guarantors and U.S. Trust
Company of New York, as Trustee (the "Trustee"), a copy of which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part and is available upon request to the Company. The following summary of
certain provisions of the Indenture and the Exchange Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture (including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act) and the
Exchange Notes. Capitalized terms used herein and not otherwise defined have the
meanings set forth in "--Certain Definitions."
The Exchange Notes will be unsecured senior subordinated obligations of the
Company, limited to $125 million aggregate principal amount, and will mature on
July 1, 2006. Each Exchange Note will bear interest at the rate per annum shown
on the front cover of this Prospectus from the date of issuance, or from the
most recent date to which interest has been paid or provided for, payable
semiannually on January 1 and July 1 of each year commencing January 1, 1997 to
holders of record at the close of business on the December 15 and June 15
immediately preceding such interest payment date.
The Exchange Notes will be issuable and transferable in denominations of
$1,000 and integral multiples thereof. No service charge will be made for any
registration of transfer or exchange of Notes or Exchange Notes, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
The Exchange Notes will be subject to redemption at any time on or after
July 1, 2001 (but not prior thereto, except as provided below), at the option of
the Company, in whole or in part, on not less than 30 nor more than 60 days'
prior notice in amounts of $1,000 or an integral multiple thereof at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12-month period beginning July 1 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------- ----------
<S> <C>
2001............................................................... 104.500%
2002............................................................... 103.375%
2003............................................................... 102.250%
2004............................................................... 101.125%
</TABLE>
and thereafter at 100.0% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant interest payment dates).
In addition, at any time or from time to time prior to July 1, 1999 the
Company may redeem Exchange Notes having a principal amount of up to 35% of the
original aggregate principal amount of the Exchange Notes within 60 days
following one or more Public Equity Offerings with the net proceeds of such
offerings at a redemption price equal to 110.0% of the principal amount thereof,
together with the accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that immediately
after giving effect to each such redemption, at least 65% of the original
aggregate principal amount of the Exchange Notes remains outstanding.
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If less than all of the Exchange Notes are to be redeemed, the Trustees
shall select the Exchange Notes or portions thereof to be redeemed pro rata, by
lot or by any other method the Trustee shall deem fair and reasonable.
SINKING FUND
The Exchange Notes will not be entitled to the benefit of any sinking fund
or other mandatory redemption obligation prior to maturity.
GUARANTEES
All of the Company's existing and future Restricted Subsidiaries (referred
to herein as the "Guarantors"), will unconditionally guarantee on a senior
subordinated basis the performance and punctual payment when due, whether at
maturity, by acceleration or otherwise, of all obligations of the Company under
the Indenture and the Exchange Notes and will rank junior in right of payment to
all existing and future Senior Indebtedness of the Guarantors including their
guarantees of the Company's obligations under the Credit Agreement. Each
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can, after giving effect to all other contingent and fixed
liabilities of the applicable Guarantor, be guaranteed by such Guarantor,
without rendering such Guarantee voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. Each Guarantor will agree to pay, in addition to
the amount stated above, any and all expenses (including reasonable counsel fees
and expenses) incurred by the Trustee or any holder of an Exchange Note in
enforcing any rights under the Guarantee with respect to such Guarantor.
Each Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Exchange Notes, (b) be binding upon
the relevant Guarantor, and (c) enure to the benefit of and be enforceable by
the Trustee, the holders of Exchange Notes and their successors, transferees and
assigns.
RANKING
The Indebtedness evidenced by the Exchange Notes and any Guarantee will be
senior subordinated, unsecured obligations of the Company and the Guarantors,
respectively. The payment of the principal of and interest on the Exchange
Notes, the payment of all other obligations relating to the Exchange Notes
(including prepayment premiums, liquidated damages, fees, costs, expenses,
indemnities and rescission or damage claims) and the payment of any obligation
in respect of any Guarantee of obligations relating to the Exchange Notes (all
of the foregoing being collectively referred to as the "Exchange Note
Obligations") are subordinate in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness of the
Company or Senior Indebtedness of the relevant Guarantor, as the case may be,
whether outstanding on the Issue Date or thereafter incurred, including the
Company's and such Guarantor's obligations under or with respect to the Credit
Agreement. For purposes of this section, "payment in full," as used with respect
to Senior Indebtedness, means the payment of cash.
As of July 13, 1996: (A) the Company had approximately $451.0 million of
Senior Indebtedness all of which would have been secured, and the Company would
have had no senior subordinated or subordinated Indebtedness (other than the
Exchange Notes); and (B) the Guarantors had approximately $451.0 million of
Senior Indebtedness (all of which represented Guarantees of Senior Indebtedness
of the Company). As of July 13, 1996, the Company had approximately $155.0
million of additional borrowing availability under the Revolving Credit
Facility. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and any Guarantor may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness.
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Indebtedness of the Company or any Guarantor that is Senior Indebtedness
will rank senior to the Exchange Notes and the relevant Guarantee, respectively,
in accordance with the provisions of the Indenture. The Exchange Notes and each
Guarantee will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Guarantor,
respectively. Each of the Company and each Guarantor has agreed in the Indenture
that it will not incur, directly or indirectly, any Indebtedness which is
subordinate or junior in ranking in right of payment to its Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinated or junior to Secured Indebtedness
merely because it is unsecured.
The Company may not, and will not permit any Guarantor to, make any payment,
distribution or other transfer of the assets of the Company or such Guarantor
(or any other payment, distribution or other transfer on behalf of the Company
or any Guarantor from any source) of any kind, or character, whether direct or
indirect, by set-off or otherwise, and whether in cash, property or securities
(other than Reorganization Securities) in respect of the Exchange Note
Obligations or make any deposit pursuant to the provisions described under
"Defeasance" below and may not, directly or indirectly, repurchase, redeem or
otherwise or retire any Exchange Notes, whether pursuant to the terms of the
Exchange Notes or upon acceleration or otherwise (collectively, "pay the
Exchange Notes") if (i) all or any portion of the principal (including any
reimbursement obligation) of, premium, if any, or interest commitment fee or
letter of credit fee on or relating to, any Designated Senior Indebtedness is
not paid when due or (ii) any other default on Designated Senior Indebtedness
occurs and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Company may pay the Exchange
Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representatives of all Designated
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, neither the Company nor any other Person may pay the Exchange Notes for
a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of
such default from the Representative of any Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) by repayment in full of such Designated
Senior Indebtedness); provided, however, that so long as there shall remain
outstanding any Senior Indebtedness under the Credit Agreement, a Blockage
Notice may be given only by the Credit Agent unless otherwise agreed to in
writing by the lenders named therein. Notwithstanding the provisions described
in the immediately preceding sentence (but subject to the provisions contained
in the first sentence of this paragraph), the Company may resume payments on the
Exchange Notes after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period.
Upon any payment, distribution or other transfer of the assets of the
Company or any Guarantor (or any other payment, distribution or other transfer
on behalf of the Company or any Guarantor from any source) of any kind or
character, whether direct or indirect, by set-off or otherwise, and whether in
cash, property or securities (other than Reorganization Securities), upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company or any Guarantor (whether voluntary or involuntary, including in
bankruptcy, insolvency or receivership proceedings or upon any assignment for
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the benefit of creditors or any other marshalling of the Company's or any
Guarantor's assets and liabilities), the holders of Senior Indebtedness of the
Company shall be entitled to receive payment in full of all Senior Indebtedness
before the holders of the Exchange Notes are entitled to receive any payment or
distribution of cash, securities or other property with respect to the Exchange
Note Obligations (other than Reorganization Securities) and until all
obligations with respect to Senior Indebtedness of the Company is paid in full,
any payment, distribution, or other transfer of assets of the Company or any
Guarantor of any kind or character, whether direct or indirect, by set-off or
otherwise, and whether in cash, securities or property (other than
Reorganization Securities), to which holders of the Exchange Notes would be
entitled but for the subordination provisions of the Indenture will be made to
holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to holders of the Exchange Notes that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
If payment of the Exchange Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of all
Designated Senior Indebtedness or the Representatives of such holders of the
acceleration. If any Designated Senior Indebtedness is outstanding, neither the
Company nor any other Person may pay the Exchange Notes until five Business Days
after the Representatives of all the issues of Designated Senior Indebtedness
receive notice of such acceleration and, thereafter, may pay the Exchange Notes
only if the Indenture otherwise permits payments at that time.
The obligations of a Guarantor under its Guarantee, as they relate to the
principal of and interest on the Exchange Notes, are unsecured senior
subordinated obligations. As such, the rights of holders of the Exchange Notes
to receive payment by a Guarantor pursuant to its Guarantee will be subordinated
in right of payment to the rights of holders of Senior Indebtedness of such
Guarantor. The terms of the subordination provisions described above with
respect to the Company's obligations under the Exchange Notes apply equally to a
Guarantor and the obligations of such Guarantor under its Guarantee.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Guarantor who are holders of
Senior Indebtedness of the Company or such Guarantor, as the case may be, may
recover more, ratably, than the holders of the Exchange Notes.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, incur any Indebtedness; provided,
however, that the Company may incur Indebtedness (including through the issuance
of Disqualified Capital Stock) if on the date of such incurrence the
Consolidated Coverage Ratio would be greater than (i) 2.00:1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date, and (ii) 2.50:1 if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may incur Indebtedness to the extent set forth below:
(i) Indebtedness of the Company incurred pursuant to the Credit Agreement in an
amount, at any one time outstanding, not to exceed the sum of (x) $155.0 million
pursuant to a revolving credit, swing line and/or letter of credit facility;
provided, however, that on the Business Day on which any Permitted Receivables
Transaction is consummated, the amount of Indebtedness permitted to be
outstanding under the Credit Agreement pursuant to this clause (x) shall be
reduced by an amount equal to the Receivables Proceeds with respect to such
Permitted Receivables Transaction, and (y) the aggregate principal amount of the
term loans under the Credit Agreement as in effect as of the date hereof less
the amount of any principal payments made on account of such term loans; (ii)
Indebtedness (x) of the Company to any Restricted Subsidiary and (y)
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of any Restricted Subsidiary to the Company or any other Restricted Subsidiary;
(iii) Indebtedness of the Company represented by the Exchange Notes; (iv) any
Indebtedness of the Company (other than the Indebtedness described in clauses
(i) and (ii) above) outstanding on the date of the Indenture; (v) Indebtedness
represented by the Guarantees of the Exchange Notes and Guarantees of
Indebtedness incurred pursuant to clause (i) above; (vi) Indebtedness of the
Company or any Restricted Subsidiary under Currency Agreements, Interest Rate
Agreements and Commodity Hedging Obligations that are entered into by the
Company or such Restricted Subsidiary for bona fide hedging purposes (as
determined in good faith by the Board of Directors or senior management of the
Company or such Restricted Subsidiary) with respect to Indebtedness of the
Company or such Restricted Subsidiary incurred without violation of the
Indenture or with respect to customary commercial transactions of the Company or
such Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations) incurred by the
Company or any Restricted Subsidiary to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of any Person owning such assets)
in an aggregate principal amount which, when aggregated with the principal
amount of all other Indebtedness then outstanding and incurred pursuant to this
clause (vii), does not exceed 10% of Consolidated Net Tangible Assets; (viii)
Indebtedness incurred by the Company or any Restricted Subsidiary constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including, without limitation, letters of credit in
respect of workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers' compensation
claims; provided, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within 30 days
following such incurrence; (ix) Acquired Indebtedness; provided, however, that
such Indebtedness is not incurred in contemplation of such acquisition or
merger; and provided, further that the Company would have been able to incur
such Indebtedness at the time of the incurrence thereof pursuant to clause (a)
above, determined on a pro forma basis as if such transaction had occurred at
the beginning of such four-quarter period and such Indebtedness and the
operating results of such merged or acquired entity had been included for all
purposes in such pro forma calculation as if such entity had been a Restricted
Subsidiary at the beginning of such four-quarter period; (x) obligations in
respect of performance and surety bonds and completion guarantees provided by
the Company or any Restricted Subsidiary in the ordinary course of business;
(xi) additional indebtedness in an aggregate amount not to exceed $50.0 million
at any one time outstanding; and (xii) Refinancing Indebtedness; provided,
however, that (A) the principal amount of such Refinancing Indebtedness shall
not exceed the principal or accreted amount (in the case of any Indebtedness
issued with original issue discount, as such) of Indebtedness so extended,
refinanced, renewed, replaced, substituted or refunded (the "Refinanced
Indebtedness"), (B) the Refinancing Indebtedness shall have a Weighted Average
Life to Maturity of not less than the stated maturity of the Refinanced
Indebtedness and (C) the Refinancing Indebtedness shall rank in right of payment
relative to the Exchange Notes on terms at least as favorable to the holders of
Exchange Notes as those contained in the documentation governing the Refinanced
Indebtedness.
(c) Notwithstanding any other provision of this covenant, neither the
Company nor any Restricted Subsidiary shall incur any Indebtedness (i) pursuant
to paragraph (b) above, if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such Indebtedness shall be subordinated to the
Exchange Notes to at least the same extent as such Subordinated Indebtedness or
(ii) pursuant to paragraph (a) or (b) if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness.
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(d) The Company shall not incur any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Exchange Notes equally and ratably with such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of its Capital Stock (other than dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to acquire such
Capital Stock and other than dividends and distributions paid by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Restricted Subsidiary or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to the relevant scheduled
principal payment, sinking fund or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment in any Person, including, without limitation,
any Unrestricted Subsidiary (other than a Permitted Investment)
(the foregoing actions described in clauses (i) through (iv) above being
hereinafter collectively referred to as "Restricted Payments") unless after
giving effect to the proposed Restricted Payment, (A) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment shall
not cause or constitute a Default or an Event of Default; (B) immediately before
and immediately after giving effect to such transaction on a pro forma basis,
the Company could incur $1.00 of additional Indebtedness pursuant to paragraph
(a) under "Limitation on Indebtedness"; and (C) the aggregate amount of all such
Restricted Payments (the amount of any such Restricted Payment, if other than
cash, to be determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a resolution of the
Board of Directors) declared or made after the Issue Date (including such
Restricted Payment) does not exceed the sum of:
(i) 50% of the aggregate cumulative Consolidated Net Income (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company accrued on a cumulative basis during the period
(taken as one accounting period) from the fiscal quarter that first begins
after the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time of
such Restricted Payment;
(ii) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Capital Stock (other than Disqualified
Capital Stock) or any options, warrants or rights to purchase such shares of
Capital Stock (other than Disqualified Capital Stock) or other cash
contributions to its capital (excluding amounts used pursuant to clauses
(ii) or (iii) of paragraph (b) below);
(iii) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(iv) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from Indebtedness of the Company or Disqualified Capital Stock
of the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange;
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(v) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
(b) Notwithstanding the foregoing, and in the case of clauses (v), (vii),
(viii) (x) and (x) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this "Limitation on
Restricted Payments" covenant (such payment being deemed to have been paid
on such date of declaration for purposes of the calculation required by
paragraph (a) of this "Limitation on Restricted Payments" covenant);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or warrants, options
or other rights to acquire such stock in exchange for, or out of the Net
Cash Proceeds of a substantially concurrent issue and sale (other than to a
Subsidiary) for cash of, any Capital Stock (other than Disqualified Capital
Stock) of the Company or warrants, options or other rights to acquire such
Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) for cash of, any
Capital Stock (other than Disqualified Capital Stock) of the Company or
warrants, options or other rights to acquire such Capital Stock;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Refinancing Indebtedness;
(v) the repurchase, redemption, acquisition or retirement of shares of
Capital Stock of the Parent or options, warrants or other rights to purchase
such shares held by officers or employees or former officers or employees of
the Parent, the Company or any of their Subsidiaries (or their estates or
beneficiaries), or dividends to the Parent for such purpose, upon death,
disability, retirement, or termination of employment, pursuant to the terms
of any employee stock option or stock purchase plan or agreement or
management equity plan or other agreement, for an aggregate amount in any
fiscal year of the Company ending subsequent to the Issue Date not to exceed
$2.5 million (plus, in the case of the repurchase of Capital Stock held by
the estate of a deceased officer or employee, a sum equal to the net cash
proceeds, if any, received by the Company under any policy or policies of
key man insurance on the life of such officer or employee); provided,
however, that, to the extent that the aggregate amount so paid in any fiscal
year of the Company is less than $2.5 million, a sum equal to the difference
between $2.5 million and the aggregate amounts paid pursuant to this clause
(v) in any such fiscal year shall be added to the amount otherwise permitted
to be paid in any subsequent fiscal year, but in no event shall the
aggregate amount so paid in any fiscal year exceed the sum of $5.0 million
(plus the net cash proceeds of any key man life insurance policies as
aforesaid);
(vi) the payment of any dividend or distributions by the Company to the
Parent pursuant to the terms of any bona fide tax sharing agreement among
the Company, the Parent and other members of the consolidated group of
corporations of which the Company is a member;
(vii) the payment of management, consulting and advisory fees and
related expenses to the Sponsors not to exceed $1.5 million in any fiscal
year of the Company;
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(viii) any Investments in (x) Unrestricted Subsidiaries (excluding
Receivables Co.) having an aggregate fair market value, taken together with
all other Investments made pursuant to this subclause (x) that are at that
time outstanding, not to exceed $15.0 million at the time of such Investment
(with the fair market value of each Investment being measured at the time
made and without giving effect to subsequent changes in value) and (y)
Receivables Co. in connection with a Permitted Receivables Transaction;
(ix) the payment of dividends or distributions to the Parent for the
purpose of enabling the Parent to pay its franchise taxes and other fees
required to maintain its legal existence and to provide for operating costs
of up to $100,000 per fiscal year;
(x) the payment of any cash dividend on the Capital Stock of the Company
following a Public Equity Offering; provided that the aggregate amount of
all such dividends so paid in any fiscal year of the Company pursuant to
this clause (x) shall not exceed 6% of the Net Cash Proceeds received by the
Company in such Public Equity Offering;
(xi) other Restricted Payments not to exceed $15.0 million in the
aggregate; and
(xii) the repurchase of Equity Interests deemed to occur upon the
exercise of stock options if such Equity Interests represent a portion of
the exercise price of such options.
The actions described in clauses (i), (v), (vii), (x) and (xi) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph (a)
of this "Limitation on Restricted Payments" covenant (provided that any dividend
paid pursuant to clause (i) of this paragraph (b) shall reduce the amount that
would otherwise be available under clause (C) of paragraph (a) of this
"Limitation on Restricted Payments" covenant when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv), (vi), (viii), (ix) and (xii) of this paragraph (b) shall be
permitted to be taken in accordance with this paragraph and shall not reduce the
amount that would otherwise be available for Restricted Payments under clause
(C) of paragraph (a).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets (including any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary), whether
owned on the Issue Date or acquired after the Issue Date, or any income or
profits therefrom, except if the Exchange Notes (or the Guarantee of the
Exchange Notes, in the case of Liens on properties or assets of any Guarantor)
and all other amounts due under the Indenture are directly secured equally and
ratably with (or prior to in the case of Liens with respect to Subordinated
Indebtedness) the obligation or liability secured by such Lien, excluding,
however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of any
court, so long as such Lien is in existence less than 30 days after the entry
thereof or adequately bonded or the payment of such judgment, decree or order is
covered (subject to a customary deductible) by insurance maintained with
responsible insurance companies; (ii) taxes, assessments or other governmental
charges that are not yet delinquent or are being contested in good faith; (iii)
security for payment of workers' compensation or other insurance; (iv) good
faith deposits in connection with tenders, leases or contracts (other than
contracts for the payment of borrowed money); (v) zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any property
or assets material to the operation of the business of the
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Company or any Restricted Subsidiary or the value of such property or assets for
the purpose of such business; (vi) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds with respect to matters not
yet finally determined and being contested in good faith by negotiations or by
appropriate proceedings that suspend the collection thereof; or (vii) operation
of law in favor of mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business for sums that are not yet delinquent
or are being contested in good faith by negotiations or by appropriate
proceedings that suspend the collection thereof;
(c) any Lien now or hereafter existing on property or assets of the Company
or any Guarantor securing Senior Indebtedness of such Person;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any such
Lien extends only to the assets that were subject to such Lien securing such
Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries to
any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any indenture
governing any indebtedness permitted by the covenant on "--Limitation on
Indebtedness" in each case in favor of the trustee under such indenture and
securing only obligations to pay any compensation to such trustee, to reimburse
its expenses and to indemnify it under the terms thereof; and
(g) any extension, renewal, refinancing or replacement, in whole or in part,
of any Lien described in the foregoing clauses (a) through (f) so long as the
amount of property or assets subject to such Lien is not increased thereby.
Limitations on Lines of Business. The Company shall not, and shall not
permit its Restricted Subsidiaries to, engage in any business other than those
engaged in on the date of the Indenture and lines of business incidental,
similar or related thereto.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental to the Indenture, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all the obligations of the
Company under the Exchange Notes and the Indenture; (ii) immediately after
giving effect to such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any Restricted Subsidiary as a result
of such transaction as having been incurred by such Successor Company or such
Restricted Subsidiary at the time of such transaction), no Event of Default
shall have occurred and be continuing; (iii) immediately after giving effect to
such transaction, the Consolidated Coverage Ratio of the Successor Company is at
least 1.00:1; provided, however, that, if the Consolidated Coverage Ratio of the
Company before giving effect to such transaction is within a range set forth in
column (A) below, then the Consolidated Coverage Ratio of the Successor Company
shall be at least equal to the lesser of (1) the ratio determined by multiplying
the relevant percentage set forth in column (B) below by the Consolidated
Coverage Ratio prior to such transaction and (2) the relevant ratio set forth in
column (C) below:
<TABLE>
<CAPTION>
(A) (B) (C)
- ----------------- --- -----------
<S> <C> <C>
1.00:1 to 1.99:1 100% 1.60:1
2.00:1 to 2.99:1 90% 2.10:1
3.00:1 to 3.99:1 80% 2.40:1
4.00:1 to
greater.......... 70% 2.50:1;
</TABLE>
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(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less than
the Consolidated Net Worth of the Company prior to such transaction; and
(v) the Company shall have delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and each supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor of the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Exchange Notes.
Change of Control. If a Change of Control shall occur at any time, then each
holder of Exchange Notes shall have the right to require that the Company
purchase such holder's Exchange Notes in whole or in part in any integral
multiple of $1,000, for a cash purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount of such Exchange Notes, plus
accrued and unpaid interest, if any, on such Exchange Notes to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 15 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Exchange Notes by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, (i) that a Change of
Control has occurred and that such holder has the right to require the Company
to purchase each holder's Exchange Notes, in whole or in part, at the Change of
Control Purchase Price; (ii) the Change of Control Purchase Price and the Change
of Control Purchase Date which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act; (iii) that
any Exchange Note not tendered for purchase will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change of Control
Purchase Price, any Exchange Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Purchase Date; and (v) certain other procedures that a holder of Exchange Notes
must follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Exchange Notes that might be delivered by holders
of the Exchange Notes seeking to accept the Change of Control Offer. The Credit
Agreement prohibits the purchase of the Exchange Notes by the Company prior to
full repayment of Indebtedness thereunder and, upon a Change of Control, all
amounts outstanding under the Credit Agreement may become due and payable. There
can be no assurance that, in the event of a Change of Control, the Company will
be able to obtain the necessary consents from the lenders under the Credit
Agreement to consummate a Change of Control Offer. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due would result in an Event of Default.
The existence of a right of the holder of an Exchange Note to require the
Company to purchase such holder's Exchange Notes upon a Change of Control may
deter a third party from acquiring the Company in a transaction which
constitutes a Change of Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions in
effect on the Issue Date with respect to Indebtedness
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outstanding on the Issue Date and refinancing thereof and customary default
provisions) that would materially impair the ability of the Company to make a
Change of Control Offer to purchase the Exchange Notes or, if such Change of
Control Offer is made, to pay for the Exchange Notes tendered for purchase.
Commission Reports. Notwithstanding that the Company may not be subject to
the reporting requirements of Sections 13 or 15(d) of the Exchange Act, so long
as any Exchange Notes are outstanding, the Company will furnish to the Trustee
and the holders of Exchange Notes (i) within 45 days after the end of each of
the first three fiscal quarters of each fiscal year and 90 days of the end of
each fiscal year all quarterly and annual financial information, as the case may
be, that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Company were required to file any such Forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. Furthermore, for so long as any of the Exchange Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Exchange Notes or beneficial owner of the Exchange Notes, in
connection with any sale thereof, the information required by Rule 144(d)(4)
under the Securities Act.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary (a) to
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (b) to make any
loans or advances to the Company or any Restricted Subsidiary or (c) to transfer
any of its property or assets to the Company or any Restricted Subsidiary,
except: (i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date; (ii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant; provided, however,
that the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment are no less
favorable in any material respect to the holders of the Exchange Notes than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any agreements; (iv) any encumbrance or restriction (A) that
restricts in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset that is the subject of such encumbrance or restriction, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; provided that,
in each case, such encumbrance or restriction relates to, and restricts dealings
with, only the property or asset that is the subject of such encumbrance or
restriction; and provided further, that such encumbrance or restriction does not
prohibit, limit or otherwise restrict
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the making or payment of any dividend or other distribution to the Company or
any Restricted Subsidiary; (v) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition or
pursuant to a Permitted Receivables Transaction; and (vi) any restrictions on
cash or other deposits or net worth imposed by customers under contracts entered
into in the ordinary course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the shares
or assets that are the subject matter of such Asset Disposition, (ii) at least
80% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash (provided, however, that in the case of any
Asset Disposition or group of related Asset Dispositions involving total
consideration of not more than $20.0 million, at least 50% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash; provided, further, however, that the foregoing exception shall be
available only in respect of Asset Dispositions, whether or not related,
involving cumulative aggregate consideration not to exceed $50.0 million); and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be) (A) first, to the extent the Company elects (or is required by the
terms of any Senior Indebtedness or any Indebtedness (other than Preferred
Stock) of a Restricted Subsidiary), to prepay, repay or purchase such Senior
Indebtedness or such Indebtedness (other than Preferred Stock) of a Restricted
Subsidiary (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within one year after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash, (B) second, to the
extent of the balance of Net Available Cash after application in accordance with
clause (A), to the extent the Company elects, to secure letter of credit
obligations to the extent such related letters of credit have not been drawn
upon or returned undrawn; (C) third, to the extent of the balance of Net
Available Cash after application in accordance with clauses (A) and (B), to the
extent the Company or such Restricted Subsidiary elects, within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash, to reinvest in, Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) or apply against
restructuring expenses, not to exceed $30.0 million in cumulative aggregate
amount, incurred in connection with the restructuring reserves established from
time to time on the Company's balance sheet; and (D) fourth, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), to make an offer to purchase Exchange Notes pursuant
and subject to the conditions of the Indenture to the holders of the Exchange
Notes at a purchase price of 100% of the principal amount thereof plus accrued
and unpaid interest to the purchase date; provided, however, that, in connection
with any prepayment, repayment or purchase of Indebtedness pursuant to clause
(A) or (B) above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. The Company shall not be required to make an offer for
Exchange Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A), (B) and
(C)) is less than $10.0 million (which lesser amounts shall be carried forward
for purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
For the purposes of clause (a)(ii) of this covenant, the following will be
deemed to be cash: (x) the assumption of Indebtedness (other than Disqualified
Capital Stock) of the Company or any Restricted Subsidiary and the release of
the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
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(b) In the event of an Asset Disposition that requires the purchase of
Exchange Notes pursuant to clause (a)(iii)(D), the Company will be required to
purchase Exchange Notes tendered pursuant to an offer by the Company for the
Exchange Notes at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture.
(c) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to this
covenant.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction in
arms'-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $5.0
million, either (A) the terms of such transaction have been approved by a
majority of the members of the Board of Directors of the Company and by a
majority of the disinterested members of such Board, if any (and such majority
or majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above) or (B) the Company has received a written
opinion from an independent investment banking firm of nationally recognized
standing that such Affiliate Transaction is fair to the Company or such
Subsidiary, as the case may be, from a financial point of view; and (iii) in the
event such Affiliate Transaction involves the purchase or sale of Equity
Interests, or the purchase, sale or lease of assets (other than sales of
inventory to an Affiliate by the Company or a Restricted Subsidiary or purchases
of raw materials from an Affiliate by the Company or such Restricted Subsidiary,
pursuant to a continuing commercial agreement entered into between the Company
or such Restricted Subsidiary and such Affiliate in the ordinary course, and in
furtherance of the business of the Company or such Restricted Subsidiary), in
each case, in an aggregate amount in excess of $20.0 million, the Company has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair to the
Company or such Restricted Subsidiary, as the case may be, from a financial
point of view.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid or made pursuant to the covenant
described under "Limitation on Restricted Payments", (ii) the performance of the
Company's or a Restricted Subsidiary's obligations under any employment
contract, collective bargaining agreement, employee benefit plan, related trust
agreement or any other similar arrangement heretofore or hereafter entered into
in the ordinary course of business, (iii) payment of compensation to employees,
officers, directors or consultants in the ordinary course of business, (iv)
maintenance in the ordinary course of business of benefit programs or
arrangements for employees, officers or directors, including vacation plans,
health and life insurance plans, deferred compensation plans, and retirement or
savings plans and similar plans, (v) any transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, (vi) any agreement in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby, or (vii) the payment of management, consulting and
advisory fees and related expenses to the Sponsors not to exceed $1.5 million in
any fiscal year of the Company.
Limitation on Sale of Capital Stock of Restricted Subsidiaries. The Company
(i) shall not, and shall not permit any Restricted Subsidiary to, transfer,
convey, sell or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Restricted Subsidiary)
and (ii) shall not permit any Restricted Subsidiary to issue any of its Capital
Stock to any Person other than to the Company or a Restricted Subsidiary;
provided, however, that the foregoing shall not prohibit the transfer,
conveyance, sale or other disposition of all the Capital Stock of a Restricted
Subsidiary if the net cash proceeds from such transfer, conveyance, sale or
other disposition
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are applied in accordance with the covenant described above under "Limitation on
Sales of Assets and Subsidiary Stock."
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Exchange Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Exchange Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Company to comply with its obligations
under "Merger and Consolidation", (iv) the failure by the Company to comply for
30 days after notice with any of its obligations under the covenants described
under "Certain Covenants" above (in each case, other than a failure to purchase
Exchange Notes which shall constitute an Event of Default under clause (ii)
above) other than "--Merger and Consolidation", (v) the failure by the Company
to comply for 60 days after notice with its other covenants and agreements
contained in the Indenture, (vi) Indebtedness of the Company or any Restricted
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million (the
"cross acceleration provision"), (vii) certain events of bankruptcy, insolvency
or reorganization of the Company or a Material Subsidiary (the "bankruptcy
provisions"), (viii) any judgment or decree for the payment of money in excess
of $10.0 million (to the extent not covered by insurance) is rendered against
the Company or a Material Subsidiary and is not discharged and either (A) an
enforcement proceeding has been commenced by any creditor upon such judgment or
decree and is not promptly stayed or (B) such judgment or decree shall remain
undischarged or unstayed for a period of 60 days following the entry of such
judgment or decree (the "judgment default provision") or (ix) the failure of any
Guarantee of the Exchange Notes to be in full force and effect (except as
contemplated by the terms thereof) or the denial or disaffirmation by any
Guarantor of its obligations under the Indenture or any Guarantee of the
Exchange Notes if such failure is not cured, or such denial or disaffirmation is
not rescinded or revoked, within 10 days. However, a default under clauses (iv)
and (v) will not constitute an Event of Default until the Trustee or the holders
of at least 25% in principal amount of the outstanding Exchange Notes notify the
Company of the default and the Company does not cure such default within the
time specified in clauses (iv) and (v) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company) occurs and is continuing, the Trustee,
by notice to the Company, or the holders of at least 25% in outstanding
principal amount of the Exchange Notes, by notice to the Company and the
Trustee, may declare the principal of, and accrued and unpaid interest on, all
the Exchange Notes to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable (i) if no Indebtedness is
outstanding under the Credit Agreement, immediately, and (ii) if any
Indebtedness is outstanding under the Credit Agreement, upon the first to occur
of (x) the acceleration of any such Indebtedness or (y) the fifth Business Day
after receipt by the Company and the Credit Agent of such written notice of
acceleration. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs and is continuing, the
principal of, and accrued and unpaid interest on, all the Exchange Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Exchange Notes may rescind any such acceleration with respect to the Exchange
Notes and its consequences.
In the event of any Event of Default specified in clause (v) above, such
Event of Default and all consequences thereof (including, without limitation,
any acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the holders of
the Exchange Notes, if within 20 days after the occurrence of such Event of
Default, (i) the holders of the Indebtedness to which such Event of Default
relates have rescinded or waived the
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acceleration, notice or action (as the case may be) giving rise to such Event of
Default, or (ii) the default that is the basis for such Event of Default has
been cured.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Exchange Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in outstanding principal amount of the
outstanding Exchange Notes have requested the Trustee to pursue the remedy,
(iii) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt of the request and the offer of
security or indemnity, and (v) the holders of a majority in principal amount of
the outstanding Exchange Notes have not given the Trustee a direction that is
inconsistent with such request within such 60 day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Exchange Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Exchange Note, the Trustee
may withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of the holders of
the Exchange Notes. In addition, the Company is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any events which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Exchange Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the
Exchange Notes then outstanding. However, without the consent of each holder of
an outstanding Exchange Note affected, no amendment may, among other things, (i)
reduce the amount of Exchange Notes whose holders must consent to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on any
Exchange Note, (iii) reduce the principal of or extend the Stated Maturity of
any Note, (iv) reduce the premium payable upon the redemption or repurchase of
any Exchange Note or change the time at which any Exchange Note may or shall be
redeemed or repurchased in accordance with the Indenture, (v) make any Exchange
Note payable in money other than that stated in the Exchange Note, (vi) modify
or affect in any manner adverse to the holders of the Exchange Notes, the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on the Exchange Notes or (vii) make any change
in the amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor
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corporation of the obligations of the Company under the Indenture, to provide
for uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes (provided that the uncertificated Exchange Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Exchange Notes are described in Section 163(f) (2) (B)
of the Code), to make any change in the provisions described under "--Ranking"
that would limit or terminate the benefits available to any holder of Senior
Indebtedness (or Representatives therefor) under "--Ranking," to add Guarantees
with respect to the Exchange Notes, to secure the Exchange Notes, to add to the
covenants of the Company for the benefit of the holders of the Exchange Notes or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any holder or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act. However, no amendment may be made to
the subordination provisions of the Indenture that adversely affects the rights
of any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder of Exchange Notes may transfer or exchange Exchange Notes in
accordance with the Indenture. Upon any transfer or exchange, the registrar and
the Trustee may require the holder of an Exchange Note, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require the holder of an Exchange Note to pay any taxes or other charges
required by law. The Company is not required to transfer or exchange any
Exchange Note selected for redemption or to transfer or exchange any Exchange
Note for a period of 15 days prior to a selection of Exchange Notes to be
redeemed. The Exchange Notes will be issued in registered form and the
registered holder of a Exchange Note will be treated as the owner of such
Exchange Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Exchange
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Exchange Notes, to replace mutilated, destroyed,
lost or stolen Exchange Notes and to maintain a registrar and paying agent in
respect of the Exchange Notes. The Company at any time may terminate its
obligations under certain covenants described under "Certain Covenants" (other
than "Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Material Subsidiaries and
the judgment default provision described under "Defaults" above and the
limitations contained in clauses (iii) and (iv) under "Certain Covenants--Merger
and Consolidation" above ("covenant defeasance"). The Credit Agreement prohibits
the legal defeasance and covenant defeasance of the Exchange Notes as long as
there are obligations outstanding under the Credit Agreement.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Exchange Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Material Subsidiaries), or (viii) (with respect to
Material Subsidiaries) or (ix) under "Defaults" above
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or because of the failure of the Company to comply with clause (iii) or (iv)
under "Certain Covenants-- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the
Exchange Notes to redemption or maturity, as the case may be, and must comply
with certain other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that holders of the Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
U.S. Trust Company of New York is to be the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Exchange Notes.
GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflict of laws to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Account" means any account (as that term is defined in Section 9-106 of the
Uniform Commercial Code as in effect from time to time in the State of New York)
of the Company or any of its Subsidiaries arising from the sale or lease of
goods or rendering of services."
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed by the Company
or a Restricted Subsidiary in connection with the acquisition of assets from
such Person. Acquired Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Additional Assets" mean (i) any property or assets (other than Indebtedness
and Capital Stock) to be used by the Company or a Restricted Subsidiary in a
Related Business; or (ii) the Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary; provided, however, that, in the
case of clause (ii), such Person is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "Certain Covenants-Limitation on Sales
of Assets and Subsidiary Stock", "--Limitation on Restricted Payments" and
"--Limitation on Affiliate Transactions" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the outstanding voting shares of Capital Stock of the Company on a fully diluted
basis or of rights or
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warrants to purchase such voting shares (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"ARTAL" means Artal Luxembourg S.A., a corporation organized under the laws
of Luxembourg.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a disposition
of obsolete or worn out equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (iv) a transfer
involving assets with a Fair Market Value not in excess of $1 million, (v) any
sale of equity interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary, and (vi) a disposition of all or substantially all of
the assets of the Company in a manner permitted pursuant to the provisions
described under "Certain Covenants-- Merger and Consolidation"; and (vii) a
disposition of Accounts pursuant to a Permitted Receivables Transaction.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii) all
partnership interests (whether general or limited) in any Person which is a
partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all monetary
obligations of the Company or any of its Restricted Subsidiaries under any
leasing or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases and, for purposes of the Indenture, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Change of Control" means the occurrence of any of the following events:
(i) the failure of the Sponsors, collectively, to own, free and clear of
all Liens or other encumbrances, an aggregate of at least 40% of the
outstanding voting shares of Capital Stock of the Parent on a fully diluted
basis;
(ii) the failure of one of either the Permitted ARTAL Investor Group or
Flowers, as the case may be, to own, directly or indirectly through wholly
owned Subsidiaries, free and clear of all
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Liens, at least 25% of the outstanding voting shares of Capital Stock of the
Parent on a fully diluted basis;
(iii) any "person" or "group" (as such terms are used in Rule 13d-5
under the Exchange Act, and Sections 13(d) and 14(d) of the Exchange Act) of
persons becomes, directly or indirectly, in a single transaction or in a
related series of transactions by way of merger, consolidation, or other
business combination or otherwise, the "beneficial owner" (as such term is
used in Rule 13d-3 of the Exchange Act) of voting shares of Capital Stock of
the Parent representing a percentage of the outstanding voting shares of
Capital Stock of the Parent on a fully-diluted basis that is equal to or
higher than the highest percentage of such outstanding voting shares of
Capital Stock then owned, individually, by either the Permitted ARTAL
Investor Group or Flowers, as the case may be;
(iv) the failure of the Parent to own, free and clear of all Liens
(other than Liens to secure any Senior Indebtedness), 100% of the
outstanding voting shares of Capital Stock of the Company on a fully diluted
basis other than as a consequence of a merger of the Company with or into
the Parent; or
(v) during any period of 24 consecutive months, individuals who at the
beginning of such period constituted the Board of Directors of the Parent
(together with any new directors whose election to such Board or whose
nomination for election by the stockholders of the Parent was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors of the Parent then in office.
For the purposes of clauses (i), (ii), (iii) and (v) of this definition, the
term Parent shall include the Company from and after the date of the merger, if
any, of the Parent with or into the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Commodity Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under commodity hedging agreements, and all other
agreements or arrangements designed to protect such Person against fluctuations
in the cost and supply of critical commodities, including flour, sugar and
packaging materials, required in a Related Business of the Company and its
Restricted Subsidiaries.
"Consolidated Cash Flow" for any period means the Consolidated Net Income of
the Company and its consolidated Restricted Subsidiaries for such period, plus
the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense; (ii) Consolidated Interest Expense; (iii)
depreciation expense; (iv) amortization expense; and (v) non-cash expenses
related to employee benefits, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (1) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any of its Restricted Subsidiaries shall
have made any Asset Disposition, Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash
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Flow (if positive) attributable to the assets which are the subject of such
Asset Disposition for such period or increased by an amount equal to the
Consolidated Cash Flow (if negative) attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense attributable to any Indebtedness of
the Company or any of its Restricted Subsidiaries repaid, repurchased, defeased
or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary of the Company is
sold, the Consolidated Interest Expense for such period directly attributable to
the Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
of its Restricted Subsidiaries (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary of the Company (or any Person which
becomes a Restricted Subsidiary of the Company) or an acquisition of assets,
including any Investment in a Restricted Subsidiary of the Company or any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and (4) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (2) or (3) above if
made by the Company or a Restricted Subsidiary of the Company during such
period, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Current Liabilities," as of the date of determination, means
the aggregate amount of liabilities of the Company and its Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), after eliminating (i) all inter-company items
between the Company and any Subsidiary and (ii) all current maturities of
long-term Indebtedness, all as determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) net costs associated with Currency
Agreements and Interest Rate Agreements (including amortization of fees), (viii)
interest (or other fees in the nature of interest or discount accrued and paid
or payable in cash) in respect of the Permitted Receivables Transaction, and
(ix) the product of (a) all Preferred Stock dividends in respect of all
Preferred Stock of Restricted Subsidiaries of the Company and Disqualified
Capital Stock of the Company held by Persons other than the Company or a
Restricted Subsidiary multiplied by (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current
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combined federal, state and local statutory tax rate of the Company, expressed
as a decimal, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (loss) of any person acquired
by the Company or a Restricted Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income
(loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income; (iv) any gain or
loss realized upon the sale or other disposition of any assets of the Company or
its consolidated Restricted Subsidiaries which are not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person; (v) any
extraordinary gain or loss; and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Net Tangible Assets" means, as of any date of determination,
as applied to the Company, the total amount of assets (less accumulated
depreciation or amortization, allowances for doubtful receivables, other
applicable reserves and other properly deductible items) which would appear on a
consolidated balance sheet of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, and after giving
effect to purchase accounting and after deducting therefrom, to the extent
otherwise included, the amounts of: (i) Consolidated Current Liabilities; (ii)
minority interests in Subsidiaries held by any entity other than the Company or
a Restricted Subsidiary; (iii) excess of cost over fair value of assets of
businesses acquired, as determined in good faith by the Board of Directors; (iv)
any revaluation or other write-up in value of assets subsequent to January 26,
1996 as a result of a change in the method of valuation in accordance with GAAP;
(v) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, copyrights,
licenses, organization or developmental expenses and other intangible items;
(vi) treasury stock; and (vii) any cash set apart and held in a sinking or other
analogous fund established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Capital Stock.
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"Credit Agent" means The Bank of Nova Scotia, in its capacity as
Administrative Agent for the lenders party to the Credit Agreement, or any
successor or successors thereto.
"Credit Agreement" means, collectively, the Amended and Restated Credit
Agreement, dated as of June 4, 1996, by and among the Company, the lenders named
therein, the co-agents named therein and The Bank of Nova Scotia as
Administrative Agent for the lenders, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent or lenders and irrespective of any
changes in the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to the Credit Agreement and all refundings, refinancing and
replacements of any facility provided for therein, including any agreement or
agreements, (i) extending the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder or (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under the Indenture.
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event that is or, with the passage of time or the giving
of notice or both, would be an Event of Default.
"Designated Senior Indebtedness" means (i) the Credit Agreement and (ii) any
other Senior Indebtedness which, at the date of determination, has an aggregate
principal amount outstanding of, or under which, at the date of determination,
the holders thereof are committed to lend up to, at least $10.0 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the
Indenture.
"Designated Subsidiary" means, individually, Keebler International Prep
Track & Field Invitational Foundation, an Illinois not-for-profit corporation,
Keebler Company Foundation, an Illinois not-for-profit corporation, and Keebler
Foreign Sales Corporation, a U.S. Virgin Islands corporation and collectively,
means all such corporations.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Capital Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first anniversary
of the final Stated Maturity of the Exchange Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy as determined by the Board of Directors in good faith
and evidenced by a resolution of the Board of Directors.
"Flowers" means Flowers Industries, Inc., a Georgia corporation.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
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pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP as in effect on the date
of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries existing
on the date hereof and (ii) each other Person that executes a guarantee of the
obligations of the Company under the Exchange Notes and the Indenture from time
to time, and their respective successors and assigns; provided, however, that
"Guarantor" shall not include any Person that is released from its Guarantee of
the obligations of the Company under the Exchange Notes and the Indenture.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than accounts payable to trade creditors arising in
the ordinary course of business), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such Person
shall be the lesser of (A) the Fair Market Value of such asset at such date of
determination or (B) the amount of such Indebtedness of such other Persons,
(vii) all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Capital Stock or,
with respect to any Restricted Subsidiary of the Company, any Preferred Stock
(but excluding, in each case, any accrued dividends) and (ix) to the extent not
otherwise included in this definition, obligations of such Person under Currency
Agreements, Interest Rate Agreements and Commodity Hedging Obligations. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means the Indenture as amended from time to time.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement,
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interest rate cap agreement, interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement as to which such Person is
party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement, but excluding
any debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person.
"Issue Date" means June 25, 1996.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof), and (ii) any other Subsidiary of the Company which is material to the
business, earnings, prospects, assets or condition, financial or otherwise, of
the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
to be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Officer" means the Chairman of the Board of Directors, the Vice Chairman,
the President, any Vice President (whether or not designated by a number or
numbers or a word or words added before or after the title "Vice President"),
the Treasurer, the Secretary or the Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Vice Chairman or the President or any Vice President
(whether or not designated by a number or
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numbers or a word or words added before or after the title "Vice President") and
by the Treasurer or the Secretary or any Assistant Secretary of the Company and
delivered to the Trustee. Each such certificate shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in the
Indenture.
"Opinion of Counsel" means an opinion in writing signed by legal counsel who
may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in the
Indenture, if and to the extent required hereby.
"Parent" means INFLO Holdings Corporation, a Delaware corporation.
"Permitted ARTAL Investor Group" means ARTAL or any of its direct or
indirect wholly owned Subsidiaries and ARTAL Group S.A., a Luxembourg
corporation or any of its direct or indirect wholly owned Subsidiaries.
"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Restricted Subsidiary of the Company or a Person which
will, upon making such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Subsidiary of the Company;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
of its Subsidiaries, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business not in excess of
$2.5 million outstanding at any time; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any of its Subsidiaries or in satisfaction of judgments
or claims; (viii) Currency Agreements, Interest Rate Agreements, Commodity
Hedging Obligations which are entered into by the Company for bona fide hedging
purposes (as determined in good faith by the Board of Directors or senior
management of the Company) with respect to Indebtedness of the Company incurred
without violation of the Indenture or to customary commercial transactions of
the Company entered into in the ordinary course of business; (ix) any Investment
(other than a Temporary Cash Investment) evidenced by securities or other assets
received in connection with an Asset Disposition pursuant to the provisions of
"--Limitations on Sales of Assets and Subsidiary Stock"; (x) any Investment that
is permitted by and made in accordance with the provisions of paragraph (b) of
the covenant described under "--Transactions with Affiliates" (except
transactions described in clause (i) of such paragraph); or (xi) Investments,
the payment for which consists exclusively of Equity Interests (exclusive of
Disqualified Capital Stock) in the Company.
"Permitted Receivables Transaction" means any transaction providing for the
sale or financing of Accounts to the extent (i) the aggregate principal amount
outstanding of such financing (whether pursuant to a sale or a financing) does
not exceed at any time $145.0 million and (ii) recourse at any time to the
Company and its Subsidiaries for credit losses (i.e. defaults) on account of
sold Accounts shall not exceed $35.0 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the
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distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other class
of such corporation.
"principal" of an Exchange Note means the principal of the Exchange Note
plus the premium, if any, payable on the Exchange Note which is due or overdue
or is to become due at the relevant time.
"property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Public Equity Offering" means an underwritten primary public offering for
the account of the Company (which term shall be deemed for the purpose of this
definition to include the Parent if, in connection with or in anticipation of
such public offering, the Company shall have been merged with and into the
Parent) of Capital Stock (or other voting shares or voting interests) of the
Company pursuant to an effective registration statement (other than a
registration statement on Form S-4, S-8 or any successor or similar forms) under
the Securities Act.
"Receivables Co." means any special purpose, bankruptcy-remote, wholly-owned
Subsidiary of the Company organized after the date hereof (or such other Person
designated by the Company) that purchases Accounts generated by the Company or
any of its Subsidiaries in connection with a Permitted Receivables Transaction.
"Receivables Proceeds" means, with respect to a Permitted Receivables
Transaction, the proceeds received from such Permitted Receivables Transaction.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace or refund any
Indebtedness permitted to be incurred under the covenant described under
"--Limitations on Indebtedness".
"Related Business" means the businesses in which the Company and its
Subsidiaries are engaged on the date of the Indenture and any business which is
incidental, similar or related thereto.
"Reorganization Securities" means, with respect to any reorganization,
composition, arrangement, adjustment or readjustment of the Company or any
Guarantor or of their respective securities, securities of the Company or such
Guarantor as reorganized or readjusted that are subordinated, at least to the
same extent as the Exchange Notes, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or readjustment;
provided, however, that (a) in the case of debt securities, (i) such securities
shall not provide for amortization (including sinking fund and mandatory
prepayment provisions) commencing prior to six months following the final
scheduled maturity of all Senior Indebtedness of the Company or such Guarantor
(as modified by such plan of reorganization or readjustment), as the case may
be, (ii) if the rate of interest on such securities is fixed, such rate of
interest shall not exceed the greater of (A) the rate of interest on the
Exchange Notes and (B) the sum of (x) the weighted average rate of interest on
the Indebtedness under the Credit Agreement on the effective date of such plan
of reorganization or readjustment and (y) the difference (such difference, the
"Interest Differential") between the rate of interest on the Exchange Notes and
the weighted average rate of interest on Indebtedness under the Credit
Agreement, in each case immediately prior to the commencement of such
reorganization, composition, arrangement, adjustment or readjustment, (iii) if
the rate of interest on such securities floats, such interest rate shall not
exceed at any time the sum of the weighted average interest rate on Indebtedness
under the Credit Agreement at such time and the Interest Differential, and (iv)
such securities shall not have covenants or default provisions materially more
beneficial to the holders of the Exchange Notes than those in effect with
respect to the Exchange Notes on their issue date and (b) in the case of all
securities (including debt securities), the distribution of such securities was
authorized by an order or decree of a court of competent jurisdiction and such
order gives effect to (and states in such order or decree that effect has been
given to) the subordination of such securities to all Senior Indebtedness of the
Company or such Guarantor not paid in full in cash in connection with such
reorganization; provided that all such Senior
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Indebtedness is assumed by the reorganized corporation, and the rights of the
holders of any such Senior Indebtedness are not, without the consent of such
holders, altered by such reorganization, which consent shall be deemed to have
been given if the holders of such Senior Indebtedness, individually or as a
class, shall have approved such reorganization.
"Representative" for any issue of Indebtedness shall mean the Person acting
as agent, trustee or in a similar representative capacity for the holders of
such Indebtedness, provided that if, and for so long as, any issue of
Indebtedness lacks such a representative, then the Representative for such issue
of Indebtedness shall at all such times constitute the holders of a majority in
outstanding principal amount of the respective issue of Indebtedness.
"Restricted Subsidiary" shall mean any Subsidiary other than an Unrestricted
Subsidiary.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of, premium (if any) and interest
(including interest accruing on or after the filing of any petitions in
bankruptcy or for reorganization relating to the Company regardless of whether
an allowed claim in such proceeding) on, and fees and other amounts owing in
respect of, the Credit Agreement and other Indebtedness of the Company or a
Guarantor which is permitted under the Indenture and whether outstanding on the
Issue Date or thereafter issued, unless, in the instrument creating or
evidencing the same or pursuant to which it is outstanding, it is provided that
the obligations of the Company or such Guarantor in respect of such Indebtedness
are not superior in right of payment to the Exchange Notes; provided, however,
that Senior Indebtedness will not include (i) any obligation of the Company or
any Guarantor to any Subsidiary of the Company or the Company, or (ii) any
Senior Subordinated Indebtedness or Subordinated Indebtedness.
"Senior Subordinated Indebtedness" means the Exchange Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Exchange Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Sponsors" means the Permitted ARTAL Investor Group and Flowers.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Exchange Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and
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undivided profits aggregating in excess of $500 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, or (iv) Investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Unrestricted Subsidiary" means (i) Receivables Co., (ii) the Designated
Subsidiaries, and (iii) any Subsidiary (other than a Subsidiary which would
constitute a Material Subsidiary) that at the time of determination shall have
been designated an Unrestricted Subsidiary by the Board of Directors of the
Company in the manner provided below and which remains so designated at the time
of determination. The Board of Directors of the Company may, by a Board
resolution delivered to the Trustee, designate any Restricted Subsidiary of the
Company (other than a Material Subsidiary) (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless
such Restricted Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, the Company or any Restricted Subsidiary, and provided that
no Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such designation. The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary
of the Company, provided that (i) no Default or Event of Default shall have
occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such designation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture. Any
designation by the Board of Directors of the Company pursuant to the Indenture
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board resolutions giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
provisions.
"voting shares" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be represented
by one or more permanent global certificates in definitive, fully registered
form (each a "Global Exchange Note"). Each Global Exchange Note will be
deposited on the Exchange Date with, or on behalf of, the Depository Trust
Company (the "Depository") and registered in the name of Cede & Co., as nominee
of the Depository, or will remain in the custody of the Trustee under the
Indenture, pursuant to the FAST Balance Certificate Agreement between the
Depository and the Trustee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interests through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form (a "Certificated Exchange Note"). Upon the transfer of any
Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Holders of Exchange Notes may elect to hold such Exchange Notes
through the Depository. Holders of Exchange Notes who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
GLOBAL EXCHANGE NOTE
The Company expects that pursuant to procedures established by the
Depository (i) upon the issuance of the Global Exchange Note, the Depository or
its custodian will credit the accounts of Participants designated by the Initial
Purchasers with an interest in the Global Exchange Note and (ii) ownership of
beneficial interests in the Global Exchange Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository or its nominee (with respect to the interests of Participants)
and the records of Participants and the Indirect Participants (with respect to
interests of persons other than Participants).
So long as the Depository or its nominee is the registered owner of the
Global Exchange Note, the Depository or such nominee, as the case may be, will
be considered the sole owner or Holder of the Exchange Notes represented by the
Global Exchange Note for all purposes under the Indenture. No beneficial owner
of an interest in the Global Exchange Note will be able to transfer that
interest except in accordance with the Depository's procedures, in addition to
those provided for under the Indenture with respect to the Exchange Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Exchange Notes represented by the Global Exchange Note on the applicable
record date will be payable by the Trustee to or at the direction of the
Depository or its nominee in its capacity as the registered Holder of the
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Global Exchange Note representing such Exchange Notes under the Indenture. None
of the Company, the Trustee or any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Exchange Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to such Exchange Notes. The
Company expects that the Depository or its nominee, upon receipt of any payment
of principal, premium, if any, or interest in respect of the Global Exchange
Note will credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Exchange Note as shown on the records of the Depository or its nominee. Payments
by the Participants and the Indirect Participants to the beneficial owners of
the Exchange Notes will be governed by standing instructions and customary
practice, as is now the case with securities held for the account of customers
registered in the names of nominees for such customers, and will be the
responsibility of the Participants or the Indirect Participants, as the case may
be.
Transfers between Participants will be effected in the ordinary way through
the Depository's funds system in accordance with the Depository's rules and will
be settled in federal funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Exchange Notes to
persons in states that require physical delivery of the Exchange Notes, or to
pledge such securities, such holder must transfer its interest in the Global
Exchange Note in accordance with the normal procedures of the Depository and the
procedures set forth in the Indenture.
The Depository has advised the Company that it will take any action
permitted to be taken by a holder of Exchange Notes (including the presentation
of Exchange Notes for exchange as described below) only at the direction of one
or more Participants to whose account the Depository's interests in the Global
Note are credited and only in respect of such portion of the aggregate principal
amount of Exchange Notes as to which such Participant or Participants has or
have given such direction. However, if there is an Event of Default under the
Indenture, the Depository will exchange the Global Exchange Note for
Certificated Exchange Notes, which it will distribute to its Participants.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among
Participants, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
nor any paying agent will have any responsibility for the performance by the
Depository or its Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor depository within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Exchange Notes in definitive form under the Indenture, then, upon surrender
by the Depository of the Global Exchange Note, Certificated Exchange Notes will
be issued to each person that the Depository identifies as the beneficial owner
of the Exchange Notes represented by the Global Exchange Note.
109
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF NOTES
The exchange of Exchange Notes for Notes in the Exchange Offer will not
constitute a taxable event to holders for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by a holder upon
receipt of an Exchange Note, the holding period of the Exchange Note will
include the holding period of the Note and the basis of the Exchange Note will
be the same as the basis of the Note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF NOTES FOR EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE OFFER
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on June 25, 1996 (the "Issuance Date"), pursuant
to which the Company and the Guarantors agreed, for the benefit of the holders
of Notes, that they would, at the expense of the Company and the Guarantors, (i)
file the Exchange Offer Registration Statement with the Commission with respect
to the Exchange Offer to exchange the Notes for Exchange Notes having terms that
are identical in all material respects to the terms of the Notes (except that
the Exchange Notes would not contain terms with respect to transfer
restrictions) within 45 days after the Issuance Date, (ii) use their best
efforts to cause the Exchange Offer Registration Statement to be declared
effective by the Commission under the Securities Act within 120 days after the
Issuance Date and (iii) use their best efforts to consummate the Exchange Offer
within 150 days after the Issuance Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company agreed to offer the Exchange
Notes in exchange for surrender of the Notes. The Company will keep the Exchange
Offer open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to the holders
of Notes. For each Note surrendered to the Company pursuant to the Exchange
Offer, the holder of a Note who surrendered such Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Note. Interest
on each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor or, if no
interest has been paid on such Note, from the original issue date of such Note.
Under existing Commission interpretations, the Exchange Notes would generally be
freely transferable by holders thereof, other than affiliates of the Company,
after the Exchange Offer without further registration under the Securities Act
(subject to certain representations required to be made by each Holder, as set
forth below in the immediately following paragraph; provided, that in the case
of broker-dealers ("Participating Broker-Dealers"), a prospectus meeting the
requirements of the Securities Act is delivered as required. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
and the Guarantors agreed to make available for a period of up to 180 days after
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any Participating Broker-Dealer and any other persons, if any,
with similar prospectus delivery requirements, for use in connection with any
resale of Exchange Notes. A Participating Broker-Dealer or any other person that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations thereunder).
110
<PAGE>
The Registration Statement of which this Prospectus forms a part constitutes
the Exchange Offer Registration Statement for the Exchange Offer.
Each holder of a Note who wishes to exchange Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act, (iii) it is not a
broker-dealer that acquired Notes directly from the Company, (iv) it is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company or,
if it is such an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable and (v) it
is not acting on behalf of any person who could not truthfully make the
foregoing representations.
If the holder of a Note is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If the Holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making activities or other trading activities, it
will be required to acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
SHELF REGISTRATION
If the Commission's policy with respect to exchange offers of the type
contemplated by subparagraph (a) changes such that the Company reasonably
determines that the Exchange Offer cannot be consummated, the Company and the
Guarantors agreed to file with the Commission, as soon as practicable after such
determination, a registration statement on an appropriate form under the
Securities Act, including therein a prospectus under cover of which, pursuant to
Rule 415 under the Securities Act, the holders of the Notes will be free to
offer and sell the Notes from time to time without restrictions or limitations
under the Securities Act (a "Shelf Registration Statement"). The Company and the
Guarantors agreed to use their best efforts to cause the Shelf Registration
Statement to become effective under the Securities Act on or prior to the later
of (x) the 120th calendar day after the Issuance Date or (y) the 45th calendar
day after the publication of the change in law or interpretation and to keep
effective the Shelf Registration Statement until the earlier of three years from
the Issuance Date or such shorter period ending when all Notes covered by the
Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Shelf Registration Statement or when the Notes become
eligible for resale pursuant to Rule 144 under the Securities Act without volume
restrictions. The Company agreed in the event of the filing of the Shelf
Registration Statement, to provide to each holder of a Note copies of the
prospectus that is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder that sells its Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, would be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and would be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification rights and obligations thereunder).
ADDITIONAL INTEREST
In the event that (i) the Exchange Offer is not consummated on or prior to
the 150th calendar day following the Issuance Date or (ii) changes in law or the
applicable interpretation of the Commission staff do not permit the Company to
effect the Exchange Offer and a Shelf Registration Statement with respect to the
Notes is not declared effective under the Securities Act on or prior to the
later of (x) the 120th calendar day after the Issuance Date and (y) the 45th
calendar day after the publication of the change in law or interpretation, the
interest rate borne by the Notes shall be increased by one-half of
111
<PAGE>
one percent per annum following, in the case of clause (i) such 120- or 150-day
period, as the case may be or, in the case of clause (ii) such 45- or 120-day
period, as applicable. The aggregate amount of such increase from the original
interest rate pursuant to these provisions will in no event exceed one-half of
one percent per annum. Such increase will cease to be effective on the date of
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be.
Any amounts of additional interest due pursuant to the paragraph above will
be payable in cash, on the same original interest payment dates as the Notes.
The amount of additional interest will be determined by multiplying the
applicable additional interest rate by the principal amount of the affected
Notes of such Holders, multiplied by a fraction, the numerator of which is the
number of days such additional interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months
and, in the case of a partial month, the actual number of days elapsed), and the
denominator of which is 360.
The foregoing description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement, which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
As a result of the making of, and upon acceptance for exchange of all
validity tendered Notes pursuant to the terms of, the Exchange Offer, the
Company and the Guarantors will have fulfilled certain of their obligations
under the Registration Rights Agreement and accordingly, there will be no
increase in the interest rate on the Notes and the holders of the Notes will
have no further registration or other rights under such agreement.
112
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Notes where
such Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Guarantors have agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1996, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act. The Letter of Transmittal states that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the Guarantors
by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York.
EXPERTS
The consolidated balance sheets of Keebler Cookie/Cracker Company (as
defined) as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of operations, company deficit, and cash flows for the
three fiscal years ended December 30, 1995, included in this Prospectus, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of Sunshine Biscuits, Inc. included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Keebler Corporation
Consolidated Balance Sheets at July 13, 1996 and of Predecessor at December 30,
1995................................................................................. F-2
Consolidated Statements of Operations for the twenty-four weeks ended July 13,
1996 and of Predecessor for the twenty-four weeks ended July 15, 1995........... F-3
Consolidated Statements of Cash Flows for the twenty-four weeks ended July 13,
1996 and of Predecessor for the twenty-four weeks ended July 15, 1995........... F-4
Notes to Consolidated Financial Statements....................................... F-5
Keebler Cookie/Cracker Company (as defined)
Report of Independent Accountants dated April 2, 1996.............................. F-10
Consolidated Balance Sheets at December 30, 1995 and December 31, 1994........... F-11
Consolidated Statements of Operations for the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994................................................ F-12
Consolidated Statements of Company Deficit for the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994................................................ F-13
Consolidated Statements of Cash Flows for the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994................................................ F-14
Notes to Consolidated Financial Statements....................................... F-15
Sunshine Biscuits, Inc.
Independent Auditors' Report dated May 15, 1996.................................... F-31
Balance Sheets--March 31, 1996 and 1995.......................................... F-32
Statements of Operations--Years Ended March 31, 1996, 1995 and 1994.............. F-33
Statements of Stockholder's Equity--Years Ended March 31, 1996, 1995 and 1994.... F-34
Statements of Cash Flows--Years Ended March 31, 1996, 1995 and 1994.............. F-35
Notes to Financial Statements--Years Ended March 31, 1996, 1995 and 1994......... F-36
</TABLE>
F-1
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE><CAPTION>
PREDECESSOR
------------
JULY 13, DECEMBER 30,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 2,629 $ 2,945
Trade accounts and notes receivable.............................. 142,974 102,957
Receivables from affiliates...................................... -- 3,214
Inventories:
Raw materials.................................................. 20,155 9,185
Package materials.............................................. 12,088 10,304
Finished Goods................................................. 81,164 36,953
Other.......................................................... 1,108 1,829
---------- ------------
114,515 58,271
Deferred income taxes............................................ 49,255 24,579
Other............................................................ 19,523 33,139
---------- ------------
Total current assets......................................... 328,896 225,105
Property, Plant, and Equipment, Net................................ 495,314 372,743
Intangibles including goodwill..................................... 261,643 52,639
Prepaid Pension.................................................... 34,358 23,588
Other Assets....................................................... 21,740 3,790
---------- ------------
Total assets................................................. $1,141,951 $ 677,865
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Commercial paper and revolving credit facilities................. $ -- $ 284,000
Current maturities of long-term debt............................. 36,725 22,846
Trade accounts payable........................................... 105,072 49,603
Accrued liabilities.............................................. 195,818 117,606
Income taxes payable............................................. 923 22,037
Restructuring reserves........................................... -- 38,168
---------- ------------
Total current liabilities.................................... 338,538 534,260
Long-term Debt..................................................... 414,225 5,200
Notes Payable to Affiliate......................................... -- 105,000
Other Liabilities:
Deferred income taxes............................................ 72,714 32,691
Postretirement/employment obligations............................ 39,184 44,173
Plant and facility closing costs and severance................... 74,134 --
Deferred compensation............................................ 17,387 16,281
Other............................................................ 12,235 10,921
---------- ------------
Total other liabilities...................................... 215,654 104,066
Commitments and Contingencies
Consolidated Shareholder's Equity (Deficit):
Common Stock (1,000 shares issued and outstanding)............... 1,000 1,000
Additional paid-in capital....................................... 172,018 745,000
Intercompany with excluded businesses............................ -- (517,562)
Retained earnings (deficit)...................................... 516 (299,099)
---------- ------------
Total shareholder's equity (deficit)......................... 173,534 (70,661)
---------- ------------
Total liabilities and shareholder's equity (deficit)......... $1,141,951 $ 677,865
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
-------------------- ------------------------
JULY 13, JULY 15, JULY 13, JULY 15,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales.................................. $383,766 $323,483 $719,025 $651,658
Costs and Expenses:
Cost of sales............................ 185,922 154,103 343,371 309,647
Selling, marketing, and administrative
expenses..................................... 187,099 168,317 353,635 340,533
-------- -------- -------- --------
Income from Operations..................... 10,745 1,063 22,019 1,478
Interest, Net.............................. 8,838 6,670 16,563 13,338
Income (Loss) before Income Taxes.......... 1,907 (5,607) 5,456 (11,860)
Income tax expense....................... 1,049 -- 3,015 --
-------- -------- -------- --------
Income (Loss) before Extraordinary Item.... 858 (5,607) 2,441 (11,860)
Extraordinary Item-Loss on Early
Extinguishment of Debt (net of income taxes
of $1,259)................................... 1,925 -- 1,925 --
-------- -------- -------- --------
Net Income (Loss).......................... $ (1,067) $ (5,607) $ 516 $(11,860)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
-----------------------
JULY 13, JULY 15,
1996 1995
--------- --------
<S> <C> <C>
Cash Flows Provided from (Used by) Operating Activities
Net income (loss)................................................. $ 516 $(11,860)
Adjustments to reconcile net income to cash from operating
activities:
Depreciation and amortization................................... 21,370 16,733
Changes in assets and liabilities:
Trade accounts and notes receivable, net........................ (13,737) (23,529)
Inventories..................................................... (14,327) 14,868
Income taxes payable 1,840 --
Other current assets 12 (10,277)
Accounts payable and other current liabilities 59,710 12,602
Restructuring (39,676) (22,735)
Other, net........................................................ (6,663) 6,487
--------- --------
Cash provided from (used by) operating activities............. 9,045 (17,711)
Cash Flows Provided from (Used by) Investing Activities
Property additions................................................ (9,085) (20,110)
Proceeds from property disposals.................................. 3,016 906
Working capital adjustment paid by United Biscuits................ 32,609 --
Acquisition of Sunshine Biscuits, Inc. net of cash acquired....... (166,270) --
--------- --------
Cash used by investing activities (139,730) (19,204)
Cash Flows Provided from (Used by) Financing Activities
Capital Contributions............................................. 23,600 593
Loss on Early Extinguishment of Debt.............................. 1,925 --
Payment on long-term borrowings................................... (130,822) (9,415)
Proceeds from long-term borrowings................................ 236,497 --
Commercial paper and revolving credit facilities, net............. -- 85,400
Change in intercompany with excluded businesses................... -- (45,407)
--------- --------
Cash provided from (used by) financing activities............... 131,200 31,171
--------- --------
Increase (decrease) in cash and cash equivalents................ 515 (5,744)
Cash and cash equivalents at beginning of period presented...... 2,114 11,301
--------- --------
Cash and cash equivalents at end of period presented............ $ 2,629 $ 5,557
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
KEEBLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements included herein were
prepared pursuant to the rules and regulations for interim reporting under the
Securities Exchange Act of 1934. Accordingly, certain information and footnote
disclosures normally accompanying the annual financial statements were omitted.
The interim financial statements and notes should be read in conjunction with
annual audited consolidated financial statements and notes thereto. The
accompanying unaudited interim consolidated financial statements contain all
adjustments, consisting only of normal adjustments, which in the opinion of
management were necessary for a fair statement on the results for the interim
periods. Results for the interim periods are not necessarily indicative of
results for the full year.
2. ACQUISITION OF KEEBLER COOKIE/CRACKER COMPANY BY INFLO HOLDINGS CORPORATION
On January 26, 1996, UB Investments (Netherlands) B.V. sold all the stock of
the ultimate parent of Keebler Cookie/Cracker Company (Keebler), UB (United
Biscuits) Investments US Inc. (UBIUS), to INFLO Holdings Corporation (INFLO).
Subsequent to the acquisition, UBIUS changed its name to Keebler Corporation
(the Company). The aggregate gross purchase price of $487.5 million (excluding
fees and expenses paid at closing of approximately $15.3 million) was financed
by $125.0 million in equity from INFLO, $200.0 million in Senior Term Notes,
$125.0 million in Increasing Rate Notes, the assumption of $20.3 million in
existing senior indebtedness of the Company and a note payable (Seller Note) by
INFLO to UB Investments (Netherlands) B.V. for $32.5 million. The Seller Note
does not bear interest until January 26, 1999 and has been accounted for as a
capital contribution to Keebler Corporation at a discounted value of $24.4
million. In addition, Keebler Corporation, subsequent to the purchase by INFLO,
received a working capital adjustment of $32.6 million from United Biscuits
pursuant to the terms of the stock purchase agreement between INFLO and United
Biscuits.
The acquisition of Keebler Corporation has been accounted for as a purchase.
Under purchase accounting, the total purchase price and the fair value of
liabilities assumed has been allocated to the tangible and intangible assets of
Keebler Corporation based upon their respective fair values. The assigned values
reflected in the July 13, 1996 balance sheet include estimates which may be
revised during fiscal 1996. Using the current assigned values, the acquisition
resulted in intangibles, including goodwill of $138.9 million, which is being
amortized over a 40-year period.
The following provides a preliminary allocation of the purchase price.
<TABLE>
<S> <C> <C>
Purchase Price.......................................... $ 487.5
Less: Discount recorded on seller note of $32.5......... (8.2)
Less: Assets acquired................................... (814.0)
Plus: Liabilities assumed............................... 767.9
Preliminary Purchase Price Allocation
. Assets.............................................. $ 101.1
. Liabilities......................................... (395.4) (294.3)
------- -------
Unallocated excess purchase price over net assets
acquired.............................................. $ 138.9
-------
-------
</TABLE>
3. ACQUISITION OF SUNSHINE BISCUITS, INC.
On June 4, 1996 (acquisition date), the Company acquired Sunshine Biscuits,
Inc. (Sunshine) from G.F. Industries, Inc. (GFI) for an aggregate consideration
of $171.6 million (excluding related fees and expenses paid at closing of
approximately $2.2 million). The Sunshine acquisition was funded
F-5
<PAGE>
KEEBLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
3. ACQUISITION OF SUNSHINE BISCUITS, INC.--(CONTINUED)
by (i) $150.2 million in cash, of which $36.2 million was provided by Keebler's
existing cash sources and $114.0 million was financed by borrowings under the
Amended and Restated Credit Agreement (See Note 8), and (ii) the issuance to GFI
of approximately $23.6 million of INFLO common stock and warrants, which was
accounted for as a capital contribution. These shares and warrants represent
13.2% of INFLO's common stock on a fully diluted basis.
The acquisition of Sunshine has been accounted for as a purchase. Based upon
a preliminary purchase price allocation, the acquisition resulted in
intangibles, including goodwill of $122.9 million, which is being amortized over
a 40-year period.
Results of operations for Sunshine from the date of acquisition to June 30,
1996 have been included in the consolidated statements of operations for the
twelve weeks and twenty-four weeks ended July 13, 1996. The following pro forma
information has been prepared assuming the acquisition had taken place at the
beginning of the respective periods. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation based on preliminary estimates of the fair
values of the property, plant, and equipment acquired, and amortization of the
intangibles arising from the transaction. The pro forma financial information is
not necessarily indicative of the results of operations as they would have been
had the transactions been effected on the assumed dates.
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
------------------------------
JULY 13, 1996 JULY 15, 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net sales......................................... $ 904,911 $ 911,952
Income (loss) before income taxes................. $ (1,332) $ (50,385)
Net income (loss)................................. $ (6,296) $ (38,914)
</TABLE>
4. FISCAL PERIODS PRESENTED
Keebler Corporation's first twenty-four weeks of 1996 comprised the
twenty-four weeks ended July 13, 1996. Keebler Corporation's fiscal year
consists of thirteen four-week periods, with the first twenty-four weeks
consisting of six four-week periods.
Typically, the first quarter would consist of four four-week periods. The
acquisition of Keebler Corporation closed on the last day of the first four-week
period. Therefore, the first quarter for 1996 consisted of three four-week
periods. The year-to-date period was comprised of the twenty-four weeks ended
July 13, 1996. Comparable 1995 year-to-date data has been presented for the
predecessor company for the twenty-four weeks ended July 15, 1995.
5. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable were net of allowances of $4.8 million
at July 13, 1996 and $3.2 million at December 30, 1995.
F-6
<PAGE>
KEEBLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
6. PROPERTY, PLANT & EQUIPMENT
A summary of property, plant and equipment, including related accumulated
depreciation follows:
<TABLE>
<CAPTION>
JULY 13, 1996 DECEMBER 30, 1995
------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Land.......................................... $ 23,417 $ 8,825
Buildings..................................... 117,049 118,559
Machinery and equipment....................... 292,139 490,186
Office furniture and fixtures................. 32,262 47,791
Delivery equipment............................ 4,099 5,869
Construction in progress...................... 44,659 37,255
------------- -----------------
513,625 708,485
Accumulated depreciation...................... (18,311) (335,742)
------------- -----------------
$ 495,314 $ 372,743
------------- -----------------
------------- -----------------
</TABLE>
7. SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
FOR THE TWENTY-FOUR WEEKS ENDED
----------------------------------
JULY 13, 1996 JULY 15, 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Interest paid................................ $10,906 $ 8,419
Income taxes paid............................ $ 1,143 $ 1,142
</TABLE>
8. DEBT COMMITMENTS
Long-term debt consisted of the following as of July 13, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST RATE FINAL MATURITY JULY 13, 1996
-------------- ---------------- -------------
<S> <C> <C> <C>
Revolving Loan............. 8.7592% January 31, 2002 $ 13,600
Term-A Loans............... 7.7685-8.4400% January 31, 2002 138,125
Term-B Loans............... 8.2685-8.9400% July 31, 2003 89,850
Term-C Loans............... 8.5185-9.1900% July 31, 2004 64,900
Senior Subordinated
Notes...................... 10.750% July 1, 2006 125,000
Other Senior Debt.......... various 2001-2005 19,475
-------------
450,950
Less: Current maturities........................................ 36,725
-------------
$ 414,225
-------------
-------------
</TABLE>
The Company's primary credit financing as of July 13, 1996 was provided by a
$447.9 million Amended and Restated Credit Agreement consisting of a $155.0
million Revolving Loan facility and three Term Loans (Term Loans A, B and C)
aggregating to $292.9 million. Interest on the Revolving Loans and Term Loans is
calculated based upon a Base Rate plus applicable margin. The Base Rate can, at
the Company's option, be 1) the higher of the base domestic lending rate as
established by the Administrative Agent for the Lenders under the Credit
Agreement, or the Federal Funds Rate plus one-half of one-percent, or 2) a
reserve percentage adjusted LIBO Rate as offered by the Administrative Agent's
office in London. Base Rate loan interest rates fluctuate immediately based upon
a change in the established Base Rate by the Administrative Agent.
F-7
<PAGE>
KEEBLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
8. DEBT COMMITMENTS--(CONTINUED)
Any unused borrowings under the Revolving Loan facility are subject to a
commitment fee, which through July 26, 1996 is 0.5%. Subsequent to July 26, 1996
the commitment fee will vary from 0.375% - 0.5% based upon the relationship of
debt to adjusted earnings.
As of July 13, 1996, the Company had a Revolving Loan facility with a
nominal available balance of $155.0 million. Actual available borrowings under
the Revolving Loan facility can be reduced by the level of qualifying working
capital as defined in the Company's Credit Agreement. This gross available
balance is further reduced by certain letters of credit totaling $10.9 million
and outstanding borrowings. As of July 13, 1996, borrowings under the Revolving
Loan facility were $13.6 million.
On January 30, 1996, the Company entered into a swap transaction with the
Bank of Nova Scotia, who also serves as the Administrative Agent for the Lenders
under the Credit Agreement. The swap transaction had the effect of converting
the base rate on $170.0 million of the Term Loans to a fixed rate obligation of
5.0185% plus applicable margin through February 1, 1999. The maturity date on
the swap transaction can be extended to February 1, 2001 at the option of the
Bank of Nova Scotia on January 28, 1999.
The Increasing Rate Notes issued to finance the acquisition of the Company
were exchanged in June 1996 through a private placement offering for new 10.75%
Senior Subordinated Notes due 2006 (the Private Notes). The Company recorded a
before-tax extraordinary loss of $3.2 million on the early extinguishment of the
Increasing Rate Notes. The loss consists primarily of bank fees incurred at the
time the Increasing Rate Notes were issued. The after-tax loss was $1.9 million.
Pursuant to an exchange and registration rights agreement, the Company has
registered its 10.75% Senior Subordinated Notes due 2006 (the Exchange Notes
together with the Private Notes, the Notes) under the Securities Act of 1933,
which the Company intends to offer in exchange for the Private Notes. Private
Notes were issued and the Exchange Notes will be issued under an indenture dated
June 15, 1996 between the Company, the Company's Restricted Subsidiaries (as
defined in the indenture) and the U.S. Trust Company of New York, as trustee.
The Notes are unsecured senior subordinated obligations of the Company. Interest
on the Notes will be paid semi-annually on January 1 and July 1 of each year,
commencing January 1, 1997. At the Company's option, the Notes can be redeemed
on or prior to July 1, 1999 up to 35.0% of the aggregate original principal
following a public equity offering at a redemption price of 110.0%.
Other senior debt of $8.9 million has been classified as a current maturity
of long-term debt pending any required amendments or modifications to the
obligations as a result of the sale of UBIUS and its subsidiaries.
F-8
<PAGE>
KEEBLER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
9. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM DECEMBER 30,
1995 THROUGH JULY 13, 1996
<TABLE>
<CAPTION>
ADDITIONAL INTERCOMPANY RETAINED
COMMON PAID-IN WITH EXCLUDED EARNINGS
CAPITAL STOCK CAPITAL BUSINESSES (DEFICIT) TOTAL
--------- ------ ---------- ------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 30,
1995....................... $ 746,000 $ 0 $ 0 $(517,562) $(299,099) $(70,661)
Purchase of Keebler by
INFLO Holdings
Corporation effective
January 26, 1996........... (746,000) 1,000 148,418 517,562 299,099 220,079
Issuance of INFLO common
stock and warrants to
GFI........................ 23,600 23,600
Net income................. 516 516
--------- ------ ---------- ------------- --------- --------
Balance, July 13, 1996..... $ 0 $1,000 $ 172,018 $ 0 $ 516 $173,534
--------- ------ ---------- ------------- --------- --------
--------- ------ ---------- ------------- --------- --------
</TABLE>
10. GUARANTEES OF NOTES
The subsidiaries of the Company that are not Guarantors of the Company's
Notes are inconsequential (which means that the total assets, revenues, income
or equity of such non-guarantors, both individually and on combined bases, is
less than 3% of the Company's consolidated assets, revenues, income or equity),
individually and in the aggregate, to the consolidated financial statements of
the Company; the Guarantees are full, unconditional, and joint and several; and
separate financial statements of the Guarantors are not presented because
management has determined that they would not be material to investors in the
Notes or the Exchange Notes.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholder of
UB Investments US Inc.
We have audited the accompanying consolidated balance sheets of Keebler
Cookie/Cracker Company, as defined in Note 1, as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of operations,
company deficit, and cash flows for the three years in the period ended December
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Keebler
Cookie/Cracker Company at December 30, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 30, 1995 in conformity with generally
accepted accounting principles.
As described in notes to the consolidated financial statements, in 1994 the
Company changed its method of accounting for postemployment benefits and spare
machinery and equipment parts and, in 1993, its method of accounting for
postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 2, 1996
F-10
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
(AS DEFINED)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 2,945 $ 12,504
Trade accounts and notes receivable................................ 102,957 89,896
Receivables from affiliates........................................ 3,214 --
Inventories........................................................ 58,271 63,994
Deferred income taxes.............................................. 24,579 30,299
Other.............................................................. 33,139 33,393
------------ ------------
Total current assets........................................... 225,105 230,086
Property, Plant, and Equipment, Net.................................. 372,743 356,603
Goodwill............................................................. 52,639 54,292
Prepaid Pension...................................................... 23,588 24,543
Other Assets......................................................... 3,790 8,223
------------ ------------
Total assets................................................... $677,865 $673,747
------------ ------------
------------ ------------
LIABILITIES AND COMPANY DEFICIT
Current Liabilities:
Commercial paper and revolving credit facilities................... $284,000 $149,500
Current maturities of long-term debt............................... 22,846 4,868
Current maturities of note payable to affiliate.................... -- 25,000
Trade accounts payable............................................. 49,603 48,372
Accrued liabilities................................................ 117,606 111,085
Income taxes payable to affiliates................................. 22,037 23,341
Restructuring reserves............................................. 38,168 36,323
Accounts payable to affiliates..................................... -- 1,555
------------ ------------
Total current liabilities.................................... 534,260 400,044
Long-term Debt....................................................... 5,200 50,720
Notes Payable to Affiliate........................................... 105,000 525,000
Other Liabilities:
Deferred income taxes.............................................. 32,691 39,935
Postretirement/employment obligations.............................. 44,173 41,487
Restructuring reserves............................................. -- 31,457
Deferred compensation.............................................. 16,281 14,136
Other.............................................................. 10,921 9,829
------------ ------------
Total other liabilities...................................... 104,066 136,844
Commitments and Contingencies
Consolidated Company Deficit:
Capital............................................................ 746,000 301,000
Intercompany with excluded businesses.............................. (517,562) (437,795)
Retained deficit................................................... (299,099) (302,066)
------------ ------------
Total company deficit.......................................... (70,661) (438,861)
------------ ------------
Total liabilities and company deficit.......................... $677,865 $673,747
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
(AS DEFINED)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Net Sales.............................................. $1,442,882 $1,412,537 $1,411,956
Costs and Expenses:
Cost of sales........................................ 672,800 626,103 610,289
Selling, marketing, and administrative expenses...... 738,846 675,019 662,530
------------ ------------ ----------
31,236 111,415 139,137
Restructuring........................................ -- -- 102,881
------------ ------------ ----------
Income from Operations................................. 31,236 111,415 36,256
Interest:
Interest income from affiliates...................... (1) (25) (644)
Interest income...................................... (151) (118) (252)
Interest expense to affiliates....................... 11,802 65,194 74,440
Interest expense..................................... 16,619 9,440 8,004
------------ ------------ ----------
Income (Loss) before Income Taxes and Accounting
Changes................................................ 2,967 36,924 (45,292)
Income tax expense................................... -- 10,618 13,998
------------ ------------ ----------
Income (Loss) before Cumulative Effect of Accounting
Changes................................................ 2,967 26,306 (59,290)
Cumulative effect of accounting changes.............. -- 1,208 20,699
------------ ------------ ----------
Net Income (Loss)...................................... $ 2,967 $ 25,098 $ (79,989)
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
(AS DEFINED)
CONSOLIDATED STATEMENTS OF COMPANY DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERCOMPANY
WITH EXCLUDED RETAINED
CAPITAL BUSINESSES DEFICIT TOTAL
-------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 2, 1993.................... $ 1,000 $(280,164) $(247,175) $(526,339)
Net loss.................................... (79,989) (79,989)
Change in funding and intercompany.......... (93,848) (93,848)
-------- ------------- --------- ---------
Balance at January 1, 1994.................... 1,000 (374,012) (327,164) (700,176)
Net income.................................. 25,098 25,098
Change in funding and intercompany.......... (63,783) (63,783)
Recapitalization of debt with UB Investments
(Netherlands) B.V............................. 300,000 300,000
-------- ------------- --------- ---------
Balance at December 31, 1994.................. 301,000 (437,795) (302,066) (438,861)
Net income.................................. 2,967 2,967
Change in funding and intercompany.......... (79,767) (79,767)
Recapitalization of debt with UB Investments
(Netherlands) B.V............................. 445,000 445,000
-------- ------------- --------- ---------
Balance at December 30, 1995.................. $746,000 $(517,562) $(299,099) $ (70,661)
-------- ------------- --------- ---------
-------- ------------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
(AS DEFINED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Cash Flows Provided from Operating Activities
Net income (loss)......................................... $ 2,967 $ 25,098 $ (79,989)
Adjustments to reconcile net income to cash from
operating activities:
Depreciation and amortization........................... 36,453 35,271 37,383
Deferred income taxes................................... (1,524) 13 5,511
Restructuring provision................................. -- -- 102,881
Cumulative effect of accounting changes................. -- 1,208 20,699
Changes in assets and liabilities (excluding effect of
acquisition):
Trade accounts and notes receivable, net................ (13,061) 2,653 (11,809)
Receivables (payables) from affiliates, net............. (4,769) (20,350) 69,986
Inventories............................................. 5,723 (5,381) 341
Income taxes payable.................................... (1,304) 32,973 5,339
Other current assets.................................... 254 (7,743) (2,524)
Accounts payable and other current liabilities.......... 7,752 1,001 (3,004)
Restructuring........................................... (29,612) (19,154) (14,270)
Other, net................................................ 10,046 152 (22,079)
------------ ------------ ----------
Cash provided from operating activities............... 12,925 45,741 108,465
Cash Flows Used by Investing Activities
Property additions........................................ (52,179) (48,313) (25,498)
Proceeds from property disposals.......................... 2,504 1,670 12,061
Acquisition of Bake-Line Products, Inc., net of cash
acquired.................................................... -- -- (69,827)
Other..................................................... -- 1,204 --
------------ ------------ ----------
Cash used by investing activities..................... (49,675) (45,439) (83,264)
Cash Flows Provided from (Used by) Financing Activities
Payment of long-term debt................................. (27,542) (6,670) (16,195)
Commercial paper and revolving credit facilities, net..... 134,500 76,300 73,200
Change in intercompany with excluded businesses........... (79,767) (63,783) (93,848)
------------ ------------ ----------
Cash provided from (used by) financing activities....... 27,191 5,847 (36,843)
------------ ------------ ----------
(Decrease) increase in cash and cash equivalents........ (9,559) 6,149 (11,642)
Cash and cash equivalents at beginning of year.......... 12,504 6,355 17,997
------------ ------------ ----------
Cash and cash equivalents at end of year................ $ 2,945 $ 12,504 $ 6,355
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include certain accounts
of UB Investments US Inc. and subsidiaries that are involved in the manufacture,
sale and distribution of cookie and cracker products and certain co-pack
arrangements for products. The consolidated financial statements include certain
accounts of the following legal entities: UB Investments US Inc. (UBIUS),
Keebler Company, Athens Packaging, Inc., Emerald Industries, Inc., Shaffer,
Clarke & Co., Inc., Bake-Line Products, Inc., Johnston's Ready Crust, all of
which are wholly-owned subsidiaries of UBIUS, and certain financing transactions
of the financing subsidiaries of UBIUS.
The consolidated entity, as described above, is referred to as Keebler
Cookie/Cracker Company or "the Company" in the consolidated financial
statements.
UBIUS, a manufacturer and distributor of food products, was, as of December
30, 1995, a wholly-owned subsidiary of UB Investments (Netherlands) B.V., a
Dutch Company. UB Investments (Netherlands) B.V. is a member of the worldwide
group of affiliated companies owned by United Biscuits (Holdings) plc., a
publicly held company in the United Kingdom. UBIUS was formed in 1992 as a
result of the legal restructuring of United Biscuit (Holdings) plc.'s operations
in the United States. UBIUS received the stock of its subsidiaries in exchange
for $850 million in debt with UB Investments (Netherlands) B.V. as well as all
of the capital stock of UBIUS.
On January 9, 1996, U.B. Investments (Netherlands) B.V. sold the assets and
stock of Bernardi Italian Foods Co., The Original Chili Bowl, Inc., Chinese Food
Processing Corp. (wholly-owned subsidiaries collectively known as the Frozen
Food businesses) and certain assets of Keebler Company to Windsor Food Company
Ltd. The sale was effective as of December 31, 1995.
On January 24, 1996, UBIUS sold to Kelly Food Products, Inc. selected assets
of the Salty Snacks business including its production plant in Bluffton,
Indiana, trademarks and other intangibles related to this business, inventory
and additional personal property including selected assets related to the
convenience sales division.
On January 26, 1996, UB Investments (Netherlands) B.V. sold all the stock of
UBIUS to INFLO Holdings Corporation. This sale specifically excludes the stock
of the Frozen Food businesses as well as the Salty Snacks business conducted by
Keebler Company and other subsidiaries of UBIUS, and the UBIUS finance companies
of U.B.H.C., Inc. and U.B.F.C., Inc., also wholly-owned subsidiaries.
The consolidated financial statements present the historical financial
position, results of operations and cash flows of the Company described above.
The accompanying consolidated financial statements exclude the assets,
liabilities, equity, and the profit and loss accounts of the Salty Snacks
business, conducted by Keebler Company and Emerald Industries Inc. II; the
Frozen Foods businesses, conducted primarily by Bernardi's Italian Foods Co.,
The Original Chili Bowl, Inc., and Chinese Food Processing Corp.; and the
finance Companies of U.B.H.C., Inc. and U.B.F.C., Inc., except for certain
financing transactions. The businesses, as described above, not included in
these consolidated financial statements are collectively referred to herein as
the Excluded Businesses which, in aggregate, had net sales of $206.5 million,
$257.7 million and $306.1 million for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994, respectively. All of the legal entities
referred to above in describing the Excluded Businesses are wholly-owned
subsidiaries of UBIUS. Intercompany balances resulting from transactions between
Keebler Cookie/Cracker Company and the Excluded Businesses
F-15
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION--(CONTINUED)
are classified as a separate component of equity. Allocations for certain
activities including retail sales, distribution, and administration have been
made between the Company and the Excluded Businesses.
The financial position, results of operations and cash flows of the Company,
as presented in these consolidated financial statements, may not be the same had
the Company not been in the Salty Snacks and Frozen Foods businesses, primarily
due to the allocation of certain fixed costs to these businesses.
Principles of Consolidation
Intercompany accounts and transactions within the UBIUS group have been
eliminated, except those with the Excluded Businesses as described above.
Fiscal Year
The Company's fiscal year is comprised of 52 or 53 weeks and ends on the
Saturday nearest December 31. Fiscal years 1995, 1994 and 1993 were comprised of
52 weeks.
Reclassifications
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform with the 1995 presentation.
Guarantees of Notes
The subsidiaries of the Company that are not Guarantors of the Company's
Notes are inconsequential (which means that the total assets, revenues, income
or equity of such non-guarantors, both individually and on combined bases, is
less than 3% of the Company's consolidated assets, revenues, income or equity),
individually and in the aggregate, to the consolidated financial statements of
the Company; the Guarantees are full, unconditional, and joint and several; and
separate financial statements of the Guarantors are not presented because
management has determined that they would not be material to investors in the
Notes or the Exchange Notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
All highly liquid instruments purchased with a maturity of three months or
less are classified as cash equivalents. The carrying amount of cash equivalents
approximates fair value due to the relatively short maturity of these
investments. Substantially all cash equivalents of UBIUS and its subsidiaries
are included in these consolidated financial statements.
Trade Receivables
Substantially all of the Company's trade receivables are from retail dealers
and wholesale distributors. The Company performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral.
Receivables, as shown on the consolidated balance sheets, were net of allowances
of $3.2 million as of December 30, 1995 and $1.5 million as of December 31,
1994.
F-16
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of cost or market with cost determined
principally by the last in, first out (LIFO) method. Inventories stated under
the LIFO method represent approximately 92% of total inventories in 1995 and 95%
of total inventories in 1994. Because the Company has adopted a natural business
unit single pool approach to determining LIFO inventory cost, classification of
inventory by its component parts is impractical. The excess of the current
production cost of inventories over LIFO cost was approximately $16.3 million
and $16.2 million at December 30, 1995 and December 31, 1994, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation expense is
computed using the straight-line method based on the estimated useful lives of
the depreciable assets. Accelerated depreciation methods are used for income tax
purposes. Certain facilities and equipment held under capital leases are
classified as assets and amortized using the straight-line method over the lease
terms, and the related obligations are recorded as liabilities. Lease
amortization is included in depreciation expense.
Goodwill
Goodwill consists primarily of the excess of cost over the fair value of
tangible net assets acquired in the purchases of Johnston's Ready Crust and
Bake-Line Products, Inc. Goodwill is amortized on a straight-line basis over a
period of up to 40 years.
Accumulated amortization of goodwill was $27.5 million and $25.8 million as
of December 30, 1995 and December 31, 1994, respectively.
Research and Development
Activities related to new product development and major improvements to
existing products and processes are expensed as incurred and were $12.7 million,
$13.3 million and $13.2 million in 1995, 1994 and 1993, respectively.
Advertising and Consumer Promotion
Advertising and consumer promotion costs are expensed when incurred.
Advertising and consumer promotion expenses were $68.0 million, $55.4 million
and $49.3 million in 1995, 1994 and 1993, respectively.
Hedging Transactions
The Company enters into exchange commodity futures and options contracts to
protect (hedge) against adverse raw material movements. Gains or losses on
hedging activities are deferred until the contracts expire. On expiration of the
contracts, gains or losses are recognized and included in the cost of materials.
The Company does not enter into derivative transactions for speculative
purposes.
F-17
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
The consolidated financial statements reflect the application of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes".
The Company is part of a consolidated federal income tax return filed by UBIUS.
The tax provision was prepared on a stand alone basis. The consolidated balance
sheet includes a liability of $22.0 million and $23.3 million as of December 30,
1995 and December 31, 1994, respectively, for income taxes payable to
affiliates. This liability is the result of calculating the tax provision for
Keebler Cookie/Cracker Company on a stand-alone basis. As UBIUS has a
significant net operating loss carryforward, this liability does not represent a
future cash payment obligation by Keebler Cookie/Cracker Company.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
3. CHANGES IN ACCOUNTING POLICIES
Effective January 2, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The Company recorded a $4.0 million
obligation as a cumulative effect of accounting change for which no tax benefit
was ascribed. Prior to this date, these expenses were recognized on the
pay-as-you-go basis.
As of December 31, 1994, the Company also adopted a policy of capitalizing
spare machinery and equipment parts. Previously, spare machinery and equipment
parts were expensed when purchased. This new policy was adopted in order to
bring the Company in conformity with United Biscuits' guidelines and to match
the cost with the associated benefit of these supplies. Expense is recognized as
the parts are used. Adoption of the new policy resulted in a pre-tax benefit of
$4.6 million, $2.8 million net of income tax.
Effective January 3, 1993, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions." The Company
recorded a $34.2 million obligation as a cumulative effect of accounting change,
resulting in an after tax charge of $20.7 million.
F-18
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT & EQUIPMENT
A summary of property, plant, and equipment, including the related
accumulated depreciation follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 8,825 $ 8,907
Buildings......................................... 118,559 117,168
Machinery and equipment........................... 490,186 468,066
Office furniture and fixtures..................... 47,791 39,477
Delivery equipment................................ 5,869 4,020
Construction in progress.......................... 37,255 31,215
------------ ------------
708,485 668,853
Accumulated depreciation.......................... (335,742) (312,250)
------------ ------------
$372,743 $356,603
------------ ------------
------------ ------------
</TABLE>
Property, plant and equipment is depreciated on a straight line basis over
the estimated useful lives of the depreciable assets. Buildings are depreciated
over a useful life of ten to forty years. Machinery and equipment is depreciated
over a useful life of eight to twenty five years. Office furniture and fixtures
are depreciated over useful lives of five to fifteen years. Delivery equipment
is depreciated over a twelve year life. Land is not depreciated.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Self insurance reserves........................... $ 52,157 $ 50,462
Employee compensation............................. 26,366 31,710
Marketing and consumer promotions................. 25,484 17,806
Taxes, other than income.......................... 6,544 4,594
Interest.......................................... 933 2,417
Postretirement benefit obligation................. 2,792 2,237
Other............................................. 3,330 1,859
------------ ------------
$117,606 $111,085
------------ ------------
------------ ------------
</TABLE>
The Company obtains insurance to manage potential losses and liabilities
related to workers' compensation, health and welfare claims, and general product
and vehicle liability. The Company has elected to retain a significant portion
of the expected losses through the use of deductibles and stop-loss limitations.
Provisions for losses expected under these programs are recorded based upon the
Company's estimates of aggregate liability for claims incurred. These estimates
utilize the Company's prior experience and actuarial assumptions provided by the
Company's insurance carrier. The total estimated liability for these losses at
December 30, 1995 and December 31, 1994 was $52.1 million and $50.5 million,
respectively, and is included in accrued liabilities. The Company has secured
its liability for
F-19
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED LIABILITIES--(CONTINUED)
potential workers compensation claims in several states by obtaining standby
letters of credit which aggregate to approximately $17.0 million.
6. DEBT AND LEASE COMMITMENTS
UBIUS maintains a commercial paper program in the United States which is
supported by a line of credit agreement which is guaranteed by United Biscuits
(Holdings) plc. The commercial paper program, while in part maintained by
U.B.F.C., an Excluded Business, has been fully included in these consolidated
financial statements as the proceeds of these borrowings are used to finance the
Company's operations. Consistent with the inclusion of the commercial paper
obligations, cash equivalents maintained at U.B.F.C. are included in these
consolidated financial statements. The line of credit agreement in support of
the commercial paper program totaled $100 million as of December 31, 1994 and
was expanded to $200 million on June 9, 1995. This agreement can be canceled at
any time. The commercial paper had a weighted average interest rate of 5.9%,
4.4% and 6.1% during 1995, 1994 and 1993, respectively. The Company had $184.0
million and $94.5 million of outstanding borrowings under this program as of
December 30, 1995 and December 31, 1994, respectively. The interest rate was
6.1% for year-end 1995 and 1994.
The Company, along with other United Biscuits (Holdings) plc. affiliated
companies, has access to a revolving credit agreement in Europe which is
guaranteed by United Biscuits (Holdings) plc. The funding under this agreement
goes through U.B.H.C., a wholly-owned subsidiary of UBIUS, an entity which is
not part of these consolidated financial statements. However, the funding is
solely in support of the Company's operations and, therefore, has been included,
in substance, as an obligation of the Company. Available borrowings under this
agreement are limited by total United Biscuits (Holdings) plc. borrowings.
Maximum borrowings under this agreement were $300 million as of year-end 1995
and 1994. The agreement had a weighted average interest rate of 6.2%, 5.6% and
3.5% during 1995, 1994 and 1993, respectively. The interest rate at year-end was
6.0% and 5.6% for 1995 and 1994, respectively. The Company had $100 million and
$55 million of outstanding borrowings under this program as of December 30, 1995
and December 31, 1994, respectively.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
INTEREST FINAL DECEMBER 30, DECEMBER 31,
RATE MATURITY 1995 1994
-------- ----------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior notes........................... 11.54% December 1, 1999 $ -- $ 6,250
Senior notes........................... 8.7% March 1, 2002 -- 20,000
Capital lease obligations.............. Various 1994-2008 6,794 7,353
Equipment purchase obligations......... Various 1994-2013 15,840 16,290
Other.................................. 5,412 5,695
------------ ------------
28,046 55,588
Current maturities..................... 22,846 4,868
------------ ------------
$ 5,200 $ 50,720
------------ ------------
------------ ------------
</TABLE>
The capital lease obligations and equipment purchase obligations have been
classified as current maturities of long-term debt at year-end 1995 pending any
required amendments or modifications to the obligations primarily as a result of
the sale of UBIUS and its subsidiaries.
F-20
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT AND LEASE COMMITMENTS--(CONTINUED)
In January 1996, $2.0 million of the capital lease obligations and equipment
purchase obligations were repaid. The remaining borrowings, classified as
current maturities of long-term debt, are expected to remain in place.
In 1995, the Company prepaid $22.5 million of the senior notes.
Interest of $26.2 million, $99.7 million and $64.2 million was paid for the
years ended December 30, 1995, December 31, 1994 and January 1, 1994,
respectively. This amount includes interest paid on the notes payable to
affiliates as discussed in Note 7.
Aggregate annual maturities of long-term debt as of December 30, 1995 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996.......................................................... $ 22,846
1997.......................................................... 300
1998.......................................................... 300
1999.......................................................... 4,600
2000.......................................................... --
2001 and thereafter........................................... --
--------------
$ 28,046
--------------
--------------
</TABLE>
Assets recorded under capitalized lease agreements and equipment purchase
obligations included in property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 1,246 $ 1,246
Buildings......................................... 6,170 6,830
Machinery and equipment........................... 6,955 7,386
------------ ------------
14,371 15,462
Accumulated depreciation.......................... (8,942) (9,296)
------------ ------------
$ 5,429 $ 6,166
------------ ------------
------------ ------------
</TABLE>
F-21
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT AND LEASE COMMITMENTS--(CONTINUED)
Future minimum lease payments under capital and operating leases that have
initial or remaining noncancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(LN THOUSANDS)
<S> <C> <C>
1996................................................... $ 842 $ 24,457
1997................................................... 941 21,581
1998................................................... 847 18,511
1999................................................... 524 14,292
2000................................................... 477 13,600
2001 and thereafter.................................... 6,534 39,814
------- ---------
Total minimum payments................................. 10,165 $ 132,255
---------
---------
Amount representing interest........................... (3,371)
-------
Obligations under capital leases....................... 6,794
Obligations due within one year........................ (411)
-------
Long-term obligations under capital leases............. $ 6,383
-------
-------
</TABLE>
Rent expense for all operating leases was $36.6 million, $37.2 million and
$39.6 million for 1995, 1994 and 1993, respectively.
7. NOTES PAYABLE TO AFFILIATES
As part of the reorganization of United Biscuits (Holdings) plc. operations
in the United States, UBIUS received the stock of its subsidiaries in exchange
for notes payable. The notes payable were as follows:
<TABLE>
<CAPTION>
NOTE INTEREST FINAL DECEMBER 30, DECEMBER 31,
PAYABLE RATE MATURITY 1995 1994
- -------------------------------------- -------- ------------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
In the amount of $300 million......... 9.75% September 20, 2002 -- --
In the amount of $550 million......... 8.24% September 20, 1999 $105,000 $550,000
------------ ------------
$105,000 $550,000
------------ ------------
------------ ------------
</TABLE>
On September 7, 1994, UBIUS received a capital contribution of $300 million
from UB Investments (Netherlands) B.V. and used the capital contribution to
satisfy the obligations under the note in the amount of $300 million. The annual
maturities of the $550 million note payable are 1996--$100 million, 1997--$100
million, 1998--$150 million, and 1999--$175 million. On February 1, 1995, the
Company received a capital contribution of $445 million from UB Investments
(Netherlands) B.V. which was used by the Company to satisfy the obligations
which would have been due in years 1995, 1996, 1997, 1998 and a portion of the
payment due in 1999 leaving one payment for the balance of $105 million due
September 1999.
F-22
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
8. Employee Benefit Plans
The Company maintains trusteed, noncontributory pension plans covering
certain salaried and hourly-paid employees of the Company. Assets held by the
plans consist primarily of common stocks, collective trust funds, government
securities, bonds, and guaranteed insurance contracts. Benefits provided under
the defined-benefit pension plans are primarily based on years of service and
the employee's final level of compensation. The Company's funding policy is to
contribute annually not less than the ERISA minimum funding requirements.
Pension expense included the following components:
<TABLE>
<S> <C> <C> <C>
Year Ended
----------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------- ------------- ----------
(In Thousands)
Service cost...................................... $ 6,337 $ 7,562 $ 6,514
Interest cost..................................... 13,733 13,235 13,497
Actual return on plan assets...................... (43,208) (9,199) (29,200)
Net amortization of transition obligation......... 610 611 611
Deferral of gains (losses)........................ 24,214 (10,299) 13,815
Prior service cost................................ (155) (508) (508)
Net gain.......................................... (432) -- --
------------- ------------- ----------
$ 1,099 $ 1,402 $ 4,729
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
The funded status of the Company's pension plans and amounts recognized in
the consolidated balance sheets are as follows:
<TABLE>
<S> <C> <C>
December 30, December 31,
1995 1994
------------- -------------
(In Thousands)
Actuarial present value of accumulated benefit obligation:
Vested.............................................................................. $ (134,716) $ (109,576)
Nonvested........................................................................... (23,859) (21,683)
------------- -------------
$ (158,575) $ (131,259)
------------- -------------
------------- -------------
Projected benefit obligation........................................................ $ (199,175) $ (166,262)
Plan assets at fair value........................................................... 239,093 205,318
------------- -------------
Plan assets greater than projected benefit obligation............................... 39,918 39,056
Unrecognized transition obligation.................................................. 3,648 4,166
Unrecognized prior service.......................................................... (1,128) (1,237)
Unrecognized net gain............................................................... (18,850) (17,442)
------------- -------------
Pension asset....................................................................... $ 23,588 $ 24,543
------------- -------------
------------- -------------
</TABLE>
F-23
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
8. Employee Benefit Plans--(Continued)
Assumptions used in accounting for the defined-benefit pension plans at
each year-end are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
----------- --------- -----------
Discount rate.......................................................... 7.5% 8.5% 7.8%
Rate of compensation level increases................................... 4.0% 4.4% 4.4%
Expected long-term rate of return on plan assets....................... 9.0% 10.0% 9.5%
</TABLE>
Included in plan assets are real estate investments of $7.2 million in two
distribution centers which are under two operating leases to a subsidiary of
UBIUS.
In addition, the Company maintains an unfunded supplemental retirement plan
for certain highly compensated executives. Benefits provided are based on years
of service. Vesting is graduated depending on termination after age 55.
The supplemental retirement expense includes the following components:
<TABLE>
<S> <C> <C> <C>
Year Ended
-----------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------- ------------- -----------
(In Thousands)
Service cost...................................... $ 452 $ 126 $ 372
Interest cost..................................... 854 710 866
Net amortization of transition obligation......... 111 110 110
Prior service cost................................ 170 134 91
Net loss.......................................... -- -- 126
------------- ------------- -----------
$ 1,587 $ 1,080 $ 1,565
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
F-24
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
8. Employee Benefit Plans--(Continued)
The unfunded status of the supplemental retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:
<TABLE>
<S> <C> <C>
Year Ended
----------------------------
December 30, December 31,
1995 1994
------------- -------------
(In Thousands)
Actuarial present value of accumulated benefit obligation
Vested......................................................... $ (11,301) $ (9,509)
Nonvested...................................................... -- --
------------- -------------
$ (11,301) $ (9,509)
------------- -------------
------------- -------------
Projected benefit obligation................................... $ (12,077) $ (10,185)
Plan assets at fair value...................................... -- --
------------- -------------
Projected benefit obligation in excess of plan assets.......... (12,077) (10,185)
Unrecognized transition obligation............................. 664 775
Unrecognized prior service cost................................ 1,307 1,477
Unrecognized net loss.......................................... 1,732 611
------------- -------------
Plan obligation included in other long-term
liabilities.................................................. $ (8,374) $ (7,322)
------------- -------------
------------- -------------
</TABLE>
Assumptions used in accounting for the supplemental retirement plan at each
year-end are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
----------- ----------- ---------
Discount rate.......................................................... 7.5% 8.5% 7.75%
Rate of compensation level increase.................................... 4.0% 4.5% 4.50%
</TABLE>
The Company also contributes to a retirement program for Grand Rapids union
employees. Benefits provided under the plan are based on a flat monthly amount
for each year of service and are unrelated to compensation. Contributions are
made based on a negotiated hourly rate. In 1995, 1994 and 1993, the Company
expensed contributions of $2.5 million, $2.3 million and $2.1 million,
respectively.
There are also various multiemployer union administered defined-benefit and
defined-contribution pension plans to which the Company contributes. Benefits
provided under the multiemployer pension plans are generally based on years of
service and employee age. Expense under these plans was $9.4 million, $8.4
million and $10.5 million in 1995, 1994 and 1993, respectively.
The Company also offers certain employees participation in the Keebler
Company Salaried Savings Plan, a defined-contribution plan. Certain nonunion
employees who meet certain length-of-service requirements may elect to
participate in the Plan. Contributions, made by participants with no Company
matching, are based on an elected percentage of the participants' compensation
within a specified range.
F-25
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
9. Postretirement Benefits
The Company provides certain medical and life insurance benefits for
eligible retired employees. The medical plan, which covers nonunion employees
with 10 or more years of service, is a comprehensive indemnity-type plan. The
plan incorporates up-front deductible, coinsurance payments, and employee
contributions which are based on length of service. The life insurance plan
offers a small amount of coverage versus the amount the employees had while
employed. The Company does not fund the Plan.
The Company also provides postemployment medical benefits to employees on
long term disability. The plan is a comprehensive indemnity-type plan which
covers nonunion employees on long term disability. There is no length of service
requirement. The plan incorporates coinsurance payments and deductibles. The
Company does not fund the plan.
The net periodic postretirement benefit cost includes the following
components:
<TABLE>
For the Year Ended
-----------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Service cost........................................................... $ 1,531 $ 1,599 $ 1,437
Interest cost.......................................................... 3,161 2,983 3,167
------------- ------------- -----------
Net periodic postretirement benefit cost............................... $ 4,692 $ 4,582 $ 4,604
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
The funded status of the Plan reconciled to the postretirement obligation
in the Company's balance sheet is as follows:
<TABLE>
December 30, December 31,
1995 1994
------------- -------------
(ln Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................... $ 18,710 $ 20,889
Fully eligible active Plan participants...................... 3,497 3,296
Other active participants.................................... 19,421 14,004
------------- -------------
Total.......................................................... 41,628 38,189
Unrecognized net gain.......................................... 1,037 1,435
------------- -------------
Postretirement obligation...................................... $ 42,665 $ 39,624
------------- -------------
------------- -------------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted-average discount rate of 7.5% and 8.5% in 1995 and 1994, respectively.
The weighted-average annual assumed rate of increase in the cost of covered
benefits is 8% for 1996 declining gradually to an ultimate trend rate of 5% by
the year 2000. A 1% increase in the trend rate for health care costs would have
increased the accumulated benefit obligation as of December 30, 1995 by $2.5
million and the net periodic benefit cost by $.2 million for the year.
F-26
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
10. Income Taxes
Income tax expense consists of the following:
<TABLE>
Year Ended
-----------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal.............................................................. $ 1,524 $ 7,055 $ 8,411
State................................................................ -- 3,550 76
------------- ------------- -----------
Current provision for income taxes..................................... 1,524 10,605 8,487
------------- ------------- -----------
Deferred:
Federal.............................................................. (1,524) 11 4,878
State................................................................ -- 2 633
------------- ------------- -----------
Deferred provision for income taxes.................................... (1,524) 13 5,511
------------- ------------- -----------
$ -- $ 10,618 $ 13,998
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
The differences between the tax provision calculated at federal statutory
income tax rate and the company's consolidated income tax provision are as
follows:
<TABLE>
<S> <C> <C> <C>
Year Ended
----------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------- ------------- ----------
(ln Thousands)
U.S. federal statutory rate............................................ $ 1,038 $ 12,923 $ (15,852)
State income taxes (net of federal benefit)............................ -- 3,552 709
Deferred tax asset valuation adjustment:
Change in valuation allowance........................................ (2,639) (5,947) 26,628
Attributed to accounting changes..................................... -- (1,582) --
Intangible amortization................................................ 601 466 500
Non-taxable items...................................................... 309 527 171
All others............................................................. 691 679 1,842
------------- ------------- ----------
$ -- $ 10,618 $ 13,998
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
F-27
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
10. Income Taxes--(Continued)
The deferred tax assets and deferred tax (liabilities) recorded on the
balance sheet consist of the following:
<TABLE>
December 30, December 31,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Depreciation................................................... $ (69,960) $ (63,651)
Pension asset.................................................. (9,109) (9,736)
Capitalized interest........................................... (1,010) (1,150)
Other.......................................................... (131) (217)
------------- -------------
(80,210) (74,754)
------------- -------------
Operating loss carryforwards................................... 7,261 --
Reorganization costs........................................... 19,623 30,063
Benefit plans.................................................. 24,136 23,254
Workers' compensation.......................................... 17,874 16,628
Incentives and deferred compensation........................... 9,897 8,632
Charitable contributions....................................... 9,170 6,962
Other.......................................................... 2,179 260
------------- -------------
90,140 85,799
Valuation allowance............................................ (18,042) (20,681)
------------- -------------
$ (8,112) $ (9,636)
------------- -------------
------------- -------------
</TABLE>
Net operating loss carryforwards for UBIUS total approximately $204 million
through 1995 and expire in 2008 through 2010. The net operating loss
carryforward assigned to the legal entities which comprise Keebler
Cookie/Cracker Company is approximately $195 million. These carryforwards have
been fully reserved as the realization is not likely.
Income taxes paid (refunded) for UBIUS were approximately $2.3 million,
$(22.8) million and $3.2 million in 1995, 1994 and 1993, respectively. These
payments (refunds) are not separable between Keebler Cookie/Cracker Company and
the Excluded Businesses.
11. Restructuring Charge
In 1993, the Company recorded a pre-tax charge of $102.9 million to
restructure operations. Included in this charge are the estimated costs of $68.5
million for severance relating to a management reorganization and to streamline
the sales and distribution network in order to achieve a more efficient manning
of the salesforce along with the closing of several existing distribution
centers, $16.1 million for plant closing costs, and $18.3 million for writing
down to net realizable value machinery and equipment of which the value has been
impaired.
In conjunction with the decision to enter into the Stock Purchase Agreement
with INFLO Holdings Corporation, certain elements of the Company's restructuring
initiative to streamline the sales and distribution network have been suspended.
As of December 30, 1995 restructuring reserves of $30.0 million for this
initiative were included in the consolidated balance sheet.
Restructuring reserves remaining at December 30, 1995 relate primarily to
future cash costs of the streamlining of the sales and distribution network as
well as related information system projects.
F-28
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
11. Restructuring Charge--(Continued)
The change in the restructuring reserves from the initiation of the plan to
December 30, 1995 represent actual charges incurred against the original
projects of $3.8 million, $31.3 million and $29.6 million for fiscal 1993, 1994
and 1995, respectively.
12. Acquisition of Bake-Line Products, Inc.
On January 8, 1993, the Company purchased the stock of Bake-Line Products,
Inc. for $69.8 million, net of $0.2 million in cash acquired. The acquisition
resulted in goodwill of $49.0 million. The acquisition has been accounted for as
a purchase.
13. Transactions and Allocations with Related Parties
The Company conducts business with various affiliated companies that
ultimately are under the control of UB (Holdings) plc. Transactions with related
parties include financing with receivables and payables and the purchase of
product for resale in the United States. Notes payable to affiliates are
summarized in Note 7. Purchases of product from affiliated companies for resale
in the United States were $11.3 million for the year ended 1995, $9.4 million
for the year ended 1994 and $10.8 million for the year ended 1993.
In addition, UBIUS provides certain shared services to its various
businesses. Shared services include the retail sales force organization, a
nationwide distribution network, and various corporate administrative services
including centralized cash management, information services, purchasing, risk
management, human resources, legal, and general management. The costs associated
with these shared services have been allocated among the various UBIUS
businesses, including those businesses included in these consolidated financial
statements. Included in these consolidated financial statements are expenses of
$301.7 million, $284.4 million and $278.0 million for these shared services for
the years ended December 30, 1995, December 31, 1994 and January 1, 1994,
respectively, representing approximately 83%, 80% and 76%, respectively, of
UBIUS's total cost of these shared services in each of those years. Management
believes that these allocations are reasonable estimates of the total costs
incurred for these businesses. The bases for these allocations are summarized
below.
Retail Sales. The retail sales organization is primarily structured around
two sales organizations, direct store delivery (DSD) and Convenience. The costs
associated with the retail sales organizations are first assigned to the
businesses on the basis of specific identification. The remaining costs of the
retail sales organization are either allocated to the businesses based upon
units sold, or applied based on other representative methods.
Distribution. Costs are allocated on a full cost basis to the Salty Snacks
business based on its estimated usage of the various services provided by the
distribution network. Different selling channels or classes of customers utilize
the system's facilities in varying rates and patterns. Costs associated with
warehouse handling, labor and storage, Keebler's store door delivery fleet,
shipping and consolidation warehouse centers, and distribution administration
were allocated based on utilization rates, traffic patterns and labor standards.
Distribution support costs were not allocated to the Frozen Foods businesses, as
these businesses do not utilize this distribution system.
Corporate Administration. Costs for information services support are
allocated based on estimated system transaction and information systems support
staff time. Credit and accounts receivable
F-29
<PAGE>
KEEBLER COOKIE/CRACKER COMPANY
Notes to Consolidated Financial Statements--(Continued)
13. Transactions and Allocations with Related Parties--(Continued)
support expense is allocated to Salty Snacks and Frozen Foods based on gross
sales. Market research and public relations administrative costs are allocated
based on research activity and gross sales. All other administrative support
costs (including senior management, legal, human resources, corporate finance)
have been assigned only to Keebler Cookie/Cracker Company.
14. Fair Value of Financial Instruments
The fair market value of financial instruments, which includes other
long-term receivables, short-term borrowings, and long-term borrowings, was
estimated using discounted cash flow analyses based on current interest rates
which would be obtained for similar financial instruments. The carrying amounts
of these financial instruments approximate fair value.
The Company often enters into exchange traded commodity futures and options
contracts to protect the Company against a portion of adverse raw material price
movements. The Company does not enter into derivative transactions for
speculative purposes. Gains or losses realized from the liquidation or
expiration of the contracts are recognized as part of the cost of raw materials.
Gains or losses are deferred until realized. Cost of goods sold was reduced by
gains on futures and options transactions of $3.4 million in 1995, $0.6 million
in 1994 and $1.8 million in 1993. As of December 30, 1995, $0.1 million in
unrealized futures contracts losses have been deferred. There were no
outstanding options contracts at December 30, 1995. As of December 30, 1995 the
notional amount of open futures contracts was $13.7 million.
15. Commitments and Contingencies
The Company is from time to time a defendant in various lawsuits and claims
incidental to its business. Although the Company is not able to estimate its
ultimate liability in these matters with absolute certainty, in the opinion of
management, such proceedings in the aggregate will not have a material adverse
effect on the Company's financial position or results of operations.
* * * * *
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder
Sunshine Biscuits, Inc.
Woodbridge, New Jersey
We have audited the accompanying balance sheets of Sunshine Biscuits, Inc. (a
wholly-owned subsidiary of G.F. Industries, Inc.) (the "Company") as of March
31, 1996 and 1995, and the related statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
MAY 15, 1996
F-31
<PAGE>
SUNSHINE BISCUITS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................. $ 1,841 $ 2,140
Trade accounts receivable, less allowance for doubtful accounts of
$830 and $1,399.................................................... 42,361 43,036
Due from Parent and affiliates....................................... 3,362 2,783
Inventories.......................................................... 35,220 44,272
Prepaid expenses and other........................................... 5,428 5,583
Deferred income taxes................................................ 6,767 11,521
-------- --------
Total current assets........................................... 94,979 109,335
PROPERTY HELD FOR SALE--Net............................................ 993 1,698
PROPERTY, PLANT AND EQUIPMENT--Net..................................... 88,844 98,879
OTHER ASSETS........................................................... 27,877 30,409
-------- --------
TOTAL ASSETS........................................................... $212,693 $240,321
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable............................................... $ 32,944 $ 35,497
Other accrued liabilities............................................ 27,444 40,020
Accrued restructuring costs.......................................... 1,904 9,830
Due to affiliates.................................................... 399 2,802
Current maturities of long-term debt................................. 13,192 33
-------- --------
Total current liabilities...................................... 75,883 88,182
LONG-TERM DEBT......................................................... 73,458 93,780
OTHER LIABILITIES...................................................... 30,638 31,475
DEFERRED INCOME TAXES.................................................. 10,058 9,325
STOCKHOLDER'S EQUITY:
Common stock, no par value; authorized, issued and outstanding 100
shares................................................................. 15,000 15,000
Additional paid-in capital........................................... 19,660 19,660
Accumulated deficit.................................................. (12,004) (17,101)
-------- --------
Total stockholder's equity..................................... 22,656 17,559
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................. $212,693 $240,321
-------- --------
-------- --------
</TABLE>
See notes to financial statements.
F-32
<PAGE>
SUNSHINE BISCUITS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SALES (Net of discounts and allowances of $21,450, $24,637
and $22,155)................................................ $628,302 $629,841 $643,215
COST OF SALES............................................... 339,982 350,283 335,416
-------- -------- --------
GROSS MARGIN................................................ 288,320 279,558 307,799
-------- -------- --------
OPERATING EXPENSES:
Selling and marketing..................................... 258,018 272,476 267,782
General and administrative................................ 22,585 23,233 23,620
Restructuring charge (gain)............................... (16,458) 21,933 --
Other..................................................... 727 5,051 955
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................... 23,448 (43,135) 15,442
INTEREST EXPENSE............................................ 9,361 8,409 6,529
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM.................................... 14,087 (51,544) 8,913
ALLOCATED INCOME TAXES (TAX BENEFIT)........................ 6,169 (18,918) 4,033
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM.......................................... 7,918 (32,626) 4,880
LOSS FROM DISCONTINUED OPERATIONS........................... -- -- (2,610)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 7,918 (32,626) 2,270
EXTRAORDINARY ITEM--LOSS ON EARLY EXTINGUISHMENT OF DEBT
(NET OF TAX)................................................ 2,821 -- --
-------- -------- --------
NET INCOME (LOSS)........................................... $ 5,097 $(32,626) $ 2,270
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to financial statements.
F-33
<PAGE>
SUNSHINE BISCUITS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT) EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993......................... $15,000 $ 35,000 $ 13,255 $63,255
Capital contribution.......................... -- 8,000 -- 8,000
Transfer of snack food businesses to Parent... -- (23,340) -- (23,340)
Net income.................................... -- -- 2,270 2,270
------- ---------- ------------ -------------
BALANCE, MARCH 31, 1994......................... 15,000 19,660 15,525 50,185
Net loss...................................... -- -- (32,626) (32,626)
------- ---------- ------------ -------------
BALANCE, MARCH 31, 1995......................... 15,000 19,660 (17,101) 17,559
Net income.................................... -- -- 5,097 5,097
------- ---------- ------------ -------------
BALANCE, MARCH 31, 1996......................... $15,000 $ 19,660 $(12,004) $22,656
------- ---------- ------------ -------------
------- ---------- ------------ -------------
</TABLE>
See notes to financial statements.
F-34
<PAGE>
SUNSHINE BISCUITS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 5,097 $(32,626) $ 2,270
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Loss from discontinued operations........................ -- -- 2,610
Depreciation and amortization............................ 8,204 8,773 9,049
Deferred income taxes (benefit).......................... 6,109 (20,211) (190)
Extraordinary item--loss on extinguishment of debt....... 2,821 -- --
Restructuring charge (gain).............................. (16,458) 21,933 --
Other.................................................... 108 3 (62)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............... 675 11,568 (6,228)
Decrease (increase) in inventory......................... 9,052 7,248 (5,474)
Decrease in prepaid expenses and other................... 155 7,553 432
Changes in amounts due to and due from affiliates--net... (2,982) 1,278 (6,494)
Decrease (increase) in other noncurrent assets........... 1,962 (11,547) 394
(Decrease) increase in trade accounts payable............ (2,553) 4,695 3,989
(Decrease) increase in other accrued liabilities......... (12,576) (1,504) 2,568
Decrease in accrued restructuring charges................ (5,417) -- --
Increase in income taxes payable......................... -- -- 158
Increase (decrease) in long-term liabilities............. (2,484) 14,886 1,857
-------- -------- --------
Net cash (used in) provided by operating activities.... (8,287) 12,049 4,879
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (6,108) (10,660) (10,930)
Proceeds from sale of plant and distribution operation..... 21,954 -- --
Proceeds from sale of other assets......................... 1,321 34 10
-------- -------- --------
Net cash provided by (used in) investing activities.... 17,167 (10,626) (10,920)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan refinancing............................. 74,522 -- --
Payment of debt issue costs................................ (1,116) (47) (1,461)
Payments of revolving credit loans......................... (21,635) (1,460) (4,989)
(Payments) proceeds on senior secured notes................ (60,500) -- 60,500
Payments on other loans and capital leases................. (450) (35) (48,248)
-------- -------- --------
Net cash (used in) provided by financing activities.... (9,179) (1,542) 5,802
-------- -------- --------
NET DECREASE IN CASH......................................... (299) (119) (239)
CASH, BEGINNING OF YEAR...................................... 2,140 2,259 2,498
-------- -------- --------
CASH, END OF YEAR............................................ $ 1,841 $ 2,140 $ 2,259
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to financial statements.
F-35
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1. ORGANIZATION AND OPERATIONS
Sunshine Biscuits, Inc. (the "Company") is a wholly-owned subsidiary of G.F.
Industries, Inc. (the "Parent"). The Company manufactures cookies, crackers and
related products at several plants located in the United States. These products
are sold directly to retailers, distributors and food service customers. No
single customer accounts for more than 10% of total revenues and export sales
are not significant. As discussed in Note 15, in 1994 the Company transferred to
the Parent its salty snack foods operations.
On March 29, 1996 the Parent announced that it had entered into preliminary
discussions with a third party with respect to a possible merger of the Company.
As of May 15, 1996, no definitive purchase agreement has been signed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
INVENTORIES--Inventories are stated at the lower of last-in, first-out
("LIFO") cost or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is stated at
fair market value determined at the time the Company was acquired by the Parent.
Property, plant and equipment additions subsequent to such acquisition are
stated at cost, including capitalized interest related to plant expansion and
other major capital projects. Capitalized leases are stated at the lesser of the
present value of future minimum lease payments or the fair value of the leased
property. Depreciation is computed using the straight-line method over the
estimated economic useful lives of the related assets. Leasehold improvements
are amortized over related lease terms.
OTHER ASSETS--The excess cost over fair value of assets acquired is being
amortized over 40 years. Debt issuance costs are being amortized over the terms
of the related loans. Package design and plate costs are deferred and amortized
over periods from twelve to sixty months. On an on-going basis, the Company
reassesses the recorded values of long-lived assets based on estimated
undiscounted expected future cash flows. If the results of these periodic
assessments indicate that an impairment may be likely, the Company recognizes a
charge to operations at that time.
ALLOCATED INCOME TAXES--The Company's taxable income or loss is included in
the Parent's consolidated Federal income tax return. A tax-sharing agreement
between the Parent and its subsidiaries specifies that income taxes will be
allocated to each company in an amount equal to the amount of income tax that
would be due if the Company filed separate income tax returns. The Company
receives benefit for losses to the extent that it has paid tax in the past.
Allocated income taxes in these financial statements have been recognized in
accordance with Statement of Financial Accounting Standards No. 109, and
deferred income taxes provided for the differences between the tax bases of
assets and liabilities and their related financial statement amounts using
current income tax rates.
F-36
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair market value of certain
financial instruments, including cash, accounts receivable, accounts payable,
amounts due to and from affiliates and other accrued liabilities, approximate
the amounts recorded in the balance sheet because of the relatively current
maturities of these financial instruments. The fair market value of long-term
debt at March 31, 1996 and 1995 approximates the amounts recorded in the balance
sheet based on information available to the Company with respect to interest
rates and terms for similar financial instruments.
ADVERTISING AND CONSUMER PROMOTION--Advertising and consumer promotion costs
of $7,231 in 1996, $24,062 in 1995 and $16,083 in 1994 are expensed when
incurred.
NEW ACCOUNTING STANDARD--Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, is effective for the Company's fiscal year ending March 31, 1997. This
standard requires impairment losses to be recorded on long-lived assets and
certain intangible assets when the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Although
the Company has not yet completed its evaluation of the impact of adopting this
standard, management does not expect the effect, if any, to be significant.
RECLASSIFICATIONS--Certain prior year financial statement amounts have been
reclassified to conform to classifications used in the 1996 financial
statements.
3. RESTRUCTURING PROGRAMS
Results of operations for 1995 include the accrual of $21,933 for a
restructuring program designed to reduce costs and improve operating efficiency.
The restructuring represents primarily the closing of the Oakland, California
bakery and includes (1) a provision to adjust the carrying values of property
held for sale to estimated net realizable values ($7.5 million); (2) severance
and related benefits ($9.3 million); (3) facility shutdown costs ($1.7 million);
and (4) other related expenses ($3.4 million). During 1996, the Company
substantially completed this restructuring program and, as a result, accrued
restructuring costs were reduced by approximately $2,913. This amount is
included in restructuring gain in 1996.
Also during 1996, the Company sold its Chicago, Illinois bakery for cash
proceeds of approximately $17,600, resulting in a gain of approximately $15,900,
and sold its Chicago-based distribution operations for cash proceeds of
approximately $4,200, resulting in a loss of approximately $2,400. As a result
of these transactions, the Company reduced its workforce and recognized a
curtailment gain for the net decrease in accrued pension and postretirement
benefit obligations (see Note 11). Also in connection with the sale of the
distribution operations, the Company recorded a withdrawal liability of
approximately $250 related to a multiemployer pension plan.
On March 27, 1996, the Company entered into a contract to sell the Oakland
bakery property for approximately $2,700. The closing is subject to the
satisfaction of certain conditions. The Company expects that the sale will be
completed in September 1996 at which time any gain, net of related costs to
dispose of the property, will be recognized.
F-37
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
4. INVENTORIES
Inventories at March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Finished goods.......................................... $20,046 $27,742
Raw materials........................................... 11,328 12,116
Packaging............................................... 3,846 4,414
------- -------
Total................................................... $35,220 $44,272
------- -------
------- -------
</TABLE>
The cost of finished goods on the LIFO method exceeds their replacement cost
by approximately $1,768 and $2,867 at March 31, 1996 and 1995, respectively. The
replacement cost of raw materials and packaging exceeds their LIFO cost by
approximately $5,618 and $5,716 at March 31, 1996 and 1995, respectively.
Inventory reductions during 1996 resulted in a LIFO liquidation which
decreased net income by approximately $540.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and improvements................................. $ 7,575 $ 9,666
Buildings and improvements............................ 42,885 43,194
Machinery and equipment............................... 89,629 91,236
Vehicles.............................................. 1,348 2,304
Leasehold improvements................................ 1,924 1,953
Construction in progress.............................. 4,587 6,948
-------- --------
Total................................................. 147,948 155,301
Less accumulated depreciation and amortization........ (59,104) (56,422)
-------- --------
Total................................................. $ 88,844 $ 98,879
-------- --------
-------- --------
</TABLE>
Property above excludes $993 and $1,698 at March 31, 1996 and 1995,
respectively, relating to the Company's closure of the Oakland bakery. Such
amounts have been segregated in the accompanying balance sheet as property held
for sale.
F-38
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
6. OTHER ASSETS
Other assets at March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Excess cost over fair value of assets acquired (net of
related amortization of $2,005 and $1,559)............ $14,261 $14,707
Intangible pension asset................................ 10,610 11,613
Debt issuance costs..................................... 1,023 1,132
Other................................................... 1,983 2,957
------- -------
Total................................................... $27,877 $30,409
------- -------
------- -------
</TABLE>
7. TRADE ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Checks outstanding in excess of related cash balances totaling $9,935 and
$10,509 at March 31, 1996 and 1995, respectively, are included in trade accounts
payable.
Other accrued liabilities at March 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accrued selling expenses................................ $ 7,030 $15,298
Compensation and payroll taxes.......................... 11,335 13,544
Other................................................... 9,079 11,178
------- -------
Total................................................... $27,444 $40,020
------- -------
------- -------
</TABLE>
8. INCOME TAXES
Allocated income taxes (tax benefit) from continuing operations for the
years ended March 31, 1996, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- ------
<S> <C> <C> <C>
Currently (receivable) payable:
Federal....................................... $ 60 $ 1,341 $3,334
State......................................... -- (48) 889
------ -------- ------
Total currently payable......................... 60 1,293 4,223
------ -------- ------
Deferred:
Federal....................................... 4,750 (15,921) (163)
State......................................... 1,359 (4,290) (27)
------ -------- ------
Total deferred.................................. 6,109 (20,211) (190)
------ -------- ------
Total........................................... $6,169 $(18,918) $4,033
------ -------- ------
------ -------- ------
</TABLE>
F-39
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
8. INCOME TAXES--(CONTINUED)
Included in the amount due from Parent and affiliates at March 31, 1996 is
$2,679 which represents the portion of the federal tax benefit of the 1995
consolidated net operating loss carryback allocated to the Company pursuant to
the tax sharing agreement among the Parent and its subsidiaries.
At March 31, 1996, the Company has net operating loss carryforwards for
Federal and State tax purposes of approximately $9,625 and $16,200,
respectively, expiring in 2010.
The differences between income taxes calculated at Federal statutory income
tax rate and the Company's allocated income tax provision (benefit) from
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
----------------------------
1996 1995 1994
------ -------- ------
<S> <C> <C> <C>
U.S. Federal Statutory Rate...................................... $4,930 $(17,525) $3,030
State income taxes (net of federal benefit)...................... 883 (2,863) 569
Goodwill amortization............................................ 156 152 152
Adjustments to prior years' allocated income taxes............... -- 1,106 117
Nondeductible expenses........................................... 200 212 165
------ -------- ------
$6,169 $(18,918) $4,033
------ -------- ------
------ -------- ------
</TABLE>
Deferred tax assets and liabilities at March 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Current:
Accrued employee benefits.......................... $ 6,323 $ -- $ 4,658 $--
Inventory costing and valuation.................... -- 3,052 -- 3,644
Accrued promotion and marketing costs.............. 175 -- 1,100 --
Accrued restructuring costs........................ 1,206 -- 6,913 --
Accrued plant closing and other costs.............. 557 -- 694 --
Other accrued expenses............................. 688 -- 760 --
Allowance for doubtful accounts.................... 332 -- 560 --
Other.............................................. 538 -- 480 --
------- ----------- ------- -----------
Total current........................................ 9,819 3,052 15,165 3,644
------- ----------- ------- -----------
Noncurrent:
Depreciation....................................... -- 20,381 -- 24,081
Net operating loss carryforwards................... 5,353 -- 7,868 --
Accrued pension and post-retirement benefits....... 4,539 344 6,284 344
Alternative minimum tax credit carryforwards....... 775 -- 948 --
------- ----------- ------- -----------
Total noncurrent..................................... 10,667 20,725 15,100 24,425
------- ----------- ------- -----------
Total................................................ $20,486 $ 23,777 $30,265 $28,069
------- ----------- ------- -----------
------- ----------- ------- -----------
</TABLE>
The Internal Revenue Service has examined the Parent's consolidated income
tax returns for years 1989 through 1992. The Parent believes that the amounts
accrued are adequate to cover taxes payable for these years.
F-40
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
9. OTHER LIABILITIES
Other liabilities as of March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Postretirement benefit obligations (Note 11)............ $11,347 $15,711
Pension obligation...................................... 19,178 15,694
Other................................................... 113 70
------- -------
Total................................................... $30,638 $31,475
------- -------
------- -------
</TABLE>
10. NOTES PAYABLE
Notes payable as of March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Borrowings under BankAmerica Business Credit Inc. loan
and security agreement, interest payable monthly at a
rate based on prime or LIBOR(1)......................... $74,105 $ --
Borrowings under Wells Fargo revolving credit loan,
interest payable at a rate based on prime
(9.0% at March 31, 1995) plus .25%(1)................. -- 21,635
Senior secured notes, interest at 8.69% payable semi-
annually in arrears on May 1st and November 1st
commencing May 1, 1994. Notes are payable in
installments beginning in 1997 with final payment due
in 2005(1)............................................ -- 60,500
Notes payable to Parent (includes accrued
interest)(2)............................................ 11,545 10,645
Subordinated, unsecured, note payable to American
Brands, Inc., interest at prime (8.25% at March 31,
1996) payable semi-annually beginning July 1993,
balance due January 22, 1998.......................... 1,000 1,000
Capital lease obligation................................ -- 33
------- -------
Total(3)................................................ 86,650 93,813
Less current maturities, including revolving loans of
$8,192.................................................. 13,192 33
------- -------
Long-term portion....................................... $73,458 $93,780
------- -------
------- -------
</TABLE>
- ------------
(1) On February 1, 1996, the Company refinanced the Wells Fargo and senior
secured notes with BankAmerica Business Credit, Inc. The new credit facility
consists of revolving loans, letters of credit and a term loan of up to
$90,000 in the aggregate. The revolving loans are available for a two-year
period, not exceeding $50,000 at any one time, based on eligible accounts
receivable and inventory. The term loan is for $40,000 and is payable in
twenty-three equal monthly installments with a final balloon payment at
maturity. At March 31, 1996 the amounts outstanding under the revolving
loans and term loan were $34,522 (interest at 7.56%) and $39,583 (interest
at 7.81%), respectively, and letters of credit outstanding totaled $725 at
March 31, 1996. Based on eligible receivables and inventory at March 31,
1996, the Company had $8,657 available under this credit facility. Revolving
loans of $26,330 have been classified as long-term as management expects to
maintain at least this level of borrowings during fiscal year 1997.
F-41
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
10. NOTES PAYABLE--(CONTINUED)
The agreement includes restrictive financial covenants related to capital
expenditures, minimum earnings and fixed charge coverage, and borrowings are
collateralized by substantially all of the Company's assets.
As a result of this refinancing, the Company recognized an extraordinary
loss on the early extinguishment of debt of $2,821 (net of related tax
benefit of $2,123).
(2) Notes payable to Parent, due February 1, 2001, are subordinated and bear
interest at prime plus 1/2%. Interest on these notes was approximately $900,
$810 and $495 for the years ended March 31, 1996, 1995 and 1994,
respectively. During 1994, other notes of $8,000 due the Parent were
contributed to capital and recorded as additional paid-in capital.
(3) At March 31, 1996, the long-term portion of notes payable is due, $61,913 in
1998 and $11,545 in 2001.
11. EMPLOYEE BENEFIT PLANS
The following table sets forth the funded status of the Company's pension
plan and the amounts recognized in the Company's financial statements at March
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested............................................ $(197,420) $(174,218)
Nonvested......................................... (16,972) (16,561)
--------- ---------
Total accumulated benefit obligation................ $(214,392) $(190,779)
--------- ---------
--------- ---------
Projected benefit obligation........................ $(221,305) $(199,804)
Plan assets at fair value........................... 195,214 175,085
--------- ---------
Projected benefit obligation in excess of plan
assets.............................................. (26,091) (24,719)
Unrecognized net loss............................... 1,206 5,903
Additional minimum liability........................ (10,610) (11,613)
Unrecognized prior service cost..................... 16,153 14,536
Unrecognized net obligation from adoption........... 164 199
--------- ---------
Accrued pension cost (including intangible pension
asset of $10,610 in 1996 and $11,613 in 1995, see
Note 6)............................................. $ (19,178) $ (15,694)
--------- ---------
--------- ---------
Components of net pension cost for the year:
Service cost-benefits earned during the period.... $ 3,363 $ 3,823
Interest costs on projected benefit obligation.... 16,268 14,888
Return on plan assets............................. (35,297) (12,160)
Net amortization and deferral..................... 19,874 (2,426)
--------- ---------
Net pension cost.................................... $ 4,208 $ 4,125
--------- ---------
--------- ---------
</TABLE>
Prior to March 31, 1994, eligible salaried and hourly employees participated
in defined benefit pension plans sponsored by the Company or the Parent. The
plans provided for payment of retirement benefits and certain disability and
severance benefits. Effective March 31, 1994, a decision was made to merge the
Company's defined benefit pension plan into the Parent's defined benefit pension
plan. Accordingly, for 1994, the Company was allocated pension costs, for both
salaried and hourly employees, by the Parent. Total pension costs allocated for
1994 were $3,905.
F-42
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
11. EMPLOYEE BENEFIT PLANS--(CONTINUED)
During 1995, the Parent reevaluated its continuing operations and decided
that the plan merger described above would not be completed. On December 31,
1994, the Parent's defined benefit pension plan was reorganized into two
continuing plans, one primarily for all employees of the Company and the other
for the employees of the Parent and its other subsidiaries. Certain benefit
obligations and accruals were allocated to the plans in accordance with the
Internal Revenue Code and other regulations and other components of the
projected benefit obligations were allocated on a historical basis as shown
above.
The Company's policy is to make plan contributions required by applicable
ERISA regulations. Plan assets are primarily invested in equity and fixed income
securities. The actuarial present value of the benefit obligation at March 31,
1996 and 1995 was determined using assumed discount rates of 7.75% and 8.5%,
respectively, an expected long-term rate of return on plan assets of 10%, and an
assumed increase in future compensation of 4.75% and 4.5%, respectively.
In addition, the Company provides a savings plan for qualified salaried
employees and matches a portion of employee contributions not to exceed 6% of
gross wages. Expense for this plan was approximately $93, $411 and $692 in 1996,
1995 and 1994, respectively. The Company also provides a savings plan for
certain hourly employees which provides for no matching Company contributions.
In addition to pension benefits, the Company provides certain health care
benefits and life insurance to eligible retired employees (and their eligible
dependents) who are not covered by any collective bargaining agreements. The
Company continues to fund benefit costs on a pay-as-you-go basis, with retirees
paying a portion of the cost.
The following table sets forth amounts recognized in the Company's 1996,
1995 and 1994 financial statements:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................... $14,046 $18,352
Fully eligible active employees............... 5,939 5,702
Other employees............................... 9,908 9,783
------- -------
Total........................................... 29,893 33,837
Unrecognized net gain........................... 9,406 5,828
Unrecognized transition obligation.............. (27,952) (23,954)
------- -------
Accrued postretirement benefit obligation at
March 31 (Note 9)............................... $11,347 $15,711
------- -------
------- -------
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Service cost of benefits earned................. $ 792 $ 945 $ 891
Interest cost on accumulated postretirement
benefit obligation............................ 2,335 2,574 2,955
Amortization--net............................... 959 1,215 1,447
------- ------- ------
Net postretirement benefit cost for the year.... $ 4,086 $ 4,734 $5,293
------- ------- ------
------- ------- ------
</TABLE>
F-43
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
11. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 10.25% and 12% for those retirees not
eligible for Medicare (pre 65 years of age) and 7.25% and 9% for those eligible
for Medicare in 1996 and 1995, respectively, gradually declining to 5.75% and
5.5% by the years 2002 and 2001, respectively, and remaining at that level
thereafter. A one percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
liability by approximately 10% and 14% and net postretirement health care costs
by approximately 8% and 14% at March 31, 1996 and 1995, respectively. The
assumed discount rate and rate of compensation increases used in determining the
accumulated postretirement benefit obligation were 7.75% and 5.25%,
respectively, at March 31, 1996, and 8.25% and 5.25%, respectively, at March 31,
1995.
In 1996 a net curtailment gain of $5,570 associated with the Company's
restructuring programs (see Note 3) was recognized and is included in
restructuring gains for 1996. In 1995, curtailment losses of $4,650 associated
with these programs were included in restructuring costs.
A Voluntary Employee Beneficiary Association ("VEBA") provides health and
welfare benefits for certain employees. Payments made to the VEBA relating to
future employee benefits are included in prepaid expenses. The Company's policy
is to fund the VEBA based on actual expenses of the preceding year to the extent
deductible under current Federal income tax laws. Expenses funded through the
VEBA were approximately $15,252, $18,212 and $18,298 in 1996, 1995 and 1994,
respectively.
12. LEASES
The Company leases manufacturing, warehouse and office facilities, vehicles
and other bakery equipment under long-term operating leases. These leases
generally contain renewal options for periods ranging from one to ten years and
generally require the payment of other costs such as property taxes, maintenance
and insurance.
Future minimum payments under operating leases as of March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING:
- -----------------------------------------------------------------
<S> <C>
1997............................................................. $10,273
1998............................................................. 7,892
1999............................................................. 5,559
2000............................................................. 4,240
2001............................................................. 2,960
Thereafter....................................................... 5,051
-------
Total minimum lease payments..................................... $35,975
-------
-------
</TABLE>
Rent expense was approximately $12,537, $12,346 and $11,490 for the years
ended March 31, 1996, 1995 and 1994, respectively.
F-44
<PAGE>
SUNSHINE BISCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended March 31, 1996, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Cash paid during the year for:
Interest....................................... $10,084 $7,432 $4,181
Income taxes................................... 90 252 724
</TABLE>
14. RELATED PARTY TRANSACTIONS
Subsequent to March 31, 1995, one of the Parent's subsidiaries filed for
protection under Chapter 11 of the United States Bankruptcy Code, and another
subsidiary's business was closed and in process of being liquidated. It is
expected that the assets of both of these subsidiaries will be insufficient to
satisfy all of the creditors' claims. For 1996 and 1995, $750 and $2,567,
respectively of trade receivables due from these subsidiaries were written off
as uncollectible. At March 31, 1996, amounts due from Parent and affiliates
includes $513 of these receivables remaining unpaid.
The Company is obligated as guarantor under certain lease agreements of
these subsidiaries. At March 31, 1995, the Company recorded a liability of
$1,734 related to its expected future obligations (including rental payments and
carrying costs, etc.) associated with such leases. In 1996 the Company subleased
certain property subject to these leases and, accordingly, reduced the amounts
recorded for these guarantees by approximately $600.
15. DISCONTINUED OPERATIONS
Effective October 1, 1993, the Company transferred its salty snack food
operations to the Parent and has accounted for these businesses as discontinued
operations. Accordingly, their operating results for 1994 have been segregated
in the accompanying statement of operations as follows:
<TABLE>
<S> <C>
Sales............................................................ $42,721
Costs and expenses............................................... (46,895)
Income tax benefit............................................... 1,564
-------
Net loss......................................................... $(2,610)
-------
-------
</TABLE>
******
F-45
<PAGE>
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PROSPECTUS
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE [HOLLOW TREE LOGO WITH ERNIE]
COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
SECURITY OTHER THAN THE EXCHANGE NOTES
OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE
EXCHANGE NOTES BY ANYONE IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................2
Disclosure Regarding Forward-Looking
Statements...........................2 KEEBLER
Summary..............................3 CORPORATION
Risk Factors........................13
The Acquisitions....................17
Sponsors............................19
Use of Proceeds.....................21
The Exchange Offer..................21
Capitalization......................30
Selected Unaudited Pro Forma
Consolidated Financial Data.........31 OFFER TO EXCHANGE
Selected Historical Financial Data..39 $125,000,000 OF ITS
Management's Discussion and Analysis
of Financial Condition and Results 10 3/4% SENIOR SUBORDINATED
of Operations.....................41 NOTES DUE 2006,
Business............................52 WHICH HAVE BEEN
The Industry........................66 REGISTERED UNDER THE
Management..........................68 SECURITIES ACT, FOR
Principal Stockholders..............74 $125,000,000 OF ITS
Certain Related Transactions........75 OUTSTANDING 10 3/4% SENIOR
Description of Senior Credit Facility SUBORDINATED NOTES DUE 2006
and the UB Note...................77
Description of Exchange Notes.......80
Book-Entry; Delivery and Form......108
Certain United States Federal Income
Tax Consequences.................110
Exchange and Registration Rights
Agreement........................110
Plan of Distribution...............113 , 1996
Legal Matters......................113
Experts............................113
Index to Financial Statements......F-1
-------------------
UNTIL , 1996 (90 DAYS AFTER
THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
a. permissive indemnification for expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by designated persons,
including directors and officers of a corporation, in the event such persons
are parties to litigation other than stockholder derivative actions if
certain conditions are met;
b. permissive indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to stockholder derivative
actions if certain conditions are met;
c. mandatory indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are successful on the merits or
otherwise in litigation covered by a. and b. above; and
d. that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.
The Company's Certificate of Incorporation provides that:
"Suits by Third Parties. The corporation shall indemnify any person who
was or is made a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceedings, whether civil,
criminal, administrative or investigative (other than an action by, or in
the right of, the corporation) by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that the conduct was unlawful.
Derivative Suits. The corporation shall indemnify any person who was or
is made a party, or is threatened to be made a party, to any threatened,
pending or completed action or suit by, or in the right of, the corporation
to procure a judgment in its favor by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless, and only to the extent
that, the Court of Chancery or the court in which
II-1
<PAGE>
such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.
Indemnification as of Right. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits, or
otherwise, in defense of any action, suit or proceeding referred to in the
preceding paragraphs, or in defense of any claim issue or matter therein,
the person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection therewith.
Advance of Funds. Expenses incurred by any such person in defending a
civil, criminal, administrative or investigative action, suit or proceeding,
or threat thereof, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by, or on behalf of, the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that the person is
not entitled to be indemnified by the corporation as authorized herein.
No director of the corporation shall be liable to the corporation or its
stockholders for monetary damages for breach of his or her fiduciary duty as
a director, provided that nothing contained in this [paragraph] shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment,
modification or repeal of this [paragraph] shall apply to, or have any
effect on, the liability or the alleged liability of any director of the
corporation for, or with respect to, any acts or omissions of such director
occurring prior to such amendment, modification or repeal."
The directors and officers of the Company are insured against certain civil
liabilities, including liabilities under federal securities laws, which might be
incurred by them in such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Index to Exhibits.
(b) All schedules are omitted as the required information is presented in
the registrants' consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act"), unless the information
required to be included in such post-effective amendment is contained in a
periodic report filed by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and
incorporated herein by reference;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
Registration Statement, unless the information required to be included in
such post-effective amendment is
II-2
<PAGE>
contained in a periodic report filed by the registrant pursuant to Section
13 or Section 15(d) of the Exchange Act and incorporated herein by
reference;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any,
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request; and
(6) To supply by means of a post-effective amendment all information
concerning the Exchange Offer that was not the subject of and included in the
Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER CORPORATION
By: /s/ SAM K. REED
..................................
Sam K. Reed
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer October 2, 1996
...................................... (principal executive officer) and
Sam K. Reed Director
* Chief Financial Officer and Senior October 2, 1996
...................................... Vice President, Finance (principal
E. Nichol McCully financial officer; principal
accounting officer)
* Director October 2, 1996
......................................
Raymond Debbane
* Director October 2, 1996
......................................
Sacha Lainovic
* Director October 2, 1996
......................................
Christopher J. Sobecki
* Director October 2, 1996
......................................
Amos R. McMullian
* Director October 2, 1996
......................................
Robert P. Crozer
* Director October 2, 1996
......................................
C. Martin Wood III
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER COMPANY
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
* President (principal executive October 2, 1996
.................................... officer) and Director
Sam K. Reed
* Senior Vice President, Treasurer October 2, 1996
.................................... (principal financial officer;
E. Nichol McCully principal accounting officer) and
Director
*By /s/ SAM K. REED
................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
SHAFFER, CLARKE & CO., INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
* President (principal executive October 2, 1996
.................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
.................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
JOHNSTON'S READY-CRUST COMPANY
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
* President (principal executive October 2, 1996
.................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
.................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
EMERALD INDUSTRIES, INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
* President (principal executive October 2, 1996
.................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
.................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
ATHENS PACKAGING, INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -------------------
<S> <C> <C>
* President (principal executive October 2, 1996
.................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
.................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER LEASING CORP.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -----------------
<S> <C> <C>
* President, Chief Executive Officer October 2, 1996
..................................... (principal executive officer) and
Sam K. Reed Director
* Vice President, Treasurer, Secretary October 2, 1996
..................................... (principal financial officer;
E. Nichol McCully principal accounting officer) and
Director
*By /s/ SAM K. REED
.................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
BAKE-LINE PRODUCTS, INC.
By: /s/ DAVID M. SHANHOLTZ
..................................
David M. Shanholtz
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -----------------
<S> <C> <C>
* President (principal executive October 2, 1996
..................................... officer)
David M. Shanholtz
* Vice President, Treasurer (principal October 2, 1996
..................................... financial officer, principal
E. Nichol McCully accounting officer) and Director
* Director October 2, 1996
.....................................
Sam K. Reed
*By /s/ SAM K. REED
.................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
SUNSHINE BISCUITS, INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
STEAMBOAT CORPORATION
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
ILLINOIS BAKING CORPORATION
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER COOKIE AND CRACKER COMPANY
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
HOLLOW TREE COMPANY
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER COMPANY/PUERTO RICO, INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER H.C., INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duty authorized, in the City of Elmhurst,
Illinois, on October 2, 1996.
KEEBLER-GEORGIA, INC.
By: /s/ SAM K. REED
..................................
Sam K. Reed
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
* President (principal executive October 2, 1996
...................................... officer) and Director
Sam K. Reed
* Vice President, Treasurer (principal October 2, 1996
...................................... financial officer; principal
E. Nichol McCully accounting officer) and Director
*By /s/ SAM K. REED
..................................
Sam K. Reed
Attorney-in-fact
</TABLE>
II-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # DOCUMENT DESCRIPTION
- --------- -------------------------------------------------------------------------------
<C> <S>
3.1 * Articles of Incorporation of Keebler Corporation
3.2 * Bylaws of Keebler Corporation
3.3 Articles of Incorporation of Keebler Company
3.4 * Bylaws of Keebler Company
3.5 * Articles of Incorporation of Shaffer, Clarke & Co., Inc.
3.6 * Bylaws of Shaffer, Clarke & Co., Inc.
3.7 * Articles of Incorporation of Johnston's Ready-Crust Company
3.8 * Bylaws of Johnston's Ready-Crust Company
3.9 * Articles of Incorporation of Emerald Industries, Inc.
3.10* Bylaws of Emerald Industries, Inc.
3.11* Articles of Incorporation of Athens Packaging, Inc.
3.12* Bylaws of Athens Packaging, Inc.
3.13* Articles of Incorporation of Keebler Leasing Corp.
3.14* Bylaws of Keebler Leasing Corp.
3.15* Articles of Incorporation of Bake-Line Products, Inc.
3.16* Bylaws of Bake-Line Products, Inc.
3.17* Articles of Incorporation of Sunshine Biscuits, Inc.
3.18* Bylaws of Sunshine Biscuits, Inc.
3.19* Articles of Incorporation of Steamboat Corporation
3.20* Bylaws of Steamboat Corporation
3.21* Articles of Incorporation of Illinois Baking Corporation
3.22* Bylaws of Illinois Baking Corporation
3.23* Articles of Incorporation of Keebler Cookie and Cracker Company
3.24* Bylaws of Keebler Cookie and Cracker Company
3.25* Articles of Incorporation of Hollow Tree Company
3.26* Bylaws of Hollow Tree Company
3.27* Articles of Incorporation of Keebler Company/Puerto Rico, Inc.
3.28* Bylaws of Keebler Company/Puerto Rico, Inc.
3.29* Articles of Incorporation of Keebler H.C., Inc.
3.30* Bylaws of Keebler H.C., Inc.
3.31* Articles of Incorporation of Keebler-Georgia, Inc.
3.32* Bylaws of Keebler-Georgia, Inc.
4.1 * Indenture dated as of June 20, 1996 among Keebler Corporation, the guarantors
named therein and The U.S. Trust Company of New York
4.2 * Form of 10 3/4% Senior Subordinated Note due 2006 (included in Exhibit 4.1)
5 Opinion of Simpson Thacher & Bartlett
10.1 * Stockholders' Agreement dated as of January 26, 1996 among INFLO Holdings
Corporation, Artal Luxembourg S.A. and Flowers Industries, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DOCUMENT DESCRIPTION
- --------- -------------------------------------------------------------------------------
<C> <S>
10.2 * Stock Purchase Agreement dated November 5, 1995 between INFLO Holdings
Corporation and UB Investments (Netherlands) B.V. regarding stock of Keebler
Corporation (formerly UB Investments US Inc.)
10.3 * Amendment Agreement dated as of January 26, 1996 between INFLO Holdings
Corporation and UB Investments (Netherlands) B.V. regarding stock of Keebler
Corporation (formerly UB Investments US Inc.)
10.4 * Form of $32,500,000 Promissory Note made by INFLO Holdings Corporation in favor
of UB Investments (Netherlands) B.V. (included in Exhibit 10.3)
10.5 * Distribution Agreement dated as of January 26, 1996 between United Biscuits
(UK) Limited and Shaffer, Clarke & Co., Inc.
10.6 * Trademark License Agreement dated as of January 26, 1996 between United
Biscuits (UK) Limited and Shaffer, Clarke & Co., Inc.
10.7 * $447,875,000 Amended and Restated Credit Agreement dated as of June 4, 1996,
among Keebler Corporation (formerly Keebler Holding Corp.), as the Borrower,
Various Financial Institutions, as the Lenders, Various Financial Institutions,
as the Co-Agents for the Lenders and The Bank of Nova Scotia, as the
Administrative Agent for the Lenders
10.7(a)* Borrower Security Agreement dated as of January 26, 1996 made by Keebler
Corporation in favor of The Bank of Nova Scotia
10.7(b)* Subsidiary Security Agreement dated as of January 26, 1996 made by each of the
Keebler Corporation subsidiaries listed as parties thereto in favor of The Bank
of Nova Scotia
10.7(c)* Supplement to Subsidiary Security Agreement dated June 4, 1996 made by Sunshine
Biscuits, Inc. in favor of The Bank of Nova Scotia
10.7(d)* Holdings Pledge Agreement dated as of January 26, 1996 made by INFLO Holdings
Corporation in favor of The Bank of Nova Scotia
10.7(e)* Borrower Pledge Agreement dated as of January 26, 1996 made by Keebler
Corporation in favor of The Bank of Nova Scotia
10.7(f)* Acknowledgement and Supplement to Borrower Pledge Agreement dated June 4, 1996
made by Keebler Corporation in favor of The Bank of Nova Scotia
10.7(g)* Subsidiary Pledge Agreement dated as of January 26, 1996 made by each of the
Keebler Corporation subsidiaries listed as parties thereto in favor of The Bank
of Nova Scotia
10.7(h)* Subsidiary Guaranty dated as of January 26, 1996 made by each of the Keebler
Corporation subsidiaries listed as parties thereto in favor of The Bank of Nova
Scotia
10.7(i)* Supplement to Subsidiary Guaranty dated June 4, 1996 made by Sunshine Biscuits,
Inc. in favor of The Bank of Nova Scotia
10.7(j)* Holdings Guaranty dated as of January 26, 1996 made by INFLO Holdings
Corporation in favor of The Bank of Nova Scotia
10.7(k)* First Amendment to Holdings Guaranty dated June 4, 1996 made by INFLO Holdings
Corporation in favor of The Bank of Nova Scotia
10.7(l)* Form of Mortgage and Security Agreement between Keebler Corporation, Mortgagor,
and The Bank of Nova Scotia, Mortgagee
10.7(m)* Form of Mortgage and Security Agreement between Sunshine Biscuits, Inc.,
Mortgagor, and The Bank of Nova Scotia, Mortgagee
10.7(n)* Form of Revolving Note made by Keebler Corporation dated June 4, 1996
10.7(o)* Form of $20,000,000 Swing Line Note dated June 4, 1996 made by Keebler
Corporation to The Bank of Nova Scotia
10.7(p)* Form of Term A Note dated June 4, 1996 made by Keebler Corporation
10.7(q)* Form of Term B Note dated June 4, 1996 made by Keebler Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DOCUMENT DESCRIPTION
- --------- -------------------------------------------------------------------------------
<C> <S>
10.7(r)* Form of Term C Note dated June 4, 1996 made by Keebler Corporation
10.7(s)* Form of Registered Note dated June 4, 1996 made by Keebler Corporation
10.8 * Form of Management Stockholder's Agreement between INFLO Holdings Corporation
and Key Employees of INFLO Holdings Corporation and Subsidiaries
10.9 * Form of Non-Qualified Stock Option Agreement between INFLO Holdings Corporation
and Key Employees of INFLO Holdings Corporation and Subsidiaries
10.10* Form of 1996 Stock Purchase and Option Plan for Key Employees of INFLO Holdings
Corporation and Subsidiaries
10.11* Form of Sale Participation Agreement among Artal Luxembourg S.A, Flowers
Industries, Inc. and Key Employees of INFLO Holdings Corporation and
Subsidiaries
10.12* Stock Purchase Agreement dated June 4, 1996 among INFLO Holdings Corporation,
Keebler Corporation and G.F. Industries, Inc. regarding stock of Sunshine
Biscuits, Inc.
10.13* GFI Stockholder's Agreement dated June 4, 1996 among INFLO Holdings
Corporation, G.F. Industries, Inc., Artal Luxembourg S.A. and Flowers
Industries, Inc.
10.14* Warrant to Purchase Shares of Common Stock of INFLO Holdings Corporation, No.
GFI-1
12 Computation of Ratio of Earnings to Fixed Charges
21 * Subsidiaries of Keebler Corporation
23.1 Consent of Simpson Thacher & Bartlett (included in Exhibit 5)
23.2 Consent of Coopers & Lybrand L.L.P. (independent auditors)
23.3 Consent of Deloitte & Touche LLP (independent auditors)
24 * Power of Attorney
25 * Statement of Eligibility on Form T-1 of The U.S. Trust Company of New York
27 Financial Data Schedule
99.1 * Exchange and Registration Rights Agreement among Keebler Corporation, the
guarantors named therein, Nomura Securities International, Inc. and Morgan
Stanley and Co. Incorporated dated as of June 26, 1996
99.2 * Form of Letter of Transmittal
99.3 * Form of Notice of Guaranteed Delivery
</TABLE>
- ------------
* Previously filed
Exhibit 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
KEEBLER COMPANY
A corporation organized and existing under the laws of the State of
Delaware. Craig S. Stevens, Vice President of Keebler Company, hereby
certifies as follows:
1. The name of the corporation is Keebler Company, and the name
under which the corporation was originally incorporated is United Biscuit
Company of America. The date of filing its original Certificate of
Incorporation with the Secretary of State was November 3, 1927.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or
changes to read as herein set forth in full:
RESTATED CERTIFICATE OF INCORPORATION
OF
KEEBLER COMPANY
ORIGINALLY INCORPORATED AS
UNITED BISCUIT COMPANY OF AMERICA
ON NOVEMBER 3, 1927
This Restated Certificate of Incorporation was duly adopted by the
Board of Directors in accordance with the provisions of Section 245 of the
Delaware General Corporation Law. It only restates and integrates, and
does not further amend the provisions of the Corporation's Certificate of
Incorporation, as theretofore amended or supplemented, and that there is no
discrepancy between those provisions and the provisions of this Restated
Certificate.
<PAGE>
2
* * * * *
We, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, entitled "An Act providing a
General Corporation Law," approved March 10, 1899, and the acts amendatory
thereof and supplemental thereto, do hereby verify as follows:
FIRST: The name of the Corporation is Keebler Company.
SECOND: The registered office of the Corporation is to be located at
1209 Orange Street, in the City of Wilmington, in the County of New Castle,
in the State of Delaware, 19801. The name of its registered agent is The
Corporation Trust Company, whose address is 1209 Orange Street in said
city.
THIRD: The nature of the business of the Corporation and the
objects or purposes to be transacted, promoted or carried on by it, are as
follows: to-wit:
1. To manufacture, produce, purchase, or otherwise acquire,
use, distribute, sell at wholesale or retail, import, export, and
otherwise dispose of said deal in, biscuits, crackers, breads,
pastries, confections, and all other similar and allied
foodstuffs and the component parts thereof.
2. To purchase, subscribe for, or otherwise acquire, hold,
sell, exchange, mortgage, hypothecate or otherwise dispose of, or
deal in, the stocks, notes, bonds, debentures or other evidences
of indebtedness and obligations of this Corporation or of any
individual or individuals or of any private, public, quasi-public
or municipal corporations, either domestic or foreign, state,
government, or governmental authority, or of any political or
administrative subdivision or department thereof, and all trust,
participation or other certificates of, or receipts evidencing
interest in any such securities, and to issue in exchange
therefor its stock, bonds, or other obligations; to do any acts
or things for the preservation, protection, improvement or
enhancement of the value of any such stocks, bonds, notes or
other evidences of indebtedness held by it and which the owner of
any such stocks, bonds, notes or other evidences of indebtedness,
to exercise all the rights, powers and privileges of ownership,
including (except in the case of its own stock) the right to vote
thereon.
3. To purchase or otherwise acquire and to hold for investment
and to deal in any bonds or notes or loans
<PAGE>
3
secured by mortgage or other lien on real property or by pledge of
personal property; and to lend money upon mortgage on real property or
upon pledge or hypothecation of personal property or choses in action.
4. To purchase, lease, erect, or otherwise acquire, exchange,
sell, let or otherwise dispose of, own, maintain, develop and
improve any and all property, real or personal, plants, depots,
factories, warehouses, stores, buildings, or other places useful
in connection with the business of the Corporation.
5. To manufacture or otherwise produce, import, export, buy,
sell and in every way deal with and in, either as principal or
agent or otherwise, goods, wares and merchandise and personal
property of every kind and description.
6. To apply for, obtain, register, purchase, lease or otherwise
acquire, hold, own, use, develop, operate, introduce, sell,
assign or otherwise dispose of, any and all copyrights,
trademarks, trade names, brands, labels and patents, and any and
all inventions, improvements, apparatus, appliances and processes
used in connection with, or secured under, letters patent of the
United States of America or elsewhere, or otherwise, and to use,
exercise, develop, or grant licenses in respect of, or otherwise
turn to account, any such copyrights, trademarks, trade names,
brands, labels, patents, inventions, improvements, apparatus,
appliances, processes and the like, or any property or
information so acquired.
7. To make and enter into contracts necessary to its business
with, and to act as agent or broker or factor or other
representative for, any individual, firm, syndicate, association,
private, public, quasi-public or municipal corporations, state,
government or governmental authority; to promote and assist
financially or otherwise corporations, firms, syndicates,
associations, individuals or others, to enter into, assist,
promote or participate in commercial, mercantile, and industrial
works, contracts, undertakings, ventures, enterprises and
operations; to endorse or underwrite stock, securities or
undertakings of any corporation, firm, individual, syndicate or
others; and to aid any lawful enterprise.
8. To borrow money for its corporate purposes; to make, accept,
indorse, execute, issue and deliver bonds, debentures, notes,
bills of exchange, warrants, or other obligations; to mortgage,
pledge and hypothecate any stocks, notes, bonds or other
evidences
<PAGE>
4
of indebtedness, and any other property held by it; and to lend money,
with or without collateral security.
9. To aid by loan, subsidy, guaranty, or in any other manner
whatsoever, any corporation whose stocks, bonds, securities, or
other obligations are in any manner, either directly or
indirectly, held or guaranteed; to do any and all other acts or
things toward the preservation, protection, improvement or
enhancement in value of any such stocks, bonds, securities or
other obligations, and to do all and any such acts or things
designed to accomplish any such purpose.
10. To carry on any business or occupation deemed advantageous,
which is necessary to any of the powers or purposes hereinbefore
specified; to acquire, use, undertake, manage, and dispose of
contracts, properties, and rights pertaining to the foregoing
business, including the assets, franchises, business, good will
and liabilities of corporations, associations, firms and
individuals, and to give guaranties in respect thereof, and
generally, to do anything that a natural person might lawfully do
or cause to be done in connection with any of the said things.
11. To do all and everything necessary, suitable and proper for
the accomplishment of any of the purposes or the attainment of
any of the objects or the furtherance of any of the powers
hereinbefore set forth, either alone or in association with other
corporations, firms, or individuals, and to do every act or acts,
things or things incidental or appurtenant to or growing out of
or connected with the aforesaid business or powers or any parts
or parts thereof, provided the same be not inconsistent with the
laws under which this Corporation is organized.
12. The business or purpose of the Corporation is from time to
time to do any or more of the acts and things hereinabove set
forth, and it shall have power to conduct and carry on its said
business, or any part thereof, and to have one or more offices,
and to exercise all or any of its corporate powers and rights, in
the State of Delaware, and in the various other states,
territories, colonies and dependencies of the United States, in
the District of Columbia, and in all or any foreign countries.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000 shares of Common Stock,
par value $1.00 per share.
<PAGE>
5
FIFTH: The names and places of residence of each of the
original subscribers to the capital stock and the number of shares
subscribed for by each are as follows:
No. of
Shares
Name Residence Common
Stock
HARRY C. HAND 150 Broadway, New York 5
City
RAYMOND J. 150 Broadway, New York 5
GORMAN City
ARTHUR W. 150 Broadway, New York 5
BRITTON City
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
EIGHTH: The following provisions are inserted for the regulation of
the business and for the conduct of the affairs of the Corporation and it
is expressly provided that the same are intended to be in furtherance and
not in limitation of or exclusion of the powers conferred by statute.
The number of directors of the Corporation shall be fixed and may be
altered from time to time as may be provided in the By-Laws. In case of
any increase in the number of directors, the additional directors may be
elected by the directors or by the stockholders at an annual or special
meeting, as shall be provided in the By-Laws.
The Board of Directors may, by resolution or resolutions, passed by a
majority of the whole board, designate one or more committees, such
committees to consist of two or more of the directors of the Corporation,
which to the extent provided in said resolution or resolutions or in the
By-Laws of the Corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation, and may have power to authorize the seal of the Corporation to
be affixed to all paper which may require it. Such committee or committees
shall have such name or names as may be stated in the By-Laws of the
Corporation or as may be determined from time to time by resolutions
adopted by the Board of Directors.
The By-Laws may prescribe the number of directors necessary to
constitute a quorum, which number may be less than a majority
<PAGE>
6
of the whole board of directors, but not less than the number required by
law.
Any one or more or all of the directors may be removed, either with or
without cause, at any time, by vote of the stockholders holding a majority
of the class of stock of the Corporation issued and outstanding then
entitled to vote, at any special meeting, and thereupon the term of such
director or directors who shall have been so removed shall forthwith
terminate and there shall be a vacancy or vacancies in the Board of
Directors, to be filled as provided in the Certificate of Incorporation and
By-Laws of the Corporation.
The directors from time to time may determine whether and to what
extent, and at what times and place and under what conditions and
regulations, the accounts and books of the Corporation (other than the
stock ledger), or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any
account or book or document of the Corporation, unless expressly so
authorized by statute or by a resolution of the stockholders or the
directors.
The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at
any meeting of the stockholders called for the purpose of considering any
such act or contract, and, except as otherwise expressly provided by law or
by the Certificate of Incorporation, any contract or act that shall be
approved or be ratified by the vote of the holders of a majority of the
capital stock of the Corporation which is represented in person or by proxy
at such meeting (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and so binding upon
the Corporation and upon all the stockholders, as though it had been
approved or ratified by every stockholder of the Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
No contract or other transaction between the Corporation and any other
firm or corporation shall be affected or invalidated by the fact that any
one or more of the directors of the Corporation is or are interested in or
is a member, director or officer of such firm or corporation, and any
director or officer may be a party individually or jointly in such contract
or transaction.
Subject always to the By-Laws made by the stockholders, the Board of
Directors may make By-Laws and, from time to time, may alter, amend or
repeal any By-Laws, but any By-Laws made by the Board of Directors may be
altered or repealed by the stockholders.
The Incorporators shall have power to hold meetings either within or
without the State of Delaware.
<PAGE>
7
Both stockholders and directors shall power, if the By-Laws of the
Corporation so provide, to hold their meetings either within or without the
State of Delaware, to have one or more offices in addition to the principal
office in the State of Delaware, and to keep the books of the Corporation
(subject to the provisions of the statutes) outside the State of Delaware
at such places as may be from time to time designated by them.
The Board of Directors shall have power in their discretion to provide
for and to pay the directors rendering unusual or exceptional services to
the Corporation special compensation appropriate to the value of such
services.
(a) INDEMNIFICATION: Suits by Third Parties. The corporation shall
----------------------
indemnify any person who was or is made a party, or is threatened to be
made a party, to any threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or investigative
(other than an action by, or in the right of, the corporation by reason of
the fact that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
---- ----------
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which the person reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
the conduct was unlawful.
Derivative Suits. The corporation shall indemnify any person who was
----------------
or is made a party, or is threatened to be made a party, to any threatened,
pending or completed action or suit by, or in the right of, the corporation
to procure a judgment in its favor by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to
<PAGE>
8
which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
Indemnification as of Right. To the extent that a director, officer,
---------------------------
employee or agent of the corporation has been successful on the merits, or
otherwise, in defense of any action, suit or proceeding referred to in the
preceding paragraphs of this Paragraph (a), or in defense of any claim
issue or matter thereon, the person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by the person
in connection therewith.
Advance of Funds. Expenses incurred by any such person in defending a
----------------
civil, criminal, administrative or investigative action, suit or
proceeding, or threat thereof, shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by, or on behalf of, the director, officer, employee or
agent to repay such amount if it shall ultimately be determined that the
person is not entitled to be indemnified by the corporation as authorized
in this Paragraph (a).
(b) No director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of his or her fiduciary
duty as a director, provided that nothing contained in this Paragraph (b)
shall eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
No amendment, modification or repeal of this Paragraph (b) shall apply to,
or have any effect on, the liability or the alleged liability of any
director of the corporation for, or with respect to, any acts or omissions
of such director occurring prior to such amendment, modification or repeal.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation; subject, nevertheless, to the
provisions of the statutes of Delaware, of this certificate.
and to any By-Laws from time to time made by the stockholders; provided,
however, that no By-Laws so made shall invalidate any
<PAGE>
9
prior act of the directors which would have been valid if such By-Law had
not been made.
IN WITNESS WHEREOF, we have hereunto set our hands and seals, the 22nd
day of October, 1927.
HARRY C. HAND (L.S.)
RAYMOND J. GORMAN (L.S.)
ARTHUR W. BRITTON (L.S.)
In presence of:
GEORGE V. REILLY,
As to all.
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that on this 22nd day of October, A.D. 1927,
personally came before me GEORGE V. REILLY, a Notary Public in and for the
County and State aforesaid, HARRY C. HAND, RAYMOND J. GORMAN and ARTHUR W.
BRITTON, parties to the foregoing Certificate of Incorporation, known to me
personally to be such, and severally acknowledge the said certificate to be
the act and deed of the signers, respectively, and that the facts therein
stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
GEORGE V. REILLY,
Notary Public
New York County Clerk's No. 93.
(NOTARY SEAL) Term Expires March 30, 1929.
<PAGE>
10
4. This Restated Certificate of Incorporation was duly adopted by
the board of directors in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Keebler Company (formerly known as United
Biscuit Company of America) has caused the certificate to be signed by
Craig S. Stevens, its Vice President, and attested by Frank A. Massi, its
Assistant Secretary, this 1st day of October, 1993.
KEEBLER COMPANY (formerly) UNITED
BISCUIT COMPANY OF AMERICA
By: /s/ CRAIG S. STEVENS
------------------------------------------
Craig S. Stevens, Vice President
ATTEST:
By: /s/ FRANK A. MASSI
------------------------------------
Frank A. Massi, Assistant Secretary
<PAGE>
11
KEEBLER COMPANY
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
-------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------
KEEBLER COMPANY (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, does hereby certify:
FIRST: That the Board of Directors of the Corporation, acting
without a meeting by unanimous written consent pursuant to Section 141(f)
of the General Corporation Law of the State of Delaware (the "DGCL") on
June 6, 1996, duly adopted a resolution setting forth and declaring the
advisability of the amendment of the Certificate of Incorporation
hereinafter set forth (the "Amendment") and submitted the Amendment to the
sole stockholder of the Corporation (the "Sole Stockholder") for its
consideration; that the Sole Stockholder, acting without a meeting by
written consent pursuant to Section 228(a) of the DGCL, approved the
Amendment; that the Amendment, as it was so adopted by the Board of
Directors of the Corporation and approved by the Sole Stockholder, amended
Article One of the Certificate of Incorporation of the Corporation, to read
as follows:
"1. The name of the corporation is:
Keebler Biscuit Company."
IN WITNESS WHEREOF, KEEBLER COMPANY has caused this Certificate
of Amendment to be signed by Sam K. Reed, its President, the 7th day of
June, 1996.
KEEBLER COMPANY
By: /s/ SAM K. REED
----------------------------
Name: Sam K. Reed
Title: President
<PAGE>
12
KEEBLER BISCUIT COMPANY
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
_________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
_________________________
KEEBLER BISCUIT COMPANY, (the "Corporation"), a corporation
organized and existing under the laws of the State of Delaware, does hereby
certify:
FIRST: That the Board of Directors of the Corporation, acting
without a meeting by unanimous written consent pursuant to Section 141(f)
of the General Corporation Law of the State of Delaware (the "DGCL") on
August 1, 1996, duly adopted a resolution setting forth and declaring the
advisability of the amendment of the Certificate of Incorporation
hereinafter set forth (the "Amendment") and submitted the Amendment to the
sole stockholder of the Corporation (the "Sole Stockholder") for its
consideration; that the Sole Stockholder, acting without a meeting by
written consent pursuant to Section 228(a) of the DGCL, approved the
Amendment; that the Amendment, as it was so adopted by the Board of
Directors of the Corporation and approved by the Sole Stockholder, amended
Article One of the Certificate of Incorporation of the Corporation, to read
as follows:
"1. The name of the corporation is:
Keebler Company."
IN WITNESS WHEREOF, KEEBLER BISCUIT COMPANY has caused this
Certificate of Amendment to be signed by Sam K. Reed, its President, this
2nd day of August, 1996.
KEEBLER BISCUIT COMPANY
By: /s/ Sam K. Reed
---------------------
Name: Sam K. Reed
Title: President
Exhibit 5
[SIMPSON THACHER & BARTLETT LETTERHEAD]
October 2, 1996
Keebler Corporation
One Hollow Tree Lane
Elmhurst, IL 60126
Ladies and Gentlemen:
We have acted as special counsel for Keebler Corporation, a
Delaware corporation ("Keebler"), Keebler Biscuit Company, a Delaware
corporation, Shaffer, Clarke & Co., Inc., a Delaware Corporation,
Johnston's Ready-Crust Company, a Delaware corporation, Emerald Industries,
Inc., a Delaware Corporation, Athens Packaging, Inc., a Georgia
corporation, Keebler Leasing Corp., a Delaware corporation, Bake-Line
Products, Inc., a Delaware corporation, Sunshine Biscuits, Inc., a Delaware
corporation, Steamboat Corporation, a Georgia corporation, Illinois Baking
Corporation, a Delaware Corporation, Keebler Cookie and Cracker Company, a
Nevada corporation, Hollow Tree Company, a Delaware corporation, Keebler
Company/Puerto Rico, Inc., a Delaware corporation, Keebler H.C., Inc., a
Delaware corporation, and Keebler-Georgia, Inc., a Georgia corporation
(collectively, excluding Keebler, the "Guarantors"), in connection with
the Registration Statement on Form S-4 (the "Registration Statement") filed
by Keebler and the Guarantors with the Securities and Exchange Commission
(the
<PAGE>
Keebler Corporation -2- October 2, 1996
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the issuance by Keebler of $125,000,000 aggregate
principal amount of its 10 3/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes"). The performance and punctual payment when due, whether
at maturity, by acceleration or otherwise, of all obligations of Keebler
under the Exchange Notes and the Indenture dated as of June 20, 1996 (the
"Indenture") among Keebler, the Guarantors and The United States Trust
Company of New York, as Trustee (the "Trustee") will be unconditionally
guaranteed on a senior subordinated basis by the Guarantors pursuant to
guarantees set forth in the Indenture (the "Guarantees"). The Exchange
Notes are to be offered by the Company in exchange for $125,000,000
aggregate principal amount of its outstanding 10 3/4% Senior Subordinated
Notes due 2006 (the "Notes").
We have examined the Registration Statement and the Indenture
which has been filed with the Commission as an Exhibit to the Registration
Statement. In addition, we have examined, and have relied as to matters of
fact upon, the originals or copies, certified or otherwise identified to
our satisfaction, of such corporate records, agreements, documents and
other instruments and such certificates or comparable documents of public
officials and of officers and representatives of Keebler and the
Guarantors, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as
<PAGE>
Keebler Corporation -3- October 2, 1996
originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of
the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein:
1. Assuming the Indenture has been duly authorized and
validly executed and delivered by the parties thereto, when (i)
the Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), (ii) the
Board of Directors of Keebler, a duly constituted and acting
committee thereof or duly authorized officers thereof has taken
all necessary corporate action to approve the issuance and terms
of the Exchange Notes, the terms of the exchange and related
matters, and (iii) the Exchange Notes have been duly executed,
authenticated, issued and delivered in accordance with the
provisions of the Indenture upon the exchange, we are of the
opinion that the Exchange Notes will constitute valid and legally
binding obligations of Keebler, enforceable against Keebler in
accordance with their terms.
2. Assuming the Indenture has been duly authorized and
validly executed and delivered by the parties thereto, when the
Indenture has been duly qualified under the Trust Indenture Act,
upon due execution, issuance, authentication and delivery of the
Exchange Notes in accordance with the provisions of the Indenture
upon the exchange, we are of the opinion that the Guarantees will
constitute valid and legally binding obligations of the
Guarantors, enforceable against each of them in accordance with
the terms of the Guarantees.
Our opinions set forth in paragraphs 1 and 2 above are subject to
the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
<PAGE>
Keebler Corporation -4- October 2, 1996
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the
State of New York and the federal law of the United States.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus included therein.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
SIMPSON THACHER & BARTLETT
Exhibit 12
KEEBLER CORPORATION
Pro Forma Computation of Ratio of Earnings to Fixed Charges
First
Twenty-Four
Weeks
1995 1996
Company Company
Pro Forma Pro Forma
--------- ---------
(Dollars in millions)
Income (loss) before income taxes $ 4.8 $ 4.9
----------- ----------
FIXED CHARGES:
Interest expense, net 41.0 20.4
Debt financing fees 2.4 0.9
Interest portion of rental expense 16.2 6.5
----------- ----------
Total fixed charges $ 59.6 $ 27.8
=========== ==========
Earnings before fixed charges $ 64.4 $ 32.7
=========== ==========
Ratio of earnings to fixed charges $ 1.1 $ 1.2
=========== ==========
Exhibit 23.2
CONSENT
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-8379) of our report dated April 2, 1996, on our audits of the
financial statements of Keebler Cookie/Cracker Company. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Chicago, Illinois
October 2, 1996
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-8379 of Keebler Corporation on Form S-4 of our report dated May 15,
1996 on our audit of the financial statements of Sunshine Biscuits, Inc.,
appearing in the Prospectus, which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
October 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001018848
<NAME> KEEBLER CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-28-1996 DEC-30-1995
<PERIOD-END> JUL-13-1996 DEC-30-1995
<CASH> 2,629 2,945
<SECURITIES> 0 0
<RECEIVABLES> 147,774 109,371
<ALLOWANCES> 4,800 3,200
<INVENTORY> 114,515 58,271
<CURRENT-ASSETS> 328,896 225,105
<PP&E> 495,314 708,485
<DEPRECIATION> 18,311 335,742
<TOTAL-ASSETS> 1,141,951 677,865
<CURRENT-LIABILITIES> 338,538 534,260
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,141,951 677,865
<SALES> 719,025 1,442,882
<TOTAL-REVENUES> 719,025 1,442,882
<CGS> 343,071 672,800
<TOTAL-COSTS> 697,006 1,411,646
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16,563 28,421
<INCOME-PRETAX> 5,456 2,967
<INCOME-TAX> 3,015 0
<INCOME-CONTINUING> 2,441 2,967
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1,925 0
<CHANGES> 0 0
<NET-INCOME> 516 2,967
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
