<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-27959
$419,998,187.50
RALSTON PURINA COMPANY
7% Exchangeable Notes Due 2000
6,781,000 Stock Appreciation Income Linked SecuritiesSM (SAILSSM)
-----------
The principal amount of each of the 7% Exchangeable Notes Due August 1, 2000
(each, a "SAILS"), of Ralston Purina Company, a Missouri corporation
("Ralston"), being offered hereby will be $61.9375 (the last sale price
of the common stock, par value $.01 per share (the "IBC Common
Stock"), of Interstate Bakeries Corporation, a Delaware corporation
("IBC"), on July 23, 1997, as reported on the New York Stock
Exchange Composite Tape) (the "Initial Price"). Interest on
the SAILS, at the rate of 7% of the principal amount per
annum, is payable quarterly on February 1, May 1, August
1 and November 1 of each year, beginning November 1,
1997. The SAILS are not subject to redemption or any
sinking fund prior to maturity.
At maturity (including as a result of acceleration or otherwise), the principal
amount of each SAILS will be mandatorily exchanged by Ralston into a number of
shares of IBC Common Stock (or, at Ralston's option, the cash equivalent
and/or such other consideration as permitted or required by the terms of the
SAILS) at the Exchange Rate (as defined herein). The Exchange Rate is equal
to, subject to certain adjustments, (a) if the Maturity Market Price (as
defined below) is greater than or equal to the Threshold Appreciation
Price of $75.5638, 0.8197 of a share of IBC Common Stock per SAILS, (b)
if the Maturity Market Price is less than the Threshold Appreciation
Price of $75.5638 but is greater than the Initial Price, a fraction of a
share of IBC Common Stock per SAILS having a value (determined using
the Maturity Market Price) equal to the Initial Price and (c) if the
Maturity Market Price is less than or equal to the Initial Price, one
share of IBC Common Stock per SAILS. Holders of SAILS will realize no
equity appreciation if at maturity the Maturity Market Price is less
than the Threshold Appreciation Price and will realize only 81.97%
of the appreciation above the Threshold Appreciation Price for the
period prior to maturity if at maturity the Maturity Market Price
is above the Threshold Appreciation Price. The "Maturity Market
Price" means the average Closing Price (as defined herein) per
share of IBC Common Stock for the 20 Trading Days (as defined
herein) immediately prior to maturity, except as otherwise
described herein. Accordingly, the value of the IBC Common
Stock to be received by holders of the SAILS (or, at
Ralston's option, the cash equivalent and/or such other
consideration as permitted or required by the terms of the
SAILS) at maturity will not necessarily equal the
principal amount thereof.
The SAILS will be general senior unsecured obligations of Ralston ranking pari
passu with all of its other general senior unsecured and unsubordinated
indebtedness and will rank senior in right of payment to any future
subordinated obligations of Ralston. The SAILS will be effectively
subordinated to all indebtedness of Ralston's subsidiaries. As of March
31, 1997, (i) the total amount of outstanding indebtedness of Ralston
(which will be pari passu with the SAILS) was $362.2 million, and
(ii) the total amount of outstanding indebtedness of Ralston's
subsidiaries was $429.6 million. IBC will have no obligations with
respect to the SAILS. See "Description of the SAILS."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE SAILS, SEE "RISK FACTORS RELATING TO SAILS"
BEGINNING ON PAGE 4.
Attached hereto is a prospectus of IBC relating to the shares of IBC Common
Stock that may be received by holders of the SAILS at maturity. The IBC
Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "IBC." The SAILS have been approved for listing on the
NYSE subject to official notice of issuance.
For a discussion of certain United States federal income tax consequences
for holders of SAILS, see "Certain United States Federal Income Tax
Considerations."
"Stock Appreciation Income Linked Securities" and "SAILS" are service marks of
Credit Suisse First Boston, Inc.
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS RALSTON(1)(2)
--------------- -------------- ---------------
<S> <C> <C> <C>
Per SAILS........................ $61.9375 $1.85 $60.0875
Total(3)......................... $419,998,187.50 $12,544,850.00 $407,453,337.50
</TABLE>
(1) Plus accrued interest from the issue date.
(2) Before deducting expenses payable by Ralston, estimated to be $635,155.
(3) Ralston has granted to the Underwriters an option, exercisable by Credit
Suisse First Boston Corporation for 30 days from the date of this
prospectus supplement, to purchase a maximum of 968,000 additional SAILS to
cover over-allotments of SAILS. If the option is exercised in full, the
total Price to Public will be $479,953,687.50, Underwriting Discounts and
Commissions will be $14,335,650.00 and Proceeds to Ralston will be
$465,618,037.50. See "Underwriting."
The SAILS are offered by the several Underwriters when, as and if issued by
Ralston, delivered to and accepted by, the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
SAILS in book-entry form will be made through the facilities of The Depository
Trust Company on or about July 29, 1997, against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
J.P. MORGAN & CO.
SALOMON BROTHERS INC
Prospectus dated July 23, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SAILS OR IBC
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
Ralston is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other informational documents
with the Securities and Exchange Commission (the "Commission"). Such documents
can be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains an Internet site on the World Wide Web at
http://www.sec.gov that contains reports, proxy statements and other
information regarding Ralston. Such documents can also be inspected at the
offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, N.Y.
10005, the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois
60605, and The Pacific Stock Exchange, Incorporated, 301 Pine Street, San
Francisco, California 94104.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the SAILS. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits relating thereto for
further information with respect to Ralston and the SAILS offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed with the Commission by Ralston
under the Exchange Act, are incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended September 30,
1996;
(ii) Quarterly Report on Form 10-Q for the fiscal quarters ended December
31, 1996 and March 31, 1997; and
(iii) Current Reports on Form 8-K dated May 23, 1997 and July 21, 1997.
All documents filed by Ralston pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the SAILS shall be deemed to be incorporated in
this Prospectus by reference and to be a part hereof from the date of filing
of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Ralston will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon written or oral request of such person, a copy
of any documents incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Such a request may be directed in writing to the Investor
Relations Department, Ralston Purina Company, Checkerboard Square, St. Louis,
Missouri 63164 or by telephone to (314) 982-2374.
2
<PAGE>
SUMMARY OF THE OFFERING
Securities Offered.......... 6,781,000 SAILS--7% Exchangeable Notes Due August
1, 2000 of Ralston.
Price to Public............. $61.9375 per SAILS (the last sales price per
share of the IBC Common Stock on July 23, 1997).
Interest.................... 7% per annum, payable quarterly on February 1,
May 1, August 1, and November 1, beginning
November 1, 1997.
On August 1, 2000 (including as a result of
Mandatory Exchange.......... acceleration or otherwise, "Maturity") the
principal amount of each SAILS will be
mandatorily exchanged by Ralston into a number of
shares of IBC Common Stock (or, at Ralston's
option, the cash equivalent and/or such other
consideration as permitted or required by the
terms of the SAILS) at an Exchange Rate equal to
(a) if the Maturity Market Price is greater than
or equal to the Threshold Appreciation Price
($75.5638), 0.8197 of a share of IBC Common Stock
per SAILS, (b) if the Maturity Market Price is
less than the Threshold Appreciation Price of
$75.5638 but is greater than the Initial Price, a
fraction of a share of IBC Common Stock per
SAILS, determined by dividing the Initial Price
by the Maturity Market Price, that would have a
value (determined using the Maturity Market
Price) equal to the Initial Price and (c) if the
Maturity Market Price is less than or equal to
the Initial Price, one share of IBC Common Stock
per SAILS, subject in each case to adjustment in
certain events. See "Description of the SAILS--
Dilution Adjustments; Other Adjustment Events."
Enhanced Yield; Less Equity
Appreciation............... Holders of SAILS will be entitled to receive
quarterly payments of interest at the rate of 7%
of the principal amount of the SAILS per annum.
IBC currently pays cash dividends at the rate of
$0.54 per share per annum (equivalent to 0.87% of
the Initial Price); however, until such time as
Ralston delivers shares of IBC Common Stock to
holders of SAILS at Maturity, holders of SAILS
will not be entitled to receive any IBC
dividends. The opportunity for equity
appreciation afforded by an investment in the
SAILS prior to Maturity is less than that
afforded by an investment in IBC Common Stock.
Holders of the SAILS will realize no equity
appreciation if at Maturity the Maturity Market
Price is less than the Threshold Appreciation
Price (which has been set at $75.5638 or 22%
above the Initial Price), and will realize only
81.97% of the appreciation above the Threshold
Appreciation Price for the period prior to
Maturity if at Maturity the Maturity Market Price
is above the Threshold Appreciation Price.
Holders of the SAILS will realize the entire
decline in equity value for that period if at
Maturity the Maturity Market Price is below the
Initial Price.
The SAILS are not redeemable prior to Maturity.
Not Redeemable..............
Ranking..................... The SAILS will be general senior unsecured
obligations of Ralston ranking pari passu with
all of its other general senior unsecured and
unsubordinated indebtedness. See
"Capitalization." IBC will have no obligations
with respect to the SAILS.
The SAILS have been approved for listing on the
Listing..................... NYSE subject to official notice of issuance.
3
<PAGE>
RISK FACTORS RELATING TO SAILS
As described in more detail below, the trading price of the SAILS may vary
considerably prior to Maturity, due to, among other things, fluctuations in
the market price of IBC Common Stock and other events that are difficult to
predict and beyond Ralston's control.
AMOUNT PAYABLE AT MATURITY BASED ON IBC COMMON STOCK PRICE
The terms of the SAILS differ from those of ordinary debt securities in that
the value of the IBC Common Stock (or cash equivalent) that a holder of the
SAILS will receive upon the mandatory exchange of the principal amount thereof
at Maturity (the "Amount Receivable at Maturity") is not fixed, but is based
on the market price of the IBC Common Stock at Maturity ("Maturity Market
Price") as specified in the Exchange Rate (as defined under "Description of
the SAILS"). Because the market price of the IBC Common Stock is subject to
market fluctuations, the Amount Receivable at Maturity may be more or less
than the principal amount of the SAILS. For example, if the Maturity Market
Price of the IBC Common Stock is less than the Initial Price, the Amount
Receivable at Maturity will be less than the principal amount paid for the
SAILS, in which case an investment in SAILS would result in a loss of
principal and, if IBC is insolvent or bankrupt, could result in a total loss
of the principal amount. Holders of SAILS, therefore, bear the full risk of a
decline in the value of the IBC Common Stock prior to Maturity.
OPPORTUNITY FOR EQUITY APPRECIATION LESS THAN IBC COMMON STOCK
Because each of the SAILS will be mandatorily exchangeable for less than one
share of IBC Common Stock (or its cash equivalent) at Maturity if the Maturity
Market Price exceeds the Initial Price, the opportunity for equity
appreciation afforded by an investment in the SAILS during the period prior to
Maturity is less than the opportunity for equity appreciation afforded by a
direct investment in IBC Common Stock. If the Maturity Market Price is above
the Initial Price but below the Threshold Appreciation Price (as defined under
"Description of the SAILS"), which has been set at $75.5638 and which
represents an appreciation of 22% over the Initial Price, holders of the SAILS
would realize no equity appreciation on the IBC Common Stock for that period.
If the Maturity Market Price is above the Threshold Appreciation Price,
holders of SAILS will realize only 81.97% of the appreciation of the IBC
Common Stock for that period above the Threshold Appreciation Price. See
"Description of the SAILS" for an illustration of the Amount Receivable at
Maturity that a SAILS holder would receive at various Maturity Market Prices.
UNPREDICTABILITY OF MARKET PRICE FOR IBC COMMON STOCK
It is impossible to predict whether the market price of IBC Common Stock
will rise or fall. Trading prices of IBC Common Stock will be influenced by
changes in IBC's financial condition, results of operations and prospects, and
by complex and interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock exchange or quotation
system on which IBC Common Stock is traded and the market segment of which IBC
is a part. See the prospectus relating to IBC and to IBC Common Stock attached
hereto. Any market that develops for the SAILS is likely to influence and be
influenced by the market for IBC Common Stock. For example, the price of the
IBC Common Stock could become more volatile and could be depressed by
investors' anticipation of the potential distribution into the market, upon
the Maturity of the SAILS, of the additional number of shares of IBC Common
Stock held by Ralston which may be delivered by Ralston upon Maturity of the
SAILS. Such shares, as of May 30, 1997, constituted approximately 20.63% of
the outstanding IBC Common Stock (assuming the Underwriters' overallotment
option is exercised in full). See "Relationship between Ralston Purina Company
and Interstate Bakeries Corporation." The price of IBC Common Stock could also
be affected by possible sales of IBC Common Stock by investors who view the
SAILS as a more attractive means of equity participation in IBC and by hedging
or arbitrage trading activity that may develop involving the SAILS and the IBC
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Trading prices of IBC Common Stock also may be influenced if Ralston, IBC,
another market participant or another principal stockholder of IBC hereafter
issues securities with terms similar to those of the SAILS or
4
<PAGE>
sells or otherwise transfers a substantial amount of shares of IBC Common
Stock. Ralston owns an aggregate of 16,923,077 shares of IBC Common Stock,
constituting approximately 45% of the outstanding shares of IBC Common Stock
as of May 30, 1997. Pursuant to the Shareholder Agreement (described below)
Ralston has agreed to own less than 15.0% of IBC's voting securities
outstanding on August 15, 2000. If IBC's purchase of 1,000,000 shares of IBC
Common Stock described under "Relationship Between Ralston Purina Company and
Interstate Bakeries Corporation" had been completed as of May 30, 1997,
Ralston would have held approximately 43.5% of IBC's Common Stock. Assuming
that Ralston delivers one share of IBC Common Stock per SAILS at Maturity and
the number of shares of outstanding IBC Common Stock at August 15, 2000 is the
same as the number of such shares outstanding as of May 30, 1997, under the
Shareholder Agreement Ralston would be required to dispose of an additional
3,658,530 shares of IBC Common Stock prior to August 15, 2000 (2,690,530
additional shares if the Underwriters' overallotment option is exercised in
full). In addition, Mr. William P. Stiritz, Chairman of the Board and Chief
Executive Officer of Ralston, and Mr. James R. Elsesser, Vice President and
Chief Financial Officer of Ralston, held 595,050 shares and 14,550 shares of
IBC Common Stock, respectively, constituting approximately 1.6% as of May 30,
1997, of the outstanding shares of IBC Common Stock. Ralston is unable to
predict whether Mr. Stiritz or Mr. Elsesser may sell shares of IBC Common
Stock as Ralston reduces its ownership of IBC Common Stock.
POTENTIAL DILUTION OF IBC COMMON STOCK
The Amount Receivable at Maturity is subject to adjustment for certain
described events arising from stock splits and combinations, stock dividends,
certain other actions of IBC that modify its capital structure and certain
other transactions involving IBC. See "Description of the SAILS--Dilution
Adjustments; Other Adjustment Events." The Amount Receivable at Maturity will
not be adjusted for other events, such as employee stock option grants and
offerings of IBC Common Stock for cash or in connection with acquisitions or
for certain other transactions involving IBC which are not specifically
described as "Adjustment Events," that may adversely affect the price of IBC
Common Stock, and possibly reduce its liquidity. Because of the relationship
of such Amount Receivable at Maturity to the price of IBC Common Stock, such
other events may adversely affect the trading price of the SAILS. There can be
no assurance that IBC will not make offerings of IBC Common Stock or as to the
amount of such offerings, if any, nor that IBC will not take such other action
in the future.
NO RIGHTS AS IBC STOCKHOLDERS
Until such time, if any, as Ralston shall deliver shares of IBC Common Stock
to holders of the SAILS at Maturity, holders of the SAILS will not be entitled
to any rights with respect to such shares of IBC Common Stock (including,
without limitation, voting rights (including voting rights in respect of IBC
transactions such as an acquisition of IBC), rights to respond to tender
offers and rights to receive any dividends or other distributions in respect
thereof). See "Relationship Between Ralston and IBC" below for a description
of the restrictions on Ralston's right to vote its shares of IBC Common Stock.
SAILS ARE GENERAL SENIOR UNSECURED OBLIGATIONS OF RALSTON
The Indenture does not contain any restriction on Ralston's use of the
proceeds of this offering or on the ability of Ralston to sell, pledge or
convey all or any portion of the IBC Common Stock held by it or its
subsidiaries, and no such shares of IBC Common Stock will be pledged or
otherwise held in escrow for use at Maturity of the SAILS, and the SAILS are
not secured by any other assets of Ralston. There is no limitation in the
Indenture on the incurrence of additional senior debt of Ralston ranking pari
passu with the SAILS or additional indebtedness of subsidiaries of Ralston to
which holders of SAILS would be effectively subordinated. Consequently, in the
event of a bankruptcy, insolvency or liquidation of Ralston or its
subsidiaries, the IBC Common Stock, if any, owned by Ralston or its
subsidiaries will be subject to the claims of creditors of Ralston, including
holders of SAILS, or its subsidiaries, respectively. The SAILS do not contain
sinking fund or other mandatory redemption provisions. The SAILS are not
subject to payment prior to Maturity at the option of the holder.
The Indenture does not afford holders of the SAILS protection in the event
of a highly leveraged transaction except as may be described under
"Description of the SAILS--Certain Covenants."
FIXED YIELD
Although holders of SAILS will be entitled to receive quarterly payments of
interest at the rate of 7% of the principal amount of the SAILS per annum and
IBC currently pays cash dividends at the rate of $0.54 per
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<PAGE>
share per annum (equivalent to 0.87% of the Initial Price per annum), there
can be no assurance that the yield on the SAILS will remain higher than the
dividend yield on shares of IBC Common Stock.
NO PRIOR MARKET FOR THE SAILS
The SAILS are novel and innovative securities and there is currently no
secondary market for the SAILS. It is impossible to predict how the SAILS will
trade in the secondary market or whether such market will be liquid. The
Underwriters currently intend, but are not obligated, to make a market in the
SAILS. There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide the holders of the SAILS
with liquidity or that it will continue for the life of the SAILS.
The SAILS have been approved for listing on the NYSE subject to official
notice of issuance. The NYSE could revoke the listing or stop trading of the
SAILS at any time. If the SAILS are no longer listed or traded on any
securities exchange or trading market, or if the NYSE or a securities exchange
or trading market stops trading of the SAILS, holders of the SAILS may have
difficulty obtaining pricing information and it may be more difficult to
resell the SAILS.
UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
characterization of the SAILS or instruments similar to the SAILS, for U.S.
federal income tax purposes and, as a result, significant aspects of the U.S.
federal income tax consequences of an investment in the SAILS are not certain.
No ruling is being requested from the Internal Revenue Service ("IRS") with
respect to the SAILS and Ralston has not received an opinion of counsel with
respect to the specific tax consequences of owning or disposing of SAILS.
Accordingly, no assurance can be given that the IRS will agree with the
conclusions expressed under "Certain United States Federal Income Tax
Considerations."
RISK FACTORS RELATING TO IBC
Investors in the SAILS should carefully consider the information in the
prospectus of IBC attached hereto, including the information contained therein
under "Risk Factors" beginning on page 7 of such prospectus.
NO OBLIGATION ON THE PART OF IBC WITH RESPECT TO THE SAILS
IBC has no obligations with respect to the SAILS or the Amount Receivable at
Maturity, including any obligation to take the interests of Ralston or of
holders of the SAILS into consideration for any reason. See "Relationship
Between Ralston Purina Company and Interstate Bakeries Corporation." IBC will
not receive any of the proceeds of the offering of the SAILS made hereby and
is not responsible for, and has not participated in, the determination of the
timing of the offering or the prices for or quantities of SAILS to be issued.
IBC is not involved with the administration or trading of the SAILS or the
determination or calculation of the Amount Receivable at Maturity.
RELATIONSHIP BETWEEN RALSTON AND IBC
Because of the provisions in the Shareholder Agreement between Ralston and
IBC that limit Ralston's voting rights as described below (see "Relationship
Between Ralston Purina Company and Interstate Bakeries Corporation"), Ralston
is not in a position to influence the voting by holders of IBC Common Stock on
any matter other than any proposed merger of IBC or sale of all or
substantially all of the assets of IBC or creation of any other class of IBC
voting stock. In addition, the Shareholder Agreement provides that, unless
specifically permitted in writing in advance by the Chairman of the Board of
IBC, Ralston may not acquire additional shares of IBC Common Stock (except to
prevent dilution of its interest in certain circumstances) or propose or seek
to effect any business combination with IBC at any time prior to July 22,
2001. Accordingly, Ralston does not believe it should be deemed a controlling
shareholder of IBC.
Two executive officers of Ralston currently serve on IBC's nine member Board
of Directors pursuant to the terms of the Shareholder Agreement (however, IBC
has no obligation under the terms of such Shareholder Agreement to nominate
any Ralston designee after their respective terms expire in 1997 and 1999).
Accordingly, Ralston is not in a position to control the voting of IBC's Board
of Directors on any matter involving the relationship between the two
companies. If IBC's Board of Directors is presented with a proposal putting
these officers in a conflicting situation between the interests of IBC and the
interests of Ralston, they may abstain from
6
<PAGE>
participating in the consideration of such proposal and any such proposal
would then be considered by, and be subject to the approval of, a majority of
the disinterested directors of IBC.
See "Relationship Between Ralston Purina Company and Interstate Bakeries
Corporation."
RALSTON PURINA COMPANY
Ralston, incorporated in Missouri in 1894, is the world's largest producer
of dry dog and dry and soft-moist cat foods. Ralston's pet foods are sold
under the Purina name, including "Dog Chow(R)," "Cat Chow(R)" and numerous
other dog and cat food brands. Ralston is also a significant manufacturer of
primary batteries, rechargeable batteries and battery-powered lighting
products, principally under the trademarks "Eveready(R)" and "Energizer(R)."
Ralston is also a major producer of other pet products, including cat box
filler (under the "Golden Cat(R)" and "Tidy Cat(R)" names), dietary soy
protein, fiber food ingredients and polymer products, and, outside the United
States, feeds for livestock and poultry.
On March 29, 1996, Ralston announced its intention to separate its
international agricultural animal feeds business in a tax-free spin-off to
shareholders. That business manufactures and markets a complete line of
formula feeds and animal health products, including feeds for hogs, dairy
cows, cattle, poultry, rabbits, horses, shrimp and fish, in 16 countries
outside of the United States. For the fiscal year ended September 30, 1996,
the international animal feeds segment accounted for approximately 23% of
sales and 6% of operating profit of Ralston. At this time, the assets and
liabilities and debt to be assumed by the spun-off entity have not yet been
determined. Ralston has announced that it expects the spin-off to be completed
in early 1998. Completion is contingent upon a favorable tax ruling from the
IRS and final approval by Ralston's Board of Directors. Ralston believes that
the spin-off will have no material effect on its results of operations or on
its ability to meet its obligations under the SAILS.
On May 23, 1997, Ralston announced that Mr. William P. Stiritz will resign
as Chief Executive Officer and President on September 30, 1997, but will
remain as Ralston's Chairman of the Board, and will serve as Chairman and
Chief Executive Officer of Ralston's international animal feeds business upon
its spin-off. Messrs. W. Patrick McGinnis and J. Patrick Mulcahy will be
appointed as Co-Chief Executive Officers as of October 1, 1997.
Ralston maintains its principal executive offices at Checkerboard Square,
St. Louis, Missouri 63164, Tel. (314) 982-1000.
For additional information with respect to Ralston, see the documents
specified under "Incorporation of Certain Documents by Reference."
USE OF PROCEEDS
The net proceeds to be received by Ralston from the sale of the SAILS
offered hereby, after deducting underwriting discounts and commissions, but
before related expenses payable by Ralston, are estimated to be $407.5 million
($465.6 million if the Underwriter's over-allotment option is exercised in
full). Ralston intends to use the net proceeds from the offering of the SAILS
to repay short-term debt. At June 30, 1997, $505 million of short-term debt
was outstanding which at such date carried a weighted average interest rate of
5.8%.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
Ralston for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ------------------------
1997 1996 1995 1994 1993 1992
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(a)...... 3.8 3.3 2.9 2.4 2.8 2.7
</TABLE>
- --------
(a) For the purpose of this ratio, "Earnings" consists of earnings before
income taxes, equity earnings, extraordinary item (1992, 1993, 1994, 1995
and 1996), cumulative effect of accounting changes (1993) and "fixed
charges." "Fixed charges" consist of preferred stock dividends, interest
and amortization of debt discount and expense on all indebtedness, and a
portion of net rental expense representative of the interest factor.
7
<PAGE>
INTERSTATE BAKERIES CORPORATION
IBC, through its wholly-owned operating subsidiary, Interstate Brands
Corporation ("Brands"), is the largest baker and distributor of fresh bakery
products in the United States. IBC produces, markets, distributes and sells a
wide range of breads, rolls, snack cakes, donuts, sweet goods and related
products. These products are sold under a number of national brand names, such
as "Wonder(R)," "Hostess(R)" and "Home Pride(R)," as well as regional brand
names, including "Butternut(R)," "Dolly Madison(R)" and "Merita(R)."
"Wonder(R)" white bread and "Home Pride(R)" wheat bread are the number one and
two top selling branded breads sold in the United States. "Hostess(R)"
products, including "Twinkies(R)," CupCakes, and "Ho-Ho's(R)" are among the
leading snack cake products sold in the United States.
IBC distributes its products in markets representing approximately 90% of
the United States population. IBC operates 67 bakeries and 1,400 thrift stores
and employs over 32,000 people. IBC's driver-salesmen deliver products
directly from IBC's over 1,200 distribution centers to more than 200,000 food
outlets and stores.
IBC has grown to its present size primarily through the acquisition of other
bakery businesses. In July 1995, IBC acquired Continental Baking Company
("CBC") from Ralston for $220.0 million in cash and 16,923,077 shares of IBC
Common Stock. Since the acquisition of CBC, IBC has taken significant steps to
continue to build and capitalize on the brand equity in the "Wonder(R)" and
"Hostess(R)" brands. IBC has also worked to realize cost savings from the CBC
acquisition and to achieve economies of scale in the operations of Brands and
CBC. As a result of the CBC acquisition and these actions, IBC has
significantly increased net sales and profitability. In fiscal 1997, IBC
reported net sales of approximately $3.2 billion, an 11.6% increase from the
prior year's net sales of approximately $2.9 billion (which included only 45
weeks of combined operations of IBC and CBC), and net income of approximately
$97.2 million, or $2.55 per share, compared to the prior year's $24.5 million,
or $0.70 per share ($0.85 before a one-time pre-tax charge of $9.5 million).
IBC's operating income as a percentage of net sales increased to nearly 6% in
1997 from 2.7% in fiscal 1996 (3.1% before the one-time pre-tax charge).
For additional information about IBC, including risks associated with an
investment in IBC Common Stock, see the prospectus of IBC attached hereto. IBC
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The prospectus of IBC attached hereto
incorporates its Annual Report on Form 10-K for the fiscal year ended June 1,
1996, its Quarterly Reports on Form 10-Q for the quarters ended August 24,
1996, November 16, 1996 and March 8, 1997, the description of the IBC Common
Stock contained in IBC's Registration Statement on Form 8-A filed on May 28,
1992 and all documents filed by IBC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of such prospectus and prior
to the termination of this SAILS offering. Such documents may be inspected and
copied at the public reference facilities maintained by the Commission in
Washington, D.C. and at its regional offices and at the offices of the NYSE on
which the IBC Common Stock is listed. Such documents, without exhibits, also
may be obtained by writing to Ray Sandy Sutton, Corporate Secretary,
Interstate Bakeries Corporation, 12 East Armour Boulevard, Kansas City, MO
64111 (telephone number (816) 502-4000). See "Available Information" and
"Incorporation of Certain Documents by Reference" in the prospectus of IBC
attached hereto. All information relating to IBC which is contained in this
Prospectus or contained in or incorporated by reference in the prospectus of
IBC attached hereto was provided by IBC. Ralston assumes no responsibility for
the accuracy of such information.
8
<PAGE>
RELATIONSHIP BETWEEN RALSTON PURINA COMPANY
AND INTERSTATE BAKERIES CORPORATION
Ralston, through a wholly-owned subsidiary, currently owns 16,923,077 shares
of IBC Common Stock, constituting approximately 45% of the outstanding shares
of IBC Common Stock as of May 30, 1997.
Pursuant to a Shareholder Agreement, dated as of July 22, 1995, as amended
(the "Shareholder Agreement"), among Ralston, IBC and a subsidiary of Ralston,
Ralston agreed, with certain limited exceptions, not to acquire any additional
shares of IBC Common Stock prior to July 22, 2001. Ralston also agreed
pursuant to the Shareholder Agreement to reduce its ownership of IBC Common
Stock, by August 15, 2000, to less than 15.0% of IBC's total outstanding
voting securities. Ralston has registration rights with respect to the IBC
Common Stock owned by it, but the Shareholder Agreement provides that, with
certain limited exceptions, Ralston may not sell any of such IBC Common Stock
without first offering the securities to IBC. Ralston has offered to sell, and
IBC has declined the opportunity to purchase, the IBC Common Stock which may
be delivered pursuant to the SAILS offered hereby. IBC also has the right,
between August 15, 2000 and August 14, 2001, to acquire any of the IBC Common
Stock then held by Ralston at a price equal to 110% of its then current market
price, as defined in the Shareholder Agreement.
The Shareholder Agreement requires that Ralston vote the shares of IBC
Common Stock in accordance with the recommendation of IBC's Board of Directors
with respect to shareholder proposals and nominations to the IBC Board, and,
with respect to other proposals, in proportion to the votes of all other
shareholders; provided that Ralston may vote as it deems appropriate with
respect to proposals for the merger of IBC, the sale of all or substantially
all of IBC's assets or the issuance of any other class of voting stock of IBC.
Mr. William P. Stiritz and Mr. James R. Elsesser serve on the Board of
Directors of IBC at the request of Ralston pursuant to the terms of the
Shareholder Agreement. Mr. Stiritz's term expires in 1997 and Mr. Elsesser's
term expires in 1999. Upon expiration of their respective terms, IBC will have
no further obligation under the Shareholder Agreement or otherwise to nominate
any designee of Ralston for election as a director of IBC, but the Board of
Directors of IBC may ask either Mr. Stiritz or Mr. Elsesser, or both, to stand
for reelection at the end of their respective terms. If either or both are
reelected, their terms would extend beyond the Maturity of the SAILS.
IBC has agreed, simultaneously with the closing of the SAILS transaction, to
purchase from Ralston 1,000,000 shares of IBC Common Stock at a purchase price
per share equal to the Initial Price, less a 3% discount. For information
concerning the number of shares of IBC Common Stock, Ralston has agreed to
sell under the Shareholder Agreement, see "Risk Factors Relating to SAILS--
Shares Eligible for Future Sale."
IBC has agreed to indemnify Ralston against any losses caused by any untrue
statement or alleged untrue statement with regard to IBC Common Stock or IBC
contained in this Prospectus or the prospectus of IBC attached hereto.
IBC has no obligations with respect to the SAILS. See "Risk Factors Relating
to SAILS--No Obligation on the Part of IBC with Respect to the SAILS."
9
<PAGE>
PRICE RANGE OF INTERSTATE BAKERIES CORPORATION
COMMON STOCK AND DIVIDENDS
IBC Common Stock is listed and traded on the NYSE under the symbol "IBC."
The following table sets forth, for each of the quarterly periods indicated,
the high and low sales prices for IBC Common Stock, as reported on the NYSE
Composite Tape, and cash dividends paid, during fiscal 1998, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
FISCAL 1998 QUARTER HIGH LOW DIVIDENDS
- ------------------- ------- ------- ---------
<S> <C> <C> <C>
First (through July 23, 1997)......... $64.375 $54.625 $.135(1)
FISCAL 1997 QUARTER
- -------------------
First................................. $30.125 $25.500 $.125
Second................................ 45.250 29.625 .135
Third................................. 51.000 42.250 .135
Fourth..................................55.125 46.375 .135
FISCAL 1996 QUARTER
- -------------------
First................................. $19.500 $14.375 $.125
Second................................ 22.250 18.875 .125
Third................................. 23.250 20.500 .125
Fourth................................ 27.625 22.500 .125
FISCAL 1995 QUARTER
- -------------------
First................................. $12.875 $11.875 $.125
Second................................ 13.500 12.500 .125
Third................................. 15.375 12.500 .125
Fourth................................ 14.875 14.125 .125
</TABLE>
- --------
(1) The Board of Directors of IBC has declared a dividend to be paid to
shareholders of record on July 15, 1997, payable on August 1, 1997.
As of July 23, 1997, there were 4,719 holders of record of IBC Common Stock.
For a recent sales price of the IBC Common Stock, see the cover page of this
Prospectus.
Ralston makes no representation as to the amount of dividends, if any, that
IBC will pay in the future. In any event, holders of the SAILS will not be
entitled to receive any dividends or other distributions that may be payable
on the IBC Common Stock until such time as Ralston, if it so elects, delivers
shares of IBC Common Stock at Maturity of the SAILS, and then only with
respect to dividends or other distributions having a record date on or after
the date of delivery of such shares of IBC Common Stock. See "Description of
the SAILS."
10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Ralston at
March 31, 1997, and as adjusted to reflect the application of the estimated
net proceeds from the sale of the SAILS (assuming the Underwriter's over-
allotment option is not exercised) to pay short-term debt.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-term debt, excluding current maturities:
Notes Payable.......................................... $ 791.8 $ 384.9
Long-term debt:
Debentures, 7 3/4%-9.30%............................... 1,206.0 1,206.0
ESOP Loan Guarantee.................................... 87.7 87.7
Medium Term Notes, 8.52%-10.18%........................ 71.9 71.9
Capitalized Lease Obligations, 5.8%-6.5%............... 6.2 6.2
Industrial Revenue Bonds, 4.5%-12.75%.................. 29.1 29.1
Revolving Credit Agreement LIBOR + 15 basis points..... 50.0 50.0
Other.................................................. 95.3 95.3
-------- --------
Total existing long-term debt........................ 1,546.2 1,546.2
SAILS.................................................. -- 420.0
-------- --------
Total long-term debt................................. 1,546.2 1,966.2
Current maturities of long-term debt..................... 97.5 97.5
-------- --------
Total long-term debt, less current maturities........ 1,448.7 1,868.7
-------- --------
Redeemable Preferred Stock............................... 314.3 314.3
-------- --------
Total shareholders' equity............................... 801.3 801.3
-------- --------
Total capitalization................................. $3,453.6 $3,466.7
======== ========
</TABLE>
The foregoing financial data should be read in conjunction with the
consolidated financial statements for the indicated periods which are included
in the documents incorporated by reference under "Incorporation of Certain
Documents by Reference." The SAILS debt will initially be recorded on the
balance sheet at the principal amount as of issuance. At each subsequent
balance sheet date, the SAILS will be marked to the cash value of the
underlying IBC shares for which the SAILS may be exchanged. Any changes in
value will be recorded in earnings each period.
11
<PAGE>
SELECTED FINANCIAL INFORMATION OF RALSTON
The following table sets forth selected financial information for Ralston
for, and at the end of, the six-month periods ended March 31, 1997 and 1996
and each of the five years in the period ended September 30, 1996. The
selected financial information for the five years ended September 30, 1996 has
been derived from Ralston's consolidated financial statements, which have been
audited by Price Waterhouse LLP, independent auditors. Certain
reclassifications have been made to historical financial information to
conform with current year presentation. The selected financial information for
the six-month periods ended March 31, 1997 and 1996 is derived from unaudited
financial statements. The unaudited financial statements, in the opinion of
Ralston's management, include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. Financial information for the interim
periods presented is not necessarily indicative of financial information to be
anticipated for the full year. The information should be read in conjunction
with the consolidated financial statements, related notes and other financial
information incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------ ------------------------------------------------
1997 1996 1996 1995(1) 1994(2) 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AND PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA
Net Sales............... $3,279.8 $3,071.4 $6,114.3 $7,171.6 $7,676.6 $7,874.8 $7,725.9
Costs and Expenses
Cost of products sold.. 1,956.7 1,812.1 3,668.1 4,088.0 4,282.5 4,322.0 4,223.1
Selling, general and
administrative........ 571.8 529.4 1,068.1 1,734.1 1,861.3 1,879.8 1,784.9
Advertising and
promotion............. 348.5 319.0 592.8 598.4 771.2 848.1 904.8
Interest expense....... 87.0 99.2 190.3 199.8 220.4 238.1 242.9
Provisions for
restructuring......... -- -- 18.0 90.8 99.9 -- 79.0
Gain on sale of CBC.... -- -- -- (50.3) -- -- --
Gain on sale of
assets................ -- -- -- -- -- -- (41.5)
Other (income)/expense,
net................... (0.9) 14.4 14.7 (3.4) 19.6 6.4 (9.4)
-------- -------- -------- -------- -------- -------- --------
Earnings before Income
Taxes, Equity
Earnings,
Extraordinary Item and
Cumulative Effect of
Accounting Changes.... 316.7 297.3 562.3 514.2 421.7 580.4 542.1
Income Taxes........... (117.2) (113.0) (212.2) (215.0) (203.3) (239.1) (221.4)
-------- -------- -------- -------- -------- -------- --------
Earnings before Equity
Earnings, Extraordinary
Item, and Cumulative
Effect of Accounting
Changes................ 199.5 184.3 350.1 299.2 218.4 341.3 320.7
Equity Earnings, Net of
Taxes.................. 14.6 3.3 11.6 0.9 -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings before
Extraordinary Item and
Cumulative Effect of
Accounting Changes..... 214.1 187.6 361.7 300.1 218.4 341.3 320.7
Extraordinary Item--Loss
on Early Retirement of
Debt................... -- -- (2.1) (3.7) (9.5) (11.8) (7.5)
-------- -------- -------- -------- -------- -------- --------
Earnings before
Cumulative Effect of
Accounting Changes..... 214.1 187.6 359.6 296.4 208.9 329.5 313.2
Cumulative Effect of
Accounting Changes:
Postretirement benefits
other than pensions... -- -- -- -- -- (171.9) --
Income taxes........... -- -- -- -- -- (35.0) --
-------- -------- -------- -------- -------- -------- --------
Net Earnings............ $ 214.1 $ 187.6 $ 359.6 $ 296.4 $ 208.9 $ 122.6 $ 313.2
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
Total Assets............ $4,811.7 $4,671.5 $4,785.1 $4,567.2 $4,622.3 $5,071.9 $5,150.5
-------- -------- -------- -------- -------- -------- --------
Long-Term Debt.......... 1,448.7 1,547.2 1,437.0 1,602.1 1,594.6 2,054.5 2,111.3
-------- -------- -------- -------- -------- -------- --------
Stockholders Equity..... 801.3 602.3 689.0 494.2 355.6 469.8 655.2
-------- -------- -------- -------- -------- -------- --------
</TABLE>
- --------
(1) Effective July 22, 1995, Ralston sold CBC. Ralston's earnings and cash
flows reflect the operations of CBC through July 22, 1995.
(2) On March 31, 1994, Ralston effected a spin-off of Ralcorp Holdings, Inc.,
its private label and branded cereal, baby food, crackers and cookies, ski
resort and coupon redemption businesses. Ralston's earnings and cash flows
reflect the operations of those businesses through March 31, 1994.
12
<PAGE>
DESCRIPTION OF THE SAILS
GENERAL
The SAILS are to be issued under an indenture, dated as of May 26, 1995, as
supplemented by a supplemental indenture dated as of July 29, 1997, (the
"Indenture"), between Ralston and The First National Bank of Chicago, as
Trustee (the "Trustee"). A copy of the Indenture has been included as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries of certain provisions of the Indenture are subject to, and
are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definition therein of certain terms. Initially
capitalized terms used herein and not defined herein shall bear the meanings
ascribed thereto in the Indenture.
The SAILS will be unsecured and unsubordinated senior indebtedness of
Ralston and will rank pari passu with all other general senior unsecured and
unsubordinated indebtedness of Ralston. The Indenture does not limit the
amount of debt securities which can be issued thereunder and provides that
debt securities may be issued thereunder in series up to the aggregate
principal amount which may be authorized from time to time by Ralston. The
SAILS constitute a single series of the debt securities issued under the
Indenture. The aggregate number of SAILS to be issued will be 6,781,000 plus
such additional number of SAILS as may be issued pursuant to the over-
allotment option granted by Ralston to the Underwriters. See "Underwriting."
The SAILS will mature on August 1, 2000 (the "Stated Maturity"). The Indenture
does not afford holders of the SAILS protection in the event of a highly
leveraged transaction except as may be described under "Certain Covenants"
below.
Each of the SAILS, which will be issued with a principal amount of $61.9375,
will bear interest at the annual rate of 7% of the principal amount per annum
(or approximately $4.34 per annum) from the date of original issuance, or from
the most recent Interest Payment Date (as defined below) to which interest has
been paid or provided for, until the principal amount thereof is exchanged at
Maturity pursuant to the terms of the SAILS. Interest on the SAILS will be
payable quarterly in arrears on February 1, May 1, August 1 and November 1,
commencing November 1, 1997 (each, an "Interest Payment Date"), to the persons
in whose names the SAILS are registered at the close of business on the 15th
day of the calendar month immediately preceding such Interest Payment Date,
provided that interest payable at Maturity shall be payable to the person to
whom the principal is payable. Interest on the SAILS will be computed on the
basis of a 360-day year of twelve 30-day months. If an Interest Payment Date
falls on a day which is not a business day or which is a legal holiday on
which the corporate trust office of the Trustee or banking institutions in the
place of payment are authorized or required to close, the interest payment to
be made on such Interest Payment Date will be made on the next succeeding
business day with the same force and effect as if made on such Interest
Payment Date, and no additional interest will accrue as a result of such
delayed payment.
At Maturity, the principal amount of each of the SAILS will be mandatorily
exchanged by Ralston into a number of shares of IBC Common Stock (or, at
Ralston's option, the equivalent amount of cash and/or such other
consideration as permitted or required to be paid by the terms of the SAILS)
at the Exchange Rate (as defined below). The "Exchange Rate" is equal to, (a)
if the Maturity Market Price (as defined below) is greater than or equal to
$75.5638 (the "Threshold Appreciation Price"), 0.8197 of a share of IBC Common
Stock per SAILS, (b) if the Maturity Market Price is less than the Threshold
Appreciation Price but is greater than the Initial Price, (i) a fraction equal
to the Initial Price divided by the Maturity Market Price of (ii) one share of
IBC Common Stock per SAILS that would have a value (determined at the Maturity
Market Price) equal to the Initial Price and (c) if the Maturity Market Price
is less than or equal to the Initial Price, one share of IBC Common Stock per
SAILS. The Exchange Rate is subject to adjustment as provided below under
"Dilution Adjustments; Other Adjustment Events." THE VALUE OF THE IBC COMMON
STOCK TO BE RECEIVED BY HOLDERS OF THE SAILS (OR, AS DISCUSSED BELOW, THE CASH
EQUIVALENT TO BE RECEIVED IN LIEU OF SUCH SHARES) AT MATURITY WILL NOT
NECESSARILY EQUAL THE PRINCIPAL
13
<PAGE>
AMOUNT OF SUCH SAILS. The ratios of shares of IBC Common Stock per SAILS
specified in clauses (a), (b) (ii) and (c) above of the Exchange Rate
definition are hereinafter referred to as the "Share Components." Any shares
of IBC Common Stock delivered by Ralston to the holders of the SAILS who are
not affiliated with IBC shall be free of any transfer restrictions, and the
holders of the SAILS will be responsible for the payment of any and all
brokerage costs upon the subsequent sale of such shares. No fractional shares
of IBC Common Stock will be issued at Maturity as provided under "Fractional
Shares" below. Although it is Ralston's current intention to deliver shares of
IBC Common Stock at Maturity, Ralston may, at its option, deliver cash, in
lieu of delivering such shares of IBC Common Stock. The amount of cash
deliverable in respect of each SAILS shall be equal to the product of the
number of shares of IBC Common Stock otherwise deliverable in respect of such
SAILS on the date of Maturity multiplied by the Maturity Market Price. In the
event Ralston elects to deliver cash in lieu of shares of IBC Common Stock at
Maturity, it will be obligated pursuant to the Indenture to deliver cash to
all Holders of SAILS. Factors Ralston may consider in determining whether to
deliver cash or IBC Common Stock at Maturity include the long-term outlook for
return on IBC Common Stock and the limitations agreed to by Ralston in the
Shareholder Agreement. On or prior to the fourth Business Day prior to August
1, 2000, Ralston will notify the Trustee, which in turn will notify the
registered Holders of the SAILS (which, so long as the SAILS shall be in the
form of one or more Global Securities, shall be The Depository Trust Company
or its nominee), and publish a notice in a daily newspaper of national
circulation stating whether the principal amount of each SAILS will be
exchanged for shares of IBC Common Stock or cash (and/or such other
consideration as permitted or required by the terms of the SAILS); provided,
however, that if Ralston intends to deliver cash, Ralston shall have the
right, as a condition to delivery of such cash, to require certification as to
the domicile and residency of each beneficial Holder of the SAILS.
Notwithstanding the foregoing, (i) in the case of certain dilution events,
the Exchange Rate will be subject to adjustment and (ii) in the case of
certain adjustment events, the consideration received by Holders of the SAILS
at Maturity will be shares of IBC Common Stock, other securities and/or cash.
See "Dilution Adjustments; Other Adjustment Events" below.
The "Maturity Market Price" is defined as the average Closing Price per
share of IBC Common Stock for the 20 Trading Days immediately prior to (but
not including) the date of Maturity; provided, however, that if there are not
20 Trading Days for the IBC Common Stock occurring later than the 60th
calendar day immediately prior to, but not including, the date of Maturity,
"Maturity Market Price" will be defined as the market value per share of IBC
Common Stock at Maturity as determined by a nationally recognized investment
banking firm retained for such purpose by Ralston. The Maturity Market Price
is subject to adjustment as provided under "Dilution Adjustments; Other
Adjustment Events" below. The "Closing Price" of any security on any date of
determination means (i) the closing sale price (or, if no closing sale price
is reported, the last reported sale price) of such security (regular way) on
the NYSE on such date, (ii) if such security is not listed for trading on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which such security is so
listed, (iii) if such security is not so listed on a United States national or
regional securities exchange, as reported by the NASDAQ Stock Market, (iv) if
such security is not so reported, the last quoted bid price for such security
in the over-the-counter market as reported by the National Quotation Bureau or
similar organization, or (v) if such security is not so quoted, the average of
the mid-point of the last bid and ask prices for such security from each of at
least three nationally recognized investment banking firms selected by Ralston
for such purpose. A "Trading Day" is defined as a Business Day on which the
Closing Price of the security to be valued (A) is not suspended from trading
on any national or regional securities exchange or association or over-the-
counter market at the close of business and (B) has traded at least once on
the national or regional securities exchange or association or over-the-
counter market that is the primary market for the trading of such security.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which the NYSE, banking institutions or trust companies in The City of New
York are authorized or obligated by law or executive order to close.
For illustrative purposes only, the following chart shows the number of
shares of IBC Common Stock or the amount of cash that a holder of the SAILS
would receive for each SAILS at various Maturity Market Prices. The table
assumes that there will be no adjustments to the Exchange Rate described under
"Dilution
14
<PAGE>
Adjustments; Other Adjustment Events" below. There can be no assurance that
the Maturity Market Price will be within the range set forth below. Given the
Initial Price of $61.9375 per SAILS and the Threshold Appreciation Price of
$75.5638, a SAILS Holder would receive at Maturity the following number of
shares of IBC Common Stock or amount of cash (if Ralston elects to pay the
SAILS in cash):
<TABLE>
<CAPTION>
MATURITY MARKET PRICE OF NUMBER OF SHARES OF AMOUNT OF
IBC COMMON STOCK IBC COMMON STOCK CASH
------------------------ ------------------- ---------
<S> <C> <C>
$50.0000 1.0000 $50.0000
$61.9375 1.0000 $61.9375
$70.0000 0.8848 $61.9375
$75.5638 0.8197 $61.9375
$80.0000 0.8197 $65.5738
</TABLE>
As the foregoing chart illustrates, if at Maturity, the Maturity Market
Price is greater than or equal to $75.5638, Ralston will be obligated to
deliver 0.8197 of a share of IBC Common Stock per SAILS, resulting in Ralston
receiving 18.03% of the appreciation in market value of the IBC Common Stock
for the period between the date hereof and Maturity and the SAILS holder
receiving 81.97% of the appreciation in such market value above $75.5638. If
at Maturity, the Maturity Market Price is greater than $61.9375 and less than
$75.5638, Ralston will be obligated to deliver only a fraction of a share of
IBC Common Stock having a market value equal to $61.9375, resulting in Ralston
retaining all appreciation in the market value of the IBC Common Stock for
that period. If at Maturity, the Maturity Market Price is less than or equal
to $61.9375, Ralston will be obligated to deliver one share of IBC Common
Stock per SAILS, regardless of the market price of such shares, resulting in
the SAILS holder realizing the entire loss on the decline in market value of
the IBC Common Stock for that period.
Interest on the SAILS will be payable, and delivery of IBC Common Stock (or,
at the option of Ralston, its cash equivalent and/or such other consideration
as permitted or required as described below) in exchange for the SAILS at
Maturity will be made upon surrender of such SAILS, at the office or agency of
Ralston maintained for such purposes; provided, however, that payment of
interest may be made at the option of Ralston by check mailed to the persons
in whose names the SAILS are registered at the close of business on the 15th
day of the calendar month immediately preceding the relevant Interest Payment
Date. See "Book-Entry System" below. Initially such office will be the
principal corporate trust office of the Trustee, First National Plaza, Suite
126, Chicago, Illinois 60670.
The SAILS will be transferrable at any time or from time to time at the
aforementioned office. No service charge will be made to the Holder for any
such transfer except for any tax or governmental charge payable in connection
therewith.
The Indenture does not contain any restriction on the ability of Ralston to
sell, pledge or convey all or any portion of the IBC Common Stock held by it
or its subsidiaries, and no shares of IBC Common Stock will be pledged or
otherwise held in escrow for use at Maturity of the SAILS. Consequently, in
the event of a bankruptcy, insolvency or liquidation of Ralston or its
subsidiaries, the IBC Common Stock, if any, owned by Ralston or its
subsidiaries will be subject to the claims of the creditors of Ralston or its
subsidiaries, respectively, including Holders of SAILS. In addition, as
described herein, Ralston will have the option, exercisable in its sole
discretion, to satisfy its obligations pursuant to the mandatory exchange for
the principal amount of each SAILS at Maturity by delivering to holders of the
SAILS either the number of shares of IBC Common Stock specified above or cash
in an amount equal to the product of such number of shares multiplied by the
Maturity Market Price. As a result, there can be no assurance that Ralston
will elect at Maturity to deliver IBC Common Stock or, if it so elects, that
it will use all or any portion of its holdings of IBC Common Stock at that
time, if any, to make such delivery. Holders of the SAILS will not be entitled
to any rights with respect to IBC Common Stock (including, without limitation,
voting rights (including voting rights in respect of IBC transactions such as
an acquisition of IBC), rights to respond to tender offers, and rights to
receive any dividends or other distributions in respect thereof) until such
time, if any, as Ralston shall have delivered shares of IBC Common Stock to
holders of the SAILS at Maturity thereof, and the applicable record date, if
any, for the exercise of such rights occurs after such date.
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DILUTION ADJUSTMENTS; OTHER ADJUSTMENT EVENTS
The Exchange Rate is subject to adjustment if IBC shall (i) pay a stock
dividend or make a distribution, in each case, with respect to IBC Common
Stock in shares of IBC Common Stock, (ii) subdivide or split its outstanding
shares of IBC Common Stock into a greater number of shares, (iii) effect a
reverse stock split or other action which combines the outstanding shares of
IBC Common Stock into a smaller number of shares, (iv) issue by
reclassification (other than a reclassification pursuant to clause (ii),
(iii), (iv) or (v) of the definition of Adjustment Event below) of the
outstanding shares of IBC Common Stock any shares of common stock of IBC, or
(v) issue rights or warrants to all holders of IBC Common Stock entitling them
to subscribe for or purchase shares of IBC Common Stock at a price per share
less than the Market Price (as defined below) of the IBC Common Stock on the
Business Day next following the record date for the determination of holders
of IBC Common Stock entitled to receive such rights or warrants.
Notwithstanding (v) above, however, the Exchange Rate will not be subject to
adjustment in the event that IBC shall (1) issue rights to purchase shares of
IBC Common Stock pursuant to a plan for the reinvestment of dividends or (2)
distribute rights or warrants to all holders of IBC Common Stock which, upon
the occurrence of a specified event or events, entitle the holders thereof to
subscribe for or purchase shares of IBC's Common Stock at a price per share
less than the Market Price of the IBC Common Stock at the time of such
occurrence; provided, however, in the case of rights or warrants described in
clause (2), the Exchange Rate will be so adjusted at the time that any of such
rights or warrants actually become exercisable at such lower price, and the
calculation of the adjustment of the Exchange Rate will be made with respect
to the Business Day next following the occurrence of the specified event or
events instead of the record date for the determination of holders of IBC
Common Stock entitled to receive such rights or warrants.
In the case of the events referred to in clauses (i), (ii), (iii) and (iv)
above, the Exchange Rate shall be adjusted by adjusting each of the Share
Components of the Exchange Rate in effect immediately prior to such event so
that a Holder of any SAILS shall be entitled to receive, upon mandatory
exchange of the principal amount of such SAILS at Maturity, the number of
shares of IBC Common Stock (or, in the case of a reclassification referred to
in clause (iv) above, the number of other shares of common stock of IBC issued
pursuant thereto) which such Holder of such SAILS would have owned or been
entitled to receive immediately following such event had such SAILS been
exchanged immediately prior to such event or any record date with respect
thereto.
In the case of any event referred to in clause (v) above, the Exchange Rate
shall be adjusted by multiplying each of the Share Components of the Exchange
Rate in effect on the record date for the issuance of the rights or warrants
referred to in clause (v) above, by a fraction, of which the numerator shall
be (A) the number of shares of IBC Common Stock outstanding on the record date
for the issuance of such rights or warrants, plus (B) the number of additional
shares of IBC Common Stock offered for subscription or purchase pursuant to
such rights or warrants, and of which the denominator shall be (x) the number
of shares of IBC Common Stock outstanding on the record date for the issuance
of such rights or warrants, plus (y) the number of additional shares of IBC
Common Stock which the aggregate offering price of the total number of shares
of IBC Common Stock so offered for subscription or purchase pursuant to such
rights or warrants would purchase at the Market Price of the IBC Common Stock
on the Business Day next following the record date for the determination of
holders of IBC Common Stock entitled to receive such rights or warrants, which
number of additional shares shall be determined by multiplying such total
number of shares by the exercise price of such rights or warrants and dividing
the product so obtained by such Market Price. To the extent that such rights
or warrants expire prior to the Maturity of the SAILS and shares of IBC Common
Stock are not delivered pursuant to such rights or warrants prior to such
expiration, the Exchange Rate shall be readjusted to the Exchange Rate which
would then be in effect had such adjustments for the issuance of such rights
or warrants been made upon the basis of delivery of only the number of shares
of IBC Common Stock actually delivered pursuant to such rights or warrants.
Any shares of IBC Common Stock issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the close of business on the
record date for such dividend for purposes of calculating the number of
outstanding shares of IBC Common Stock under this paragraph.
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"Market Price" means, as of any date of determination, the average Closing
Price per share of IBC Common Stock for the 20 Trading Days immediately prior
to the date of determination; provided, however, that if there are not 20
Trading Days for IBC Common Stock occurring later than the 60th calendar day
immediately prior to, but not including, such date, the Market Price shall be
determined as the market value per share of IBC Common Stock as of such date
as determined by a nationally recognized investment banking firm retained for
such purpose by Ralston.
All adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a share of IBC Common Stock (or, if there is not a nearest
1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment
in the Exchange Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however, that
any adjustments which by reason of the foregoing are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
If an adjustment is made to the Exchange Rate pursuant to clauses (i), (ii),
(iii), (iv) or (v) above, an adjustment shall also be made to the Maturity
Market Price as such term is used to determine which of clauses (a), (b) or
(c) of the Exchange Rate definition will apply at Maturity and for purposes of
calculating the fraction in sub-clause (b)(i) of the definition of Exchange
Rate. The required adjustment to the Maturity Market Price shall be made at
Maturity by multiplying the Maturity Market Price by the cumulative number or
fraction determined pursuant to the Share Component adjustment procedure
described above. In the case of the reclassification of any shares of IBC
Common Stock into any common stock of IBC other than IBC Common Stock, such
common stock shall be deemed to be shares of IBC Common Stock solely to
determine the Maturity Market Price and to apply the Exchange Rate at
Maturity. Each such adjustment to the Exchange Rate and the Maturity Market
Price shall be made successively.
In the event of (i) any dividend or distribution by IBC to all holders of
IBC Common Stock of evidences of its indebtedness or other assets (other than
1) dividends or distributions referred to in clause (i) of the first paragraph
under this caption "Dilution Adjustments; Other Adjustment Events," 2) any
common shares issued pursuant to a reclassification referred to in clause (iv)
of such paragraph and 3) Ordinary Cash Dividends (as defined below)) or any
issuance by IBC to all holders of IBC Common Stock of rights or warrants
(other than rights or warrants for which adjustment is required, as referred
to in clause (v) of the first paragraph under this caption "Dilution
Adjustments; Other Adjustment Events" or for which an adjustment is then or
may be later required as set forth in the last sentence of such first
paragraph), (ii) any consolidation or merger of IBC with or into another
entity (other than a merger or consolidation in which IBC is the continuing
corporation and in which the shares of IBC Common Stock outstanding
immediately prior to the merger or consolidation are not exchanged for cash,
securities or other property of IBC or another corporation), (iii) any sale,
transfer, lease or conveyance to another corporation of the property of IBC as
an entirety or substantially as an entirety, (iv) any statutory exchange of
securities of IBC with another corporation (other than in connection with a
merger or acquisition) or (v) any liquidation, dissolution or winding up of
IBC (any such event, an "Adjustment Event"), each Holder of a SAILS will
receive at Maturity, in lieu of or (in the case of an Adjustment Event
described in clause (i) above) in addition to, shares of IBC Common Stock as
described above (calculated using the formula set forth in "General" and the
Maturity Market Price set forth in the last sentence of this paragraph), cash
in an amount equal to (A) if the Maturity Market Price is greater than or
equal to the Threshold Appreciation Price, 0.8197 multiplied by the
Transaction Value (as defined below), (B) if the Maturity Market Price is less
than the Threshold Appreciation Price but is greater than the Initial Price,
the product of (x) the Initial Price divided by the Maturity Market Price
multiplied by (y) the Transaction Value and (C) if the Maturity Market Price
is less than or equal to the Initial Price, the Transaction Value. Following
an Adjustment Event, the Maturity Market Price, as such term is used in this
paragraph and throughout the definition of Exchange Rate, shall be deemed to
equal (A) the Maturity Market Price of the shares of IBC Common Stock, as
adjusted pursuant to the method set forth in the preceding paragraph, plus (B)
the Transaction Value.
Notwithstanding the foregoing, with respect to any securities received in an
Adjustment Event (A) that are (i) listed on a United States national
securities exchange, (ii) that are reported on a United States national
securities system subject to last sale reporting, (iii) that are traded in the
over-the-counter market and reported on the National Quotation Bureau or
similar organization or (iv) for which bid and ask prices are available from
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at least three nationally recognized investment banking firms and (B) that are
either (x) perpetual equity securities or (y) non-perpetual equity or debt
securities with a stated maturity after the Stated Maturity of the SAILS
("Reported Securities"), Ralston may, at its option, in lieu of delivering the
amount of cash deliverable in respect of Reported Securities received in an
Adjustment Event, as determined in accordance with the previous paragraph,
deliver a number of such Reported Securities with a value equal to such cash
amount, as determined in accordance with clause (ii) of the definition of
Transaction Value, as applicable; provided, however, that (i) if such option
is exercised, Ralston shall deliver Reported Securities in respect of all, but
not less than all, cash amounts that would otherwise be deliverable in respect
of Reported Securities received in an Adjustment Event, (ii) Ralston may not
exercise such option if Ralston has elected to deliver cash in lieu of shares
of IBC Common Stock, if any, deliverable upon Maturity or if such Reported
Securities have not yet been delivered to the holders entitled thereto
following such Adjustment Event or any record date with respect thereto, and
(iii) subject to Ralston's obligation to deliver cash with respect to any
Reported Security that had not yet been delivered to holders entitled thereto,
Ralston must exercise such option if Ralston does not elect to deliver cash in
lieu of shares of IBC Common Stock, if any, deliverable upon Maturity. If
Ralston elects to deliver Reported Securities, each Holder of a SAILS will be
responsible for the payment of any and all brokerage and other transaction
costs upon the sale of such Reported Securities. If, following any Adjustment
Event, any Reported Security ceases to qualify as a Reported Security, then
(x) Ralston may no longer elect to deliver such Reported Security in lieu of
an equivalent amount of cash and (y) notwithstanding clause (ii) of the
definition of Transaction Value, the Transaction Value of such Reported
Security shall mean the fair market value of such Reported Security on the
date such security ceases to qualify as a Reported Security, as determined by
a nationally recognized investment banking firm retained for this purpose by
Ralston.
The amount of cash and/or the kind and amount of securities into which the
SAILS shall be exchangeable after an Adjustment Event shall be subject to
adjustment following such Adjustment Event in the same manner and upon the
occurrence of the same type of events as described under this caption
"Dilution Adjustments; Other Adjustment Events" with respect to IBC Common
Stock and IBC.
For purposes of the foregoing, the term "Ordinary Cash Dividend" means, with
respect to any consecutive 365-day period, any dividend with respect to IBC
Common Stock paid in cash to the extent that the amount of such dividend,
together with the aggregate amount of all other dividends on IBC Common Stock
paid in cash during such 365-day period, does not exceed on a per share basis
10% of the average of the Closing Prices per share of IBC Common Stock over
such 365-day period.
The term "Transaction Value" means (i) for any cash received in any
Adjustment Event, the amount of cash received per share of IBC Common Stock,
(ii) for any Reported Securities received in any Adjustment Event, an amount
equal to (x) the average Closing Price per security of such Reported
Securities for the 20 Trading Days immediately prior to Maturity multiplied by
(y) the number of such Reported Securities (as adjusted pursuant to the second
preceding paragraph) received for each share of IBC Common Stock and (iii) for
any property received in any Adjustment Event other than cash or such Reported
Securities, an amount equal to the fair market value of the property received
per share of IBC Common Stock on the date such property is received, as
determined by a nationally recognized investment banking firm retained for
this purpose by Ralston; provided, however, that in the case of clause (ii),
(x) with respect to securities that are Reported Securities by virtue of only
clause (A)(iv) of the definition of Reported Securities in the third preceding
paragraph, Transaction Value with respect to any such Reported Security means
the average of the mid-point of the last bid and ask prices for such Reported
Security as of Maturity from each of at least three nationally recognized
investment banking firms retained for such purpose by Ralston multiplied by
the number of such Reported Securities (as adjusted pursuant to the method set
forth in the second preceding paragraph) received for each share of IBC Common
Stock and (y) with respect to all other Reported Securities, if there are not
20 Trading Days for any particular Reported Security occurring later than the
60th calendar day immediately prior to, but not including, the date of
Maturity, Transaction Value with respect to such Reported Security means the
market value per security of such Reported Security as of Maturity as
determined by a nationally recognized investment banking firm retained for
such purpose by Ralston multiplied by the number of such Reported Securities
(as adjusted pursuant to the method set forth in the second preceding
paragraph) received for each share of IBC Common Stock. For purposes of
calculating the Transaction Value, any cash, Reported Securities or other
property
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receivable in any Adjustment Event shall be deemed to have been received
immediately prior to the close of business on the record date for such
Adjustment Event or, if there is no record date for such Adjustment Event,
immediately prior to the close of business on the effective date of such
Adjustment Event.
No adjustments will be made for certain other events, such as employee stock
option grants or offerings of IBC Common Stock by IBC for cash or in
connection with acquisitions.
Ralston is required, within ten Business Days following the occurrence of an
event that requires an adjustment to the Exchange Rate or the occurrence of an
Adjustment Event (or, in either case, if Ralston is not aware of such
occurrence, as soon as practicable after becoming so aware), to provide
written notice to the Trustee and to each Holder of SAILS of the occurrence of
such event, including a statement in reasonable detail setting forth the
method by which the adjustment to the Exchange Rate or change in the
consideration to be received by Holders of SAILS following the Adjustment
Event was determined and setting forth the revised Exchange Rate or
consideration, as the case may be; provided, however that, in respect of any
adjustment to the Maturity Market Price, such notice will only disclose the
factor by which the Maturity Market Price is to be multiplied in order to
determine which clause of the Exchange Rate definition will apply at Maturity.
FRACTIONAL SHARES
No fractional shares of IBC Common Stock or Reported Securities will be
issued if Ralston exchanges the SAILS for shares of IBC Common Stock or
Reported Securities. If more than one SAILS is surrendered for exchange at one
time by the same Holder, the number of full shares of IBC Common Stock or
Reported Securities which shall be delivered upon exchange, in whole or in
part, as the case may be, shall be computed on the basis of the aggregate
number of SAILS so surrendered at Maturity. In lieu of any fractional share or
other security otherwise issuable in respect of all SAILS of any holder which
are exchanged at Maturity, such holder shall be entitled to receive an amount
in cash equal to the value of such fractional share or security at the
Maturity Market Price.
DELIVERY OF SECURITIES UPON MATURITY
All shares of IBC Common Stock and Reported Securities deliverable to
holders of the SAILS upon Maturity will be delivered to such holders, whenever
practicable, in such manner (such as by book-entry transfer) so as to assure
same-day transfer of such securities to such holders and otherwise in the
manner customary at such time for delivery of such securities and securities
of the same type. Notwithstanding the foregoing, it may not be possible under
market practices prevailing at the Maturity of the SAILS to transfer IBC
Common Stock and/or Reported Securities so as to assure same-day transfer of
such securities to Holders of the SAILS. Accordingly, such Holders of the
SAILS may receive all or a portion of the IBC Common Stock and/or Reported
Securities into which such SAILS are exchangeable after the date of Maturity.
REDEMPTION
The SAILS are not subject to redemption prior to Maturity and do not contain
sinking fund or other mandatory redemption provisions. The SAILS are not
subject to payment at the option of the Holder prior to Maturity.
BOOK-ENTRY SYSTEM
It is expected that the SAILS will be issued in the form of one or more
global securities (the "Global Securities") deposited with The Depository
Trust Company (the "Depositary") and registered in the name of a nominee of
the Depositary.
The Depositary has advised Ralston and the Underwriters as follows: the
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a
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"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to Section 17A of the
Exchange Act. The Depositary was created to hold securities of persons who
have accounts with the Depositary ("Participants") and to facilitate the
clearance and settlement of securities transactions among its Participants in
such securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of
certificates. Such Participants include securities brokers and dealers, banks,
trust companies and other clearing corporations. Indirect access to the
Depositary's book-entry system also is available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective SAILS represented by such Global Security to the
accounts of Participants. The accounts to be credited shall be designated by
the Underwriters. Ownership of beneficial interests in the Global Securities
will be limited to Participants or persons that may hold interests through
Participants.
So long as the Depositary or its nominee, is the registered owner of the
SAILS, the Depositary or such nominee, as the case may be, will be considered
the sole owner or holder of the SAILS represented by such Global Security for
the purposes of receiving payment on the SAILS, receiving notices and for all
other purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have SAILS
represented by such Global Security registered in their names and will not
receive or be entitled to receive physical delivery of SAILS in definitive
form and will not be considered the owners or holders thereof under the
Indenture.
Any payment of principal, premium or interest on SAILS registered in the
name of the Depositary or its nominee represented by any such Global Security
will be made to the Depositary or its nominee, as the case may be, as the sole
registered owner of the Global Security representing the SAILS. None of
Ralston, the Trustee, any agent of Ralston or the Trustee or any Underwriter
will have any responsibility or liability for any aspect of the Depositary's
records relating to or payments made on account of beneficial ownership
interests in a Global Security representing any SAILS or for maintaining,
supervising or reviewing any of the Depositary's records relating to such
beneficial ownership interests.
Ralston expects that the Depositary or its nominee, upon receipt of any
payment of principal, premium or interest, will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Security as shown on the records of the Depositary or its nominee. Ralston
also expects that payments by participants to owners of beneficial interests
in a Global Security held through such participants will be governed by
standing instructions and customary practices as is now the case with
securities held for customer accounts registered in "street name", and will be
the sole responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depositary
to a nominee of the Depositary, except as otherwise provided in the Indenture.
A Global Security representing SAILS is exchangeable only if (x) the
Depositary notifies Ralston that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time the Depositary ceases to
be a clearing agency registered under the Exchange Act and Ralston fails to
appoint a successor Depositary within 90 days or (y) Ralston in its sole
discretion determines that such Global Security shall be exchangeable or (z)
there shall have occurred and be continuing an Event of Default or an event
which with the giving of notice or lapse of time or both would constitute an
Event of Default with respect to the SAILS. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
certificates in definitive form representing SAILS issuable in such
denominations and in such names as the Depositary holding such Global Security
shall direct. Subject to the foregoing, the Global Security is not
exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depositary or its nominee.
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CERTAIN COVENANTS
Limitations on Liens. Ralston covenants that it will not have, nor will it
permit any Domestic Subsidiary (defined as a Subsidiary the majority of the
operating assets of which are located within, and the principal business of
which is carried on in, the United States of America, other than a subsidiary
engaged primarily in
the business of purchasing accounts receivable, making loans and advances
against accounts receivable and chattels and related types of financing or
engaged primarily in the business of owning, developing or leasing real
property) to have, any lien on its properties or assets or upon any income or
profits therefrom without equally and ratably securing the SAILS. This
restriction does not apply to certain permitted liens, including (a) liens on
property existing at the time of acquisition thereof and certain purchase
money mortgages; (b) liens on property of any corporation existing at the time
such corporation becomes a Domestic Subsidiary; (c) liens existing as of the
date of the Indenture; (d) liens which secure debt owing to Ralston or a
Domestic Subsidiary by a Domestic Subsidiary; (e) liens arising from
assignments of moneys due under contracts within the United States; (f) liens
on property created in contemplation of the sale or disposition of such
property provided that after 120 days from the creator such lien such property
shall not be owned by Ralston or any Domestic Subsidiary and any indebtedness
secured by such mortgage shall be without recourse to Ralston or any Domestic
Subsidiary; (g) liens arising from judgments being appealed and from certain
pledges and deposits; and (h) any extension, renewal or replacement of any
lien referred to in the foregoing clauses (a) through (g), inclusive.
Limitations on Sale and Lease-back Transactions. Ralston covenants that it
will not enter, nor will it permit any Domestic Subsidiary to enter, into any
sale and lease-back transactions involving any Principal Property (as
defined), other than a sale by a Domestic Subsidiary to Ralston and other than
transactions for temporary periods not exceeding five years by the end of
which period it is intended that the use of the leased property by the lessee
will be discontinued, unless Ralston, within 120 days after the transfer of
title to such Principal Property, applies to the redemption of indebtedness
which is pari passu with the SAILS maturing more than 12 months after its
creation an amount equal to the net proceeds received by Ralston or such
Domestic Subsidiary upon such sale. Under the Indenture, a Principal Property
is defined as a battery, protein or pet food manufacturing plant owned by
Ralston or a Subsidiary as of May 26, 1995, (and any future additions or
improvements thereto) and located within the United States of America.
Exempted Transactions. Notwithstanding the foregoing provisions, Ralston or
any Domestic Subsidiary may create liens on its property or assets without
equally and ratably securing the SAILS or enter into sale and lease-back
transactions involving a Principal Property without redeeming indebtedness if,
after giving effect thereto, the aggregate amount of indebtedness of Ralston
and its Domestic Subsidiaries secured by liens otherwise prohibited plus the
aggregate amount of Attributable Debt (defined as the present value, computed
by discounting at the rate of interest per annum borne by the SAILS, of the
obligation of a lessee for net rental payments during the remaining term of
any lease) in respect of such sale and lease-back transactions does not exceed
5% of the Consolidated Net Tangible Assets (defined as total assets less (a)
all liabilities except (i) notes payable; (ii) current maturities of long-term
debt; (iii) current maturities of obligations under capital leases; (iv) long-
term debt and long-term obligations under capital leases; and (b) goodwill and
intangible assets) of Ralston and its Domestic Subsidiaries.
EVENTS OF DEFAULT
An Event of Default with respect to the SAILS is defined in the Indenture as
being: (a) default for 30 days in payment of any installment of interest on
the SAILS; (b) default in the payment of any principal on the SAILS; (c)
default by Ralston in performance of any of the covenants or warranties in the
Indenture contained therein for the benefit of the SAILS which shall not have
been remedied for a period of 90 days after written notice to Ralston by the
Trustee or to Ralston and the Trustee by the Holders of not less than 25% in
principal amount of the SAILS then outstanding; and (d) certain events of
bankruptcy, insolvency or reorganization of Ralston.
The Indenture provides that if an Event of Default shall have occurred and
be continuing with respect to the SAILS, either the Trustee or the Holders of
not less than 25% in aggregate principal amount of the then
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outstanding SAILS may declare the principal of all the SAILS, together with
accrued interest, to be due and payable immediately. Upon certain conditions
such declaration (including a declaration caused by a default in the payment
of principal or interest, the payment for which has subsequently been
provided) may be annulled by the Holders of a majority in principal amount of
the SAILS then outstanding. In addition, past defaults may be waived by the
Holders of a majority in principal amount of the SAILS then outstanding as
were entitled to declare such default, except a default in the payment of the
principal of or interest on the SAILS or in respect of a covenant or provision
of the Indenture which cannot be modified or amended without the approval of
the Holder of each SAILS so affected.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during default to act with the required standard of care,
to be indemnified by the Holders of SAILS before proceeding to exercise any
right or power under the Indenture at the request of the Holders of the SAILS.
The Indenture also provides that the Holders of a majority in principal amount
of the outstanding SAILS may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee, with respect to the SAILS.
The Indenture contains a covenant that the Company will file annually with
the Trustee a certificate as to the absence of any default or specifying any
default that exists.
SATISFACTION AND DISCHARGE
The Indenture shall be satisfied and discharged with respect to the SAILS
when: (1) either (A) all SAILS theretofore authenticated and delivered have
been delivered to the Trustee canceled or for cancellation; or (B) all SAILS
not theretofore delivered to the Trustee canceled or for cancellation (i) have
become due and payable or (ii) will become due and payable at their Maturity
within one year and Ralston, in the case of (i) or (ii) above, has deposited
or caused to be deposited with the Trustee an amount sufficient to pay and
discharge the entire indebtedness of the SAILS for principal and interest to
the date of such deposit (in the case of the SAILS which have become due and
payable), or to the Maturity Date, as the case may be; (2) Ralston has paid or
caused to be paid all other sums payable under the Indenture by Ralston with
respect to the SAILS; and (3) Ralston has delivered to the Trustee an
officer's certificate and an Opinion of Counsel each stating that all
conditions precedent provided in the Indenture relating to the satisfaction
and discharge thereof with respect to the SAILS have been complied with.
MODIFICATION, WAIVER AND MEETINGS
The Indenture contains provisions permitting Ralston and the Trustee, with
the consent of the Holders of not less than 50% in principal amount of the
SAILS then outstanding, to execute supplemental indentures adding any
provisions to or changing or eliminating any of the provisions of the
Indenture or modifying the rights of the Holders of SAILS, except that no such
supplemental indenture may, without the consent of the Holders of all
outstanding SAILS (i) change the final maturity of the principal of, or
installment of interest, if any, on, any SAILS, or reduce the principal amount
thereof or the interest thereon, or change the maturity of or reduce the
amount of any payment to be made with respect thereto, or change the currency
in which the principal of or interest on the SAILS is denominated or payable,
or impair the right to institute suits for the enforcement of any payment on
or after the Maturity thereof; or (ii) reduce the percentage in principal
amount of the outstanding SAILS, the consent of the Holders of which is
required for any supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with certain provisions of the
Indenture or certain defaults thereunder and their consequences provided for
in the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
SAILS may on behalf of all Holders of the SAILS (i) waive any past default
under the Indenture with respect to the SAILS, except a default
22
<PAGE>
in the payment of principal or interest or a covenant or provision that cannot
be modified or amended without the consent of the Holders of each outstanding
SAILS, and (ii) waive compliance by Ralston with certain provisions of the
Indenture, including the provisions concerning limitations upon liens and sale
and lease-back transactions.
The Indenture contains provisions for convening meetings of the Holders of
the SAILS. A meeting may be called at any time by the Trustee, and also, upon
request, by Ralston or the Holders of at least 25% in aggregate principal
amount of the outstanding SAILS. Any resolution passed or decision taken at
any meeting of Holders of the SAILS duly held in accordance with the Indenture
will be binding on all Holders of the SAILS.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Ralston covenants that it will not merge or consolidate or sell or convey
all or substantially all of its assets unless the successor corporation is
Ralston or is a domestic corporation which assumes Ralston's obligations on
the SAILS and under the Indenture, and after giving effect to such transaction
Ralston or the successor corporation would not be in default under the
Indenture.
CONCERNING THE TRUSTEE
The First National Bank of Chicago is the trustee under the Indenture with
regard to Ralston's 7 7/8% Debentures due 2025 and the 7 3/4% Debentures due
2015 previously issued, and also an Indenture dated as of January 31, 1992,
with Ralston, with regard to the following securities previously issued: (i) 8
5/8% Debentures due 2022 and (ii) 8 1/8% Debentures due 2023. Ralston
maintains a deposit account and conducts other banking transactions with the
Trustee in the ordinary course of business.
GOVERNING LAW
The Indenture and each SAILS shall be deemed to be contracts under the law
of the State of New York and for all purposes shall be construed in accordance
with the law of such state.
SAME-DAY FUNDS SETTLEMENT SYSTEM AND PAYMENT
Settlement for the SAILS will be made by the Underwriters in immediately
available funds. All payments of principal and interest on the Global
Securities will be made by Ralston in immediately available funds.
The SAILS will trade in the Depositary's Same-Day Funds Settlement System
until Maturity, and secondary market trading activity in the SAILS will
therefore be required by the Depositary to settle in immediately available
funds.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the material U.S. federal income
tax consequences that may be relevant to a citizen or resident of the United
States, a corporation or partnership created or organized under the laws of
the United States, an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or a trust which is subject to the
supervision of a court within the United States and the control of a United
States fiduciary as described in Section 7701(a)(30) of the Internal Revenue
Code of 1986, as amended (the "Code") (any of the foregoing, a "U.S. Person")
who is the beneficial owner of a SAILS (a "U.S. Holder"). Bryan Cave LLP,
special tax counsel to Ralston, has advised Ralston that the conclusions of
law expressed in the following summary represent the opinion of Bryan Cave
LLP. All references to "Holders" (including U.S. Holders) are to beneficial
owners of the SAILS. This summary is based on U.S. federal income tax laws,
regulations, rulings and decisions in effect as of the date of this Prospectus
(or, in the case of certain Treasury regulations in proposed form, as of such
date), all of which are subject to change at any time (possibly with
retroactive effect). Because such laws, regulations, rulings and decisions are
technical and complex, the discussion below necessarily represents only a
general summary.
23
<PAGE>
This summary addresses the U.S. federal income tax consequences to U.S.
Holders who are initial Holders of the SAILS, who purchase the SAILS at the
offering price set forth on the cover page of this Prospectus and who will
hold the SAILS and, if applicable, the IBC Common Stock and Reported
Securities as capital assets. This summary does not address all aspects of
federal income taxation that may be relevant to a particular U.S. Holder in
light of the holder's individual investment circumstances or to certain types
of U.S. Holders subject to special treatment under the U.S. federal income tax
laws, such as dealers in securities or foreign currency, financial
institutions, insurance companies, tax-exempt organizations and taxpayers
holding the SAILS as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security," or other integrated investment. Moreover, the effect of
any applicable state, local or foreign tax laws is not discussed.
No statutory, judicial or administrative authority directly addresses the
characterization of the SAILS or instruments similar to the SAILS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the SAILS are not certain.
No ruling is being requested from the IRS with respect to the SAILS and no
assurance can be given that the IRS will agree with the conclusions expressed
herein. In addition, although Bryan Cave LLP has given its opinion confirming
the conclusions of law expressed in this summary, Bryan Cave LLP has stated it
could give no opinion with respect to the specific tax consequences of owning
or disposing of SAILS, including the characterization of SAILS for U.S.
federal income tax purposes. ACCORDINGLY, A PROSPECTIVE INVESTOR (INCLUDING A
TAX-EXEMPT INVESTOR) IN THE SAILS SHOULD CONSULT ITS OWN TAX ADVISOR IN
DETERMINING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SAILS, INCLUDING THE
APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
Pursuant to the terms of the Indenture, Ralston and every Holder of a SAILS
will be obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize a SAILS for all tax purposes
as a forward purchase contract to purchase IBC Common Stock and Reported
Securities at Maturity (including as a result of acceleration or otherwise).
Under the terms of the forward contract: (a) at the time of issuance of the
SAILS the Holder deposits irrevocably with Ralston a fixed amount of cash
equal to the Initial Price of the SAILS to assure the fulfillment of the
holder's purchase obligation described in clause (c) below, (b) until Maturity
Ralston will be obligated to pay interest on the deposit at a rate equal to
the stated rate of interest on the SAILS as compensation to the holder for
Ralston's use of the cash deposit during the term of the SAILS, and (c) at
Maturity the cash deposit unconditionally and irrevocably will be applied by
Ralston in full satisfaction of the holder's obligation under the forward
purchase contract, and Ralston will deliver to the holder the number of shares
of IBC Common Stock and Reported Securities that the holder is entitled to
receive at the time pursuant to the terms of the SAILS (subject to Ralston's
right to deliver cash in lieu of shares of IBC Common Stock and Reported
Securities). Consistent with the above characterization, (i) amounts paid to
Ralston in respect of the original issue of a SAILS will be treated as
allocable in their entirety to the amount of the cash deposit attributable to
such SAILS, and (ii) amounts denominated as interest that are payable with
respect to the SAILS will be characterized as interest payable on the amount
of such deposit, includible annually in the income of a U.S. Holder as
interest income in accordance with the Holder's method of accounting.
(Prospective investors should note that cash proceeds of this offering will
not be segregated by Ralston during the term of the SAILS, but instead will be
commingled with Ralston's other assets and applied in a manner consistent with
the "Use of Proceeds" discussion above.)
Under the above characterization of the SAILS, a U.S. Holder's tax basis in
a SAILS generally will equal the Holder's cost for that SAILS. Upon the sale
or other taxable disposition of a SAILS, a U.S. Holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale or other taxable disposition and the U.S. Holder's tax basis in the
SAILS. Such gain or loss generally will be long-term capital gain or loss if
the U.S. Holder has held the SAILS for more than one year at the time of
disposition.
Under the above characterization of the SAILS, if Ralston delivers IBC
Common Stock and Reported Securities at Maturity, a U.S. Holder will recognize
no gain or loss on the purchase of IBC Common Stock and Reported Securities
against application of the monies received by Ralston in respect of the SAILS.
A U.S. Holder will have a tax basis in such stock equal to the U.S. Holder's
tax basis in the SAILS (less the portion of the tax basis of the SAILS
allocable to any fractional share, as described in the next sentence). A U.S.
Holder will
24
<PAGE>
recognize gain or loss (which will be short-term capital gain or loss) with
respect to cash received in lieu of fractional shares, in an amount equal to
the difference between the cash received and the portion of the basis of the
SAILS allocable to fractional shares (based on the relative number of
fractional shares and full shares delivered to the holder). If at Maturity
Ralston pays the SAILS in cash, a U.S. Holder will recognize gain or loss
equal to any difference between the amount of cash received from Ralston and
the U.S. Holder's tax basis in the SAILS at that time.
Due to the absence of authority as to the proper characterization of the
SAILS, no assurance can be given that the IRS will accept, or that a court
will uphold, the characterization and tax treatment described above. In
particular, the IRS could seek to analyze the federal income tax consequences
of owning a SAILS under Treasury regulations promulgated in June 1996
governing contingent payment debt instruments (the "Contingent Payment
Regulations"). The Contingent Payment Regulations apply to debt instruments
issued on or after August 13, 1996. The Contingent Payment Regulations are
complex, but very generally apply the original issue discount rules of the
Code to a contingent payment debt instrument by requiring that original issue
discount be accrued every year at a "comparable yield" for the issuer of the
instrument, determined at the time of issuance of the obligation. In addition,
the Contingent Payment Regulations require that a projected payment schedule,
which results in such a "comparable yield", be determined, and that
adjustments to income accruals be made to account for differences between
actual payments and projected amounts. To the extent that the comparable yield
as so determined exceeds the interest actually paid on a contingent debt
instrument, the owner of that instrument recognizes ordinary interest income
in excess of the cash the owner receives. In addition, any gain realized on
the sale, exchange or redemption of a contingent payment debt instrument is
treated as ordinary income. Any loss realized on such sale, exchange or
redemption is treated as an ordinary loss to the extent the U.S. Holder's
original issue discount inclusions with respect to the obligation exceed prior
reversals of such inclusions required by the adjustment mechanism described
above. Any loss realized in excess of such amount generally is treated as a
capital loss.
The Contingent Payment Regulations should not apply to the SAILS, because
those Regulations apply only to debt instruments that provide for contingent
payments. The SAILS are payable by the delivery of shares of IBC Common Stock
and Reported Securities (unless Ralston exercises its option to deliver cash
at Maturity) and provide economic returns that are indexed to the performance
of IBC Common Stock and Reported Securities. The SAILS therefore offer no
assurance that a U.S. Holder's investment will be returned to the Holder at
Maturity. Accordingly, the SAILS should be characterized for tax purposes, not
as debt instruments, but as forward purchase contracts in respect of which
holders have deposited a fixed amount of cash with Ralston, on which interest
is payable at a fixed rate. If, however, the IRS argued successfully that the
Contingent Payment Regulations applied to the SAILS, then, among other
matters, (i) gain realized by a U.S. Holder on the sale or other taxable
disposition of a SAILS (including as a result of payments made at Maturity)
generally would be characterized as ordinary income, rather than as short- or
long-term capital gain (depending on whether the SAILS had been held for more
than one year at the time of such disposition), and (ii) a U.S. Holder would
recognize ordinary income, or ordinary or capital loss (as the case may be,
under the rules summarized above) on the receipt of shares of IBC Common Stock
and Reported Securities, rather than capital gain or loss upon the ultimate
sale of such stock.
Even if the Contingent Payment Regulations do not apply to the SAILS, it is
possible that the IRS could seek to characterize the SAILS in a manner that
results in tax consequences to initial U.S. Holders of the SAILS different
from those reflected in the Indenture and described above.
NON-UNITED STATES PERSONS
In the case of a Holder of the SAILS that is not a U.S. Person, payments
made with respect to the SAILS should not be subject to U.S. withholding tax,
provided that such Holder complies with applicable certification requirements.
Any capital gain realized upon the sale or other disposition of the SAILS by a
Holder that is not a U.S. Person will generally not be subject to U.S. federal
income tax if (i) such gain is not effectively connected with a U.S. trade or
business of such Holder and (ii) in the case of an individual, such individual
is not present in the United States for 183 days or more in the taxable year
of the sale or other disposition of the SAILS or the gain is not attributable
to a fixed place of business maintained by such individual in the United
States.
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<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder of the SAILS may be subject to information reporting and to backup
withholding at a rate of 31% of certain amounts paid to the Holder unless such
Holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules of the IRS. Any amounts withheld under the backup
withholding rules are not an additional tax and may be refunded or credited
against the U.S. Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated July 23, 1997 (the "Underwriting Agreement") the underwriters
named below (the "Underwriters") for whom Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., Lehman Brothers Inc., J.P. Morgan
Securities Inc. and Salomon Brothers Inc are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from
Ralston the following respective numbers of SAILS:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SAILS
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation................... 992,934
Bear, Stearns & Co. Inc.................................. 992,932
Lehman Brothers Inc. .................................... 992,932
J.P. Morgan Securities Inc............................... 992,932
Salomon Brothers Inc..................................... 992,932
George K. Baum & Company................................. 302,723
Sanford C. Bernstein & Co., Inc. ........................ 302,723
A.G. Edwards & Sons, Inc. ............................... 302,723
Janney Montgomery Scott Inc. ............................ 302,723
Prudential Securities Incorporated....................... 302,723
The Robinson-Humphrey Company, Inc. ..................... 302,723
---------
Total.................................................. 6,781,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the SAILS offered hereby (other than those shares
covered by the over-allotment option described below), if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of the non-
defaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
Ralston has granted to the Underwriters an option, expiring on the close of
business on the 30th day after the date of this Prospectus, to purchase up to
633,036 additional SAILS at the initial public offering price, less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the SAILS. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional SAILS as it was obligated
to purchase pursuant to the Underwriting Agreement.
Ralston has been advised by the Representatives that the Underwriters
propose to offer the SAILS offered hereby to the public initially at the
public offering price set forth on the cover page of this Prospectus and
through the Representatives to certain dealers at such price less a concession
of $1.11 per share, and the Underwriters and such dealers may allow a discount
of $0.10 per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
26
<PAGE>
Ralston, IBC and IBC's officers and directors, including Mr. Stiritz and Mr.
Elsesser, have agreed that they will not issue, sell, offer, agree to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to any
additional SAILS or shares of IBC Common Stock, any options, warrants or other
rights to purchase any shares of IBC Common Stock, or securities convertible
into, exercisable or exchangeable for any shares of IBC Common Stock without
the prior written consent of Credit Suisse First Boston Corporation for a
period of 90 days from the date of this Prospectus, except (i) sales of IBC
Common Stock by Ralston to IBC or (ii) options granted and IBC Common Stock
issued pursuant to employee benefit plans and stock option plans existing on
the date of this Prospectus.
Ralston and IBC have agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of
SAILS in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Representatives to
reclaim a selling concession from a syndicate member when SAILS originally
sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of SAILS
to be higher than it would otherwise be in the absence of such transactions.
The SAILS will be a new issue of securities with no established trading
market. The SAILS have been approved for listing on the NYSE subject to
official notice of issuance. The Underwriters intend to make a market in the
SAILS, subject to applicable laws and regulations. However, the Underwriters
are not obligated to do so and any such market-making may be discontinued at
any time at the sole discretion of the Underwriters without notice.
Accordingly, no assurance can be given as to the liquidity of such market.
This offering is being made pursuant to the provisions of Section 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the SAILS in Canada is being made only on a private
placement basis exempt from the requirement that Ralston prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of SAILS are effected. Accordingly, any resale of the SAILS in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the SAILS.
REPRESENTATIONS OF PURCHASERS
Each purchaser of SAILS in Canada who receives a purchase confirmation will
be deemed to represent to Ralston and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such SAILS without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
27
<PAGE>
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of SAILS to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any SAILS
acquired by such purchaser pursuant to this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Ralston. Only one such report
must be filed in respect of SAILS acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of SAILS should consult their own legal and tax advisers
with respect to the tax consequences of an investment in the SAILS in their
particular circumstances and with respect to the eligibility of the SAILS for
investment by the purchaser under relevant Canadian legislation.
LEGAL OPINIONS
The validity of the SAILS will be passed upon for Ralston by James M.
Neville, Vice President, General Counsel and Assistant Secretary of Ralston.
At June 30, 1997, Mr. Neville was the beneficial owner of 26,485 shares of
Common Stock of Ralston. Additionally, as of June 30, 1997, 439 shares of
Common Stock, and 1,499 shares of Ralston's Series A ESOP Preferred Stock,
convertible under certain conditions into Common Stock, of Ralston were
allocated to Mr. Neville's accounts under certain of Ralston's benefit plans.
Certain tax matters with respect to the SAILS will be passed upon for Ralston
by Bryan Cave LLP, St. Louis, Missouri. Certain legal matters will be passed
upon for the Underwriters by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), New York, New York. Simpson Thacher &
Bartlett will rely on the opinion of James M. Neville as to certain matters of
Missouri law.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Ralston Purina Company Annual Report on Form 10-K for the year ended September
30, 1996, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
28
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY RALSTON OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER BY BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF RALSTON SINCE SUCH DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Summary of the Offering.................................................. 3
Risk Factors Relating to SAILS........................................... 4
Ralston Purina Company................................................... 7
Use of Proceeds.......................................................... 7
Ratio of Earnings to Fixed Charges....................................... 7
Interstate Bakeries Corporation.......................................... 8
Relationship between Ralston Purina Company and Interstate Bakeries
Corporation............................................................. 9
Price Range of Interstate Bakeries Corporation Common Stock and
Dividends............................................................... 10
Capitalization........................................................... 11
Selected Financial Information of Ralston................................ 12
Description of the SAILS................................................. 13
Certain United States Federal Income Tax Considerations.................. 23
Underwriting............................................................. 26
Notice to Canadian Residents............................................. 27
Legal Opinions........................................................... 28
Experts.................................................................. 28
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
$419,998,187.50
6,781,000
Stock Appreciation Income
Linked Securities (SAILS)
7% Exchangeable Notes Due August 1, 2000
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
J.P. MORGAN & CO.
SALOMON BROTHERS INC
- -------------------------------------------------------------------------------
