SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of
the Commission Only (as
Permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.
14a-12
Interstate Bakeries Corporation
..............................................................................
(Name of Registrant as Specified in its Charter)
..............................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
......................................................................
2) Aggregate number of securities to which transaction applies:
......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
......................................................................
4) Proposed maximum aggregate value of transaction:
......................................................................
5) Total fee paid:
.....................................................................
/ / Fee paid previously with preliminary materials.
<PAGE>
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.......................................................
2) Form, Schedule or Registration Statement No.:
.......................................................
3) Filing Party:
.......................................................
4) Date Filed:
.......................................................
<PAGE>
INTERSTATE BAKERIES CORPORATION
12 East Armour Boulevard
Kansas City, Missouri 64111
(816) 502-4000
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 23, 1997
--------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Interstate Bakeries Corporation
(the "Company") will be held on September 23, 1997, at 10:00 a.m., at the
Waddell & Reed Auditorium, 6300 Lamar, Shawnee Mission, Kansas 66202, for the
following purposes:
1. To elect two Class I Directors to serve a term of three years and
until their successors shall be elected and qualified;
2. To consider and act upon a proposal to amend Section 4.01 of Article
FOURTH of the Company's Restated Certificate of Incorporation to
increase the number of shares of all classes of stock which the
Company shall have the authority to issue from 61,000,000 shares,
consisting of 60,000,000 shares of Common Stock, par value $.01 per
share and 1,000,000 shares of Preferred Stock, par value $.01 per
share, to 121,000,000 shares, consisting of 120,000,000 shares of
Common Stock, par value $.01 per share and 1,000,000 shares of
Preferred Stock, par value $.01 per share;
3. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the books and accounts of the Company for the fiscal year
ending May 30, 1998; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on August 8, 1997,
are entitled to notice of and to vote at the meeting or any adjournment
thereof.
All stockholders are cordially invited to attend the meeting. Whether or
not you expect to attend the meeting, please complete, date, sign and return
the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A postage-prepaid envelope is enclosed for
that purpose. The prompt return of proxies will assure a quorum and save the
Company the expense of further solicitation. If you attend the meeting, you
may vote personally on all matters, and in that event, the proxy will not be
voted. A copy of the Company's Annual Report for fiscal year 1997 accompanies
this Notice and the Proxy Statement.
By order of the Board of Directors
/s/ Ray Sandy Sutton
Ray Sandy Sutton
Corporate Secretary
August 25, 1997
<PAGE>
INTERSTATE BAKERIES CORPORATION
---------------
PROXY STATEMENT
---------------
This Proxy Statement, which is being mailed to stockholders on or about
August 25, 1997, is furnished in connection with the solicitation by the Board
of Directors of Interstate Bakeries Corporation (the "Company") of proxies to
be voted at the Annual Meeting of Stockholders (the "Meeting") to be held on
September 23, 1997, commencing at 10:00 a.m. at the Waddell & Reed Auditorium,
6300 Lamar, Shawnee Mission, Kansas 66202. A stockholder may revoke his or
her proxy by delivering a written notice to the Corporate Secretary of the
Company at any time prior to the voting or by attending the Meeting and voting
the shares in person.
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including preparation, assembly, printing and mailing of this
Proxy Statement, the proxy card and any additional information furnished to
stockholders. Original solicitation of proxies by mail may be supplemented by
telephone, telegram, facsimile or personal solicitation by directors, officers
or other regular employees of the Company, and the Company may reimburse
brokers or other persons holding stock in their names or in the names of
nominees for their expenses in sending proxy soliciting materials to
beneficial owners. No additional compensation will be paid to directors,
officers or other regular employees of the Company for such services.
The Board of Directors has fixed the close of business on August 8, 1997,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournment thereof and only stockholders of
record at the close of business on that date will be entitled to vote. On
August 8, 1997, the Company had outstanding 36,581,952 shares of common stock,
$.01 par value per share (the "Common Stock"), entitled to one vote per share.
A copy of the Company's Annual Report containing financial statements for
the fiscal year ended May 31, 1997 has been mailed with this Proxy Statement
to each stockholder of record as of the close of business on August 8, 1997.
The Company's Form l0-K as filed with the Securities and Exchange Commission
for the fiscal year ended May 31, 1997, will be mailed upon request, free of
charge, to all persons who are record or beneficial holders of the Common
Stock as of August 8, 1997. To obtain a copy of such report, written request
should be made to the Company (Attention: Mr. Ray Sandy Sutton, Corporate
Secretary) at 12 East Armour Boulevard, Kansas City, Missouri 64111.
<PAGE>
VOTING PROCEDURES
Shares represented by a properly signed proxy received pursuant to this
solicitation will be voted in accordance with instructions thereon. If the
proxy is properly signed and returned and no instructions are given on the
proxy with respect to the matters to be acted upon, the shares represented by
the proxy will be voted at the Meeting FOR the election, as directors of the
Company, of the nominees hereinafter named, FOR the approval of the Amendment
to Section 4.01 of Article FOURTH of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares and FOR the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company. If any of the director nominees should unexpectedly
become unavailable for election for any reason, the shares represented by the
proxy will be voted for such substituted nominee or nominees as the Board of
Directors may name. Each of the nominees hereinafter named has indicated his
willingness to serve if elected, and it is not anticipated that any of them
will become unavailable for election.
The proxy confers discretionary authority, with respect to the voting of
the shares represented thereby, on any other business that may properly come
before the Meeting. The Board of Directors is not aware that any such other
business, other than as set forth in this Proxy Statement and except for
matters incident to the conduct of the Meeting, is to be presented for action
at the Meeting and does not itself intend to present any such other business;
however, if any such other business does come before the Meeting, shares
represented by proxies properly signed and returned pursuant to this
solicitation will be voted in accordance with the judgment of the person
voting such proxies.
A majority of the outstanding shares entitled to vote must be represented
in person or by proxy at the Meeting in order to take action on the proposals
presented in this Proxy Statement. If such a majority is represented at the
Meeting, then the two nominees for director receiving the greatest number of
votes at the Meeting will be elected as directors. Any shares not voted
(whether by abstention, broker non-vote or otherwise) have no impact in the
election of directors except to the extent the failure to vote for an
individual results in another individual receiving a larger proportion of the
total votes. The Amendment to Section 4.01 of Article FOURTH of the Restated
Certificate of Incorporation requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to notice of and
to vote at the Meeting. The ratification of the appointment of the
independent auditors requires the affirmative vote of a majority of shares
present in person or represented by proxy, and entitled to vote on the matter.
For purposes of determining the outcome of the vote on the proposal to amend
the Restated Certificate of Incorporation and to ratify the appointment of
auditors, an instruction to "abstain" from voting on either such proposal will
be treated as shares present and entitled to vote, and will have the same
effect as a vote against such proposal. "Broker non-votes," which occur when
brokers are prohibited from exercising discretionary voting authority for
beneficial owners who have not provided voting instructions, are not counted
for the purpose of determining the number of shares present in person or
represented by proxy on a voting matter and will have no effect on the outcome
of the vote on the Amendment to the Restated Certificate of Incorporation or
the ratification of appointment of the independent auditors. The Company's
stockholders will not have dissenters' rights of appraisal with respect to any
of the proposals in this Proxy Statement.
<PAGE>
SECURITY OWNERSHIP
Principal Stockholders
The following table sets forth information as of July 31, 1997, regarding
the ownership of the Company's Common Stock by each person known to the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock.
Shares and Nature of Percentage
Name and Address of Beneficial Owners Beneficial Ownership Held
- ------------------------------------- -------------------- ----------
VCS Holding Company 15,923,077(1) 43.53%
c/o Ralston Purina Company
Checkerboard Square
St. Louis, MO 63164
Metropolitan Life Insurance Company 2,441,730(2) 6.67
Mezzanine Investment Limited Partnership-8
1 Madison Avenue (10th Floor)
New York, NY 10010
______________________
(1) Includes Common Stock which may be exchangeable by Ralston Purina
Company upon the maturity of its SAILS, as described under Certain
Transactions.
(2) As of July 31, 1997, (x) Mezzanine Investment Limited Partnership-8,
99% of which is owned by Metropolitan Life Insurance Company
("Metropolitan Life") as limited partner and 1% of which is owned
by 23rd Street Investments, Inc., as general partner (100% of which
is owned by Metropolitan Life) and (y) Metropolitan Life,
collectively owned 2,441,730 shares of the Common Stock.
<PAGE>
Common Stock Owned By Management
The number of shares of Common Stock of the Company beneficially owned as
of July 31, 1997, by the directors, the Named Executive Officers (as defined
below) and all directors and executive officers as a group, are set forth
below:
Shares and Nature of Percentage
Name Beneficial Ownership Held
- ---- -------------------- ----------
Charles A. Sullivan 431,177(l) 1.17%
G. Kenneth Baum 67,906(2) *
Leo Benatar 13,000(3) *
E. Garrett Bewkes, Jr. 12,480(3) *
Philip Briggs 1,000 *
Robert B. Calhoun, Jr. 11,366(3) *
James R. Elsesser 14,550(3) *
Frank E. Horton 12,500(3) *
William P. Stiritz 595,050(3)(4) 1.63
Michael D. Kafoure 66,667(1) *
H. L. Shetler 76,954(1) *
Ray Sandy Sutton 15,131(1) *
Paul E. Yarick 47,896(1) *
All directors and executive officers
as a group (14 persons) 1,391,626(1) 3.77
_____________________
*Less than 1%
(l) Of the shares indicated, 143,148 (Mr. Sullivan), 66,667 (Mr.
Kafoure), 46,767 (Mr. Shetler), 10,000 (Mr. Sutton), 30,834 (Mr.
Yarick) and 370,750 (all directors and executive officers as a
group) are attributable to currently exercisable stock options or
stock options exercisable within 60 days.
(2) Mr. Baum is a director and Chairman of the Board of George K. Baum
Group, Inc. Mr. Baum is also the majority stockholder of George K.
Baum Group, Inc. Of the 67,906 shares indicated, 10,000 are
attributable to currently exercisable stock options and 36,179 of
such shares are held by George K. Baum Group, Inc. Mr. Baum may be
deemed to beneficially own all 36,179 shares of the Common Stock
held by George K. Baum Group, Inc.
(3) Of the shares indicated, 10,000 are attributable to currently
exercisable stock options.
(4) Mr. Stiritz is not standing for re-election as a director.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires executive officers and directors of the Company, and persons who
beneficially own more than ten percent (10%) of the Common Stock ("reporting
persons"), to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon a review of the copies of such forms and amendments
thereto furnished to the Company and written representations from the
executive officers and directors, the Company believes that all forms required
to be filed by "reporting persons" of the Company were timely filed pursuant
to Section 16(a) of the Exchange Act.
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the name, age and present principal occupation or
employment and five-year employment history of each executive officer of the
Company. The executive officers of the Company serve at the pleasure of the
Board of Directors. The business address of each person listed below is 12
East Armour Boulevard, Kansas City, Missouri 64111. None of the executive
officers is related to any other director or executive officer by blood,
marriage or adoption and each is a citizen of the United States.
Present Principal Occupation or Employment
Name Age and Five-Year Employment History
---- --- ------------------------------------------
Charles A. Sullivan 62 Chairman of the Board and Chief Executive
Officer of the Company and Interstate Brands
Corporation ("Brands") for more than the past
five years; President of the Company and Brands
until January 1995; director of the Company
since August 1989.
Michael D. Kafoure 48 President and Chief Operating Officer of the
Company and Brands since September 1995; Senior
Vice President of the Western Division - North
from July 1995 to September 1995; President and
Chief Operating Officer of Merico, Inc., a
subsidiary of Campbell Taggart, Inc. from April
1994 to June 1995; President and Chief Operating
Officer of the U.S. Bakery Division of Campbell
Taggart, Inc. for more than two years prior
thereto.
H. L. Shetler 64 Executive Vice President of Brands for more than
the past five years.
Ray Sandy Sutton 59 Vice President, Corporate Secretary and General
Counsel of the Company and Brands for more than
the past five years.
John F. McKenny 47 Vice President and Corporate Controller of the
Company and Brands for more than the past five
years.
Paul E. Yarick 58 Vice President and Treasurer of the Company and
Brands for more than the past five years.
<PAGE>
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Company's Board of Directors consists of between five and nine
members, divided into three classes: Class I, Class II and Class III.
Directors in each such class are elected for three-year terms, with each class
standing for election in successive years. At the Meeting, two Class I
Directors will be elected to serve until the third succeeding Annual Meeting
of the Stockholders of the Company. Proxies may not be voted for more than
two persons in the election of Class I Directors at the Meeting. Charles A.
Sullivan and Leo Benatar, current Class I Directors of the Company, have been
nominated for re-election. William P. Stiritz, who also currently serves as a
Class I Director, is not standing for re-election. The following table sets
forth certain information with respect to the two nominees, the Class II
Directors (whose terms expire in 1998) and the Class III Directors (whose
terms expire in 1999). None of the directors is related to any other director
or executive officer by blood, marriage or adoption, and each is a citizen of
the United States.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR
A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
Principal Occupation
Director or Employment for the Last
Name Age Since Five Years and Directorships
---- --- -------- ----------------------------
Charles A. Sullivan 62 1989 Chairman of the Board and Chief
Executive Officer of the Company
and Brands for more than the past
five years; President of the
Company and Brands until January
1995. Mr. Sullivan is a director
of UMB Bank, n.a., Sealright Co.,
Inc. and The Andersons, Inc.
Leo Benatar(1) 67 1991 Associated Consultant for A. T.
Kearney, Inc. and Principal for
Benatar & Associates from June
1996 to present; Chairman of the
Board of Engraph, Inc. (a
subsidiary of Sonoco Products
Company) and Senior Vice
President of Sonoco Products
Company from October 1993 until
May 1996; Chairman and Chief
Executive Officer of Engraph,
Inc. from 1981 until October
1993. Mr. Benatar is a director
of Johns Manville Corporation,
Mohawk Industries, Inc., PAXAR
Corporation, Graphics Industries,
Inc. and Aaron Rents, Inc.;
Chairman and director of Federal
Reserve Bank of Atlanta until
January 1996.
<PAGE>
CLASS II DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
Principal Occupation
Director or Employment for the Last
Name Age Since Five Years and Directorships
---- --- -------- ----------------------------
Philip Briggs(1) 69 1991 Chairman of the Board of
Empire Blue Cross Blue Shield
since July 1993; formerly
Vice-Chairman and director of
Metropolitan Life Insurance
Company for more than one year
prior thereto.
Robert B. Calhoun, Jr. 54 1991 Managing Director of Monitor
Clipper Partners since April
1997; Chief Executive Officer
of the Clipper Group, L.P.
from January 1991. Mr.
Calhoun is a director of
Avondale Mills, Inc., Sterling
Chemicals, Hvide Marine and
TravelCenters of America, Inc.
Frank E. Horton(1)(2) 58 1992 President, The University of
Toledo for more than the past
five years. Dr. Horton is a
member of the Advisory Board
of Keybank of Northwest Ohio.
<PAGE>
CLASS III DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
Principal Occupation
Director or Employment for the Last
Name Age Since Five Years and Directorships
---- --- -------- ----------------------------
G. Kenneth Baum(2) 67 1988 Chairman of the Board of
George K. Baum Group, Inc.
from May 1994 to present;
Chairman of the Board of
George K. Baum & Company for
more than two years prior
thereto. Mr. Baum is a
director of H & R Block, Inc.,
Sealright Co., Inc. and Unitog
Company.
E. Garrett Bewkes, Jr.(1)(2) 70 1991 Consultant and Chairman for a
number of PaineWebber mutual
funds for more than the past
five years; formerly Chairman
of American Bakeries Company.
Mr. Bewkes is a director of
PaineWebber Group, Inc. and
Napro Bio-Pharmaceutical, Inc.
James R. Elsesser 53 1995 Vice President and Chief
Financial Officer of Ralston
Purina Company for more than
the past five years.
_____________________
(1) Member of the Audit Committee.
(2) Member of the Compensation and Stock Option Committee.
During the 1997 fiscal year, the Board of Directors held five meetings
and acted by written consent on six separate occasions. All directors
attended more than 75% of the Board of Directors' meetings.
<PAGE>
Committees of the Board
The Board of Directors has appointed an Audit Committee and a
Compensation and Stock Option Committee (the "Compensation Committee") to
assist in handling the various functions of the Board.
The Audit Committee members are Leo Benatar, Philip Briggs, E. Garrett
Bewkes, Jr. and Frank E. Horton. Mr. Benatar serves as Chairman of the Audit
Committee. The Audit Committee recommends to the full Board of Directors the
engagement of independent auditors, reviews with the auditors the scope and
results of the audit, reviews with the Company's internal auditors the scope
and results of the Company's internal audit procedures, reviews the
independence of the auditors and non-audit services provided by the auditors,
considers the range of audit and non-audit fees, reviews with the Company's
independent auditors and management the effectiveness of the Company's system
of internal accounting controls and makes inquiries into other matters within
the scope of its duties. The Audit Committee held two meetings during the
1997 fiscal year. All members of the Audit Committee attended the meetings,
except Mr. Benatar who was unable to attend either meeting.
The Compensation Committee members are E. Garrett Bewkes, Jr., G. Kenneth
Baum and Frank E. Horton. Mr. Bewkes serves as Chairman of the Compensation
Committee. The Compensation Committee recommends to the full Board of
Directors remuneration arrangements for senior management and directors, and
determines the number and terms of awards granted under the Company's 1996
Stock Incentive Plan (the "1996 Plan") which was approved by the stockholders
at the 1996 Annual Meeting. Prior to the establishment of the 1996 Plan, the
Compensation Committee administered the 1991 Stock Option Plan (the "1991
Plan") pursuant to which only stock options were awarded. The Compensation
Committee held three meetings during the 1997 fiscal year. All members of the
Compensation Committee attended the meetings.
The Company does not have a standing nominating committee.
Directors' Fees and Related Information
Directors who are not salaried employees of, or consultants to, the
Company are entitled to an annual retainer of $24,000 plus $2,000 for each
Board meeting attended. In addition, directors who are members of committees
of the Board of Directors and who are not salaried employees of, or
consultants to, the Company are entitled to receive $1,000 for each committee
meeting attended that is not conducted on the same day as a meeting of the
full Board of Directors and $750 for each committee meeting attended that is
conducted on the same day as a meeting of the full Board of Directors. In
addition, non-employee directors are eligible for awards of stock options and
restricted or unrestricted shares of Common Stock pursuant to the 1996 Plan.
In fiscal 1997, each of the non-employee directors was granted an option to
purchase 10,000 shares of the Company's Common Stock at an exercise price of
$37.00 per share, which was the closing sales price of the Company's Common
Stock on the date of the grant (September 24, 1996), exercisable immediately.
Directors may also elect to receive their retainers in the form of Common
Stock pursuant to the 1996 Plan.
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer, employee or a
former officer or employee of the Company or any of its subsidiaries during
the last fiscal year.
COMMON STOCK PERFORMANCE
The graph set forth below compares the yearly percentage change in
cumulative stockholder return of the Company's Common Stock since May 30, 1992
against the cumulative return of the Standard and Poor's Composite 500 Stock
Index ("S&P 500") and the Standard and Poor's Food Index ("S&P Food Index")
covering the same time period. The graph is based on $100 invested on May 30,
1992, in the Company's Common Stock, the S&P 500 and the S&P Food Index, each
assuming dividend reinvestment. The historical stock price performance shown
on this graph is not necessarily indicative of future performance.
PERFORMANCE GRAPH
5/30/92 5/29/93 5/28/94 6/03/95 6/01/96 5/31/97
------- ------- ------- ------- ------- -------
Interstate Bakeries 100.00 116.31 85.05 107.49 207.87 409.95
S&P 500 Index 100.00 111.61 116.36 139.86 178.75 231.33
S&P Food Index 100.00 104.86 104.16 131.36 154.60 204.02
EXECUTIVE COMPENSATION
The Compensation Committee, which consists of three non-employee
directors, recommends to the full Board of Directors the compensation of the
Chief Executive Officer. The Compensation Committee also approves and
monitors compensation guidelines for the Company's other executive officers as
recommended by the Chief Executive Officer. The Compensation Committee's
report for fiscal 1997 is set forth below.
Compensation Committee Report
The Compensation Committee believes that it is in the best interest of
the stockholders for the Company to attract, maintain and motivate dedicated
and talented management personnel, especially its executive officers, by
offering a competitive compensation package that maintains an appropriate
relationship between executive pay and the creation of stockholder value. The
general philosophy of the Compensation Committee is to integrate (i)
reasonable levels of annual base salary, (ii) annual incentive bonus awards
based upon achievement of short-term corporate and individual performance
goals, such that executive compensation levels will be higher in years in
which performance goals are achieved or exceeded and (iii) equity-based
grants, to ensure that management has a continuing stake in the long-term
success of the Company in return of value to its stockholders.
<PAGE>
The Compensation Committee recognizes that it must maintain base salary
levels approximately commensurate with other comparable companies in the food
industry with whom the Company competes for management personnel including,
but not limited to, those included in the S&P Food Index (the "Comparable
Companies"). However, the Compensation Committee believes that the
compensation program for its executive officers and key management personnel
should be primarily based upon performance. Therefore, base salaries for
executive officers and other key management personnel are maintained at a
level slightly below the mid-range level of such base salaries at the
Comparable Companies. The Compensation Committee utilizes external salary
surveys to establish base salaries in reference to the Comparable Companies.
In addition to the external salary surveys, the individual executive's level
of responsibility, prior experience, breadth of knowledge and overall skills
are factors considered by the Compensation Committee in approving base
salaries for each individual executive officer or key manager. Base salaries
are adjusted annually to reflect the operating performance of the Company for
the preceding fiscal year and average increases among the Comparable
Companies. Operating performance of the Company includes such measures as
sales volumes, market share performance, operating and net income margin
trends, growth in earnings and cash flow per share, returns on capital and
equity and increases in the value of the Company's Common Stock. Additional
adjustments to reflect changes in the market or in individual responsibilities
may be appropriate from time to time.
All executive officers and key management personnel of the Company are
eligible to receive cash incentive bonuses under the Company's Incentive
Compensation Plan. Incentive bonus awards are based upon the Company
achieving certain operating cash flow objectives. The Chief Executive Officer
submits proposed minimum, target and maximum operating cash flow objectives to
the Board of Directors for approval. Annual incentive bonus payments are
calculated based on a formula which compares the Company's actual operating
cash flow levels achieved to the objectives approved by the Board of
Directors. Payments range from zero to 200% of target bonus amounts for the
Chief Executive Officer and the divisional and corporate officers and zero to
150% for bakery management.
Awards granted pursuant to the 1996 Plan comprise the third element of
the compensation program for executive officers and key management personnel.
The Compensation Committee believes the Company's executive officers and key
management personnel should have a stake in the Company's ongoing success
through stock and other equity-based ownership. To date, only stock options
have been granted pursuant to the 1991 Plan and 1996 Plan.
The value of the stock options is related directly to the market price of
the Common Stock and thus to the long-term performance of the Company. The
exercise price (the "Exercise Price") of stock options granted to employees
under both the 1991 Plan and the 1996 Plan is the fair market value of the
Common Stock on the date of grant. The Compensation Committee has complete
discretion to select the optionees and to establish the terms and conditions
of each option, subject in all cases to the provisions of the 1996 Plan. The
1996 Plan is designed to reward the executives for long-term results. The
executives' potential to receive value from stock options will occur only if
the Company's stock price increases above the Exercise Price. The number of
stock options granted to any individual executive is generally based upon that
executive's level of responsibility.
<PAGE>
As with all executive officers of the Company, the compensation of the
Chief Executive Officer is reviewed by the Compensation Committee on a regular
basis in comparison to compensation paid to executives holding comparable
positions of responsibility including those employed at Comparable Companies.
When recommending compensation for the Chief Executive Officer, the
Compensation Committee utilizes the same factors applied to the other
executives of the Company. Mr. Sullivan's minimum base salary of $400,000 is
established under the terms of an Employment Agreement (the "Employment
Agreement") with the Company, but the Board of Directors has discretion to set
his base salary at an amount greater than the minimum. Although the
Compensation Committee specifically discusses the Chief Executive Officer's
contributions toward achieving the overall Company performance results, there
are no unique criteria applied to the compensation of the Chief Executive
Officer that are not also applied to other key executives and managers of the
Company.
Mr. Sullivan's fiscal 1997 compensation was determined in accordance with
the Company's compensation policy which provides that executive compensation
levels will be higher in years in which performance goals are achieved or
exceeded. Incentive compensation is based on operating cash flow objectives
defined with minimum, target and maximum operating cash flow goals. Fiscal
1997 performance was within the range of goals, therefore, Mr. Sullivan was
eligible for an incentive bonus for fiscal 1997.
Section 162(m) of the Internal Revenue Code of 1986 (the "IRC") imposes a
$1 million cap on the deductibility of compensation (other than certain
performance-based compensation) to certain executive officers of public
companies. The Compensation Committee evaluates the impact of the cap on its
compensation policies so as to conform such policies of the Company, to the
extent practicable, to the IRC. However, in any such evaluation, other
considerations, such as the retention of key personnel, may be determined to
be of more importance than tax savings.
Compensation Committee
E. Garrett Bewkes, Jr., Chairman
G. Kenneth Baum
Frank E. Horton
<PAGE>
Summary Compensation Table
The following table sets forth information concerning compensation
received for each of the last three fiscal years by (i) the Chief Executive
Officer of the Company as of May 31, 1997 and (ii) the four other most highly
compensated executive officers of the Company as of May 31, 1997, whose annual
compensation exceeded $100,000 for the fiscal year ended May 31, 1997 (the
individuals in (i) and (ii) are collectively referred to as the Named
Executive Officers). The Company has not awarded stock appreciation rights,
restricted stock or other long-term incentive compensation (other than stock
options) under the 1996 Plan.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------------ All Other
Annual Compensation Shares Compensation
Name and Principal Fiscal ---------------------- Underlying Options ------------
Position Year Salary($) Bonus ($) (#) ($) (1)
- ------------------ ------ --------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>
Charles A. Sullivan(2) 1997 $615,385 $1,120,000(3) 75,000 $12,800
Chairman of the 1996 600,000 598,416 -- 12,400
Board and Chief 1995 453,846 192,830 75,000 12,000
Executive Officer
Michael D. Kafoure 1997 307,692 440,000(3) 50,000 12,800
President and Chief 1996 228,367 248,568 50,000 37,400(4)
Operating Officer 1995 -- -- -- --
H. L. Shetler 1997 186,138 220,000(3) 20,000 12,800
Executive Vice 1996 180,415 220,000 -- 12,400
President 1995 143,298 141,476 35,000 12,000
Ray Sandy Sutton 1997 172,308 177,726 15,000 12,800
Vice President, 1996 145,577 161,580 -- 12,400
Corporate Secretary 1995 137,063 85,738 20,000 12,000
and General Counsel
Paul E. Yarick 1997 133,461 96,954 10,000 12,800
Vice President 1996 119,576 88,146 -- 12,400
and Treasurer 1995 107,080 60,507 20,000 12,000
_____________________
</TABLE>
<PAGE>
(1) These amounts represent contributions by the Company to the Company's
Retirement Income Plan for the benefit of each executive, excluding the
amount described in (4) below.
(2) The Employment Agreement between the Company and Mr. Sullivan provides
that Mr. Sullivan will serve as Chairman of the Board of the Company and
Chief Executive Officer of the Company and Brands. The Employment
Agreement, which is automatically renewed on May 31 of each year unless
terminated by the Company and Brands or Mr. Sullivan, further provides
that Mr. Sullivan will receive a minimum annual salary of $400,000 and
will be eligible for an annual bonus, each to be determined by the Board.
In the event Mr. Sullivan's employment with the Company is terminated
without his consent, the Employment Agreement limits Mr. Sullivan's
ability to compete with the Company and provides for full salary and
benefits for a period of two years from the date of such termination and
a lump sum payment equal to the aggregate annual bonuses paid to Mr.
Sullivan for the two most recent fiscal years prior to such termination.
(3) Of the bonus amounts indicated, 76% (Mr. Sullivan), 15% (Mr. Kafoure)
and 100% (Mr. Shetler) have been deferred.
(4) Mr. Kafoure was employed by the Company on July 19, 1995. In conjunction
with his employment, Mr. Kafoure was paid a relocation bonus of $25,000.
<PAGE>
Stock Options
The following two tables set forth information for the last completed
fiscal year relating to (i) the grant of stock options to the Named Executive
Officers and (ii) the exercise and appreciation of stock options held by the
Named Executive Officers.
OPTION GRANTS IN THE FISCAL YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
Number of Percent of Exercise Potential Realizable
Shares Total Options or Value of Stock Price
Underlying Granted to Base Appreciation(2)
Options Employees Price Expiration ------------------------
Name Granted(1) In FY ($/sh) Date 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Sullivan 75,000 7.19% $37.00 09/23/06 $1,745,183 $4,422,635
Michael D. Kafoure 50,000 4.79 37.00 09/23/06 1,163,455 2,948,424
H. L. Shetler 20,000 1.92 37.00 09/23/06 465,382 1,179,369
Ray Sandy Sutton 15,000 1.44 37.00 09/23/06 349,037 884,527
Paul E. Yarick 10,000 .96 37.00 09/23/06 232,691 589,685
__________________
(1) All stock options were granted at an Exercise Price equal to the fair
market value of the underlying Common Stock on the date of grant. The
stock options become exercisable over a three-year period after the date
of grant - one-third after the first year, another one-third after the
second year and the total option shares after three years.
(2) Potential realizable value is based on the assumption that the price of
the Company's Common Stock appreciates at the annual rate shown
(compounded annually) from the date of option grant until the end of the
ten year option term. There can be no assurance that the potential
realizable values shown in the table will be achieved.
</TABLE>
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND OPTION VALUES AT
MAY 31, 1997
<TABLE>
<CAPTION>
Number of Shares
Underlying Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired at Fiscal Year-end at Fiscal Year-end(1)
On Value -------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Sullivan 121,852 $2,400,380 118,148 75,000 $4,666,689 $1,256,250
Michael D. Kafoure -- -- 50,000 50,000 1,665,000 837,500
H. L. Shetler 18,749 643,506 40,100 20,000 1,755,162 335,000
Ray Sandy Sutton 5,000 183,125 5,000 15,000 196,875 251,250
Paul E. Yarick 20,792 708,037 27,500 10,000 1,172,175 167,500
_____________________
(l) The value of unexercised, in-the-money options is the difference between
the Exercise Price of the options and the fair market value of the
Company's Common Stock at May 31, 1997 ($53.75).
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
On July 22, 1995, the Company acquired Continental Baking Company from
Ralston Purina Company for $220,000,000 in cash and 16,923,077 shares of the
Company's Common Stock. In connection therewith, Ralston Purina Company and
the Company entered into a Shareholder Agreement which provided, among other
things, that Mr. Elsesser be elected to the Board of the Company to serve
until 1999 and that Ralston Purina Company reduce its ownership of the
Company's Common Stock below 15% by August 15, 2000.
On July 29, 1997, Ralston Purina Company issued $479,953,687.50 of 7%
Stock Appreciation Income Linked Securities ("SAILS") which may be
exchangeable upon maturity on August 1, 2000, for shares of the Common Stock
of the Company owned by Ralston Purina Company. Registration Statements
covering the SAILS and the related Common Stock were filed pursuant to the
Shareholder Agreement and declared effective by the SEC on July 23, 1997. In
connection with the registration of the SAILS and the Common Stock, the
Company paid certain filing fees, printing expenses and related fees in the
approximate amount of $500,000.
Pursuant to certain rights of first refusal of the Company as provided in
the Shareholder Agreement, in connection with the SAILS transaction, the
Company purchased from Ralston Purina Company 1,000,000 shares of the
Company's Common Stock for $60,079,375 or $60.079375 per share, which amount
was the closing sales price of the Common Stock on the New York Stock Exchange
on the date of pricing of the SAILS of $61.9375, less a 3% discount.
PROPOSAL NO. 2 - AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES
The Board of Directors has unanimously approved an amendment to Section
4.01 of Article FOURTH of the Restated Certificate of Incorporation to
increase the number of shares of all classes of stock which the Company shall
have authority to issue from 61,000,000, consisting of 60,000,000 shares of
Common Stock, par value $.01 per share and 1,000,000 shares of Preferred
Stock, par value $.01 per share, to 121,000,000 shares, consisting of
120,000,000 shares of Common Stock, par value $.01 per share and 1,000,000
shares of Preferred Stock, par value $.01 per share.
Currently, section 4.01 of Article FOURTH provides as follows:
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 61,000,000 shares,
consisting of 60,000,000 shares of Common Stock of $.01 par value
("Common Stock") and 1,000,000 shares of Preferred Stock of $.01 par
value ("Preferred Stock").
As amended, Section 4.01 of Article FOURTH would read in its entirety as
follows:
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 121,000,000 shares,
consisting of 120,000,000 shares of Common Stock of $.01 par value
("Common Stock") and 1,000,000 shares of Preferred Stock of $.01 par
value ("Preferred Stock").
<PAGE>
In all other respects the Restated Certificate of Incorporation will
remain unchanged. The text of the proposed Amendment is attached hereto as
Appendix A.
As of August 8, 1997, 36,581,952 shares of Common Stock were issued and
outstanding and no shares of Preferred Stock were issued and outstanding. An
additional 5,510,838 shares of Common Stock are reserved for issuance upon
exercise of stock options under the 1996 Plan. The Board of Directors
believes that the additional shares of Common Stock will afford the Company
greater flexibility in meeting the future capital requirements of the Company
and for any corporate needs which may arise. This might include, without
limitation, issuances as part or all of the consideration paid by the Company
for the possible acquisition of a property, business or entity and obtaining
capital for use in the Company's business and operations. The Company has no
agreements, plans, proposals, commitments, undertakings or arrangements which
would result in the issuance of any additional shares of Common Stock and
there can be no assurance that any such transaction will be entered into
resulting in the issuance of additional shares. The additional authorized
shares will not have any preemptive rights.
The Board of Directors may issue the additional authorized shares
without further action or authorization by the stockholders (except as may be
required by law or by any stock exchange on which the Company's securities may
then be listed) for corporate purposes which the Board of Directors may deem
desirable, including, without limitation, stock splits, stock dividends or
other distributions, financings, acquisitions, stock grants, options and
employee benefit plans.
Difficulty in Effecting Changes in Control
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. The Company is authorized to
issue up to 1,000,000 shares of Preferred Stock, the relative rights and
preferences of which may be fixed by the Company's Board of Directors, without
stockholder approval. While the Company has no present plans to issue any
shares of Preferred Stock, the future issuance thereof could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, outstanding voting stock of the Company.
Generally, pursuant to the Company's Restated Certificate of
Incorporation, any business combination between the Company and a stockholder
who beneficially owns 5% or more of the Company's outstanding voting stock (an
"Interested Stockholder") must be approved by the affirmative vote of not less
than a majority of the Company's outstanding voting stock held by the
stockholders who are not involved in the transaction. Exceptions to this rule
exist for: (1) a business combination that is solely between the Company and
another corporation whose voting stock is 100% owned, directly or indirectly,
by the Company, and (2) a business combination that is a merger or
consolidation and the value of the consideration to be received per share by
holders of Common Stock is not less than the highest per-share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends and like distributions), paid by the Interested Stockholder in
acquiring any of its holdings of Common Stock. Further, the conditions of the
provision may be waived by the Company's Board of Directors in appropriate
circumstances as set forth in the Restated Certificate of Incorporation.
<PAGE>
The term "business combination" generally includes: (1) a merger or
consolidation of the Company or a subsidiary with or into an Interested
Stockholder; (2) a sale, lease, exchange, transfer or other disposition to an
Interested Stockholder of all or any substantial part of the assets either of
the Company or of a subsidiary; (3) any merger or consolidation of an
Interested Stockholder with or into the Company or a subsidiary; (4) any sale,
lease, exchange, transfer or other disposition of all or any substantial part
of the assets of an Interested Stockholder to the Company or a subsidiary; (5)
except in certain circumstances, the issuance of any securities of the Company
or a subsidiary to an Interested Stockholder; (6) any recapitalization that
would have the effect of increasing the voting power of an Interested
Stockholder by more than 10%; and (7) any agreement, contract or other
arrangement providing for any of the transactions described above.
The Company's Restated Certificate of Incorporation provides for a
classified board of directors with staggered three-year terms, a provision
that increases the difficulty of removing all of the incumbent directors at
one time which, in turn, could discourage a proxy contest.
Board Recommendation
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to notice of and to vote at the Meeting is
required under Delaware law for the adoption of the Amendment to Section 4.01
of Article FOURTH of the Company's Restated Certificate of Incorporation.
Accordingly, if the proposal is adopted, the Board of Directors intends to
file an amendment to the Company's Restated Certificate of Incorporation
following the Annual Meeting, in substantially the final form of Appendix A to
this Proxy Statement, subject to any changes as may be required by law or
otherwise deemed advisable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
PROPOSAL NO. 3 - APPOINTMENT OF AUDITORS
Stockholders are asked to ratify the appointment of Deloitte & Touche LLP
as independent auditors of the books and accounts of the Company for the
fiscal year ending May 30, 1998.
Representatives of Deloitte & Touche LLP plan to attend the Meeting and
will have an opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND OTHER MATTERS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting must be made in compliance with the rules and regulations of the
Securities and Exchange Commission and be received by the Corporate Secretary,
Interstate Bakeries Corporation, 12 East Armour Boulevard, Kansas City,
Missouri 64111, no later than April 22, 1998, in order to be eligible for
inclusion in the Company's fiscal year 1998 proxy materials.
<PAGE>
Management does not intend to bring any other matters before the Meeting
and is not aware of any matters to come before the Meeting other than those
referred to in the Proxy Statement. However, if any other matters should
properly come before the Meeting, it is intended that the proxies solicited
hereby will be voted thereon in accordance with the judgment of the person
voting such proxies.
By Order of the Board of Directors
/s/ Ray Sandy Sutton
Ray Sandy Sutton
<PAGE>
APPENDIX A
BE IT RESOLVED, that, subject to the approval of the stockholders,
Article FOURTH of the Restated Certificate of Incorporation of the Company be
amended to read as follows:
Section 4.01 Authorized Capital.
------------------ The total number of shares of all
classes of stock which the Corporation shall have the
authority to issue is 121,000,000 shares, consisting
of 120,000,000 shares of Common Stock of $.01 par
value ("Common Stock") and 1,000,000 shares of
Preferred Stock of $.01 par value ("Preferred Stock").
<PAGE>
FORM OF PROXY
INTERSTATE BAKERIES CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints PAUL E. YARICK, RAY SANDY SUTTON and LINDA L.
THOMPSON, in the order named, as proxies (each with the power to act alone and
with power of substitution) to vote, as directed below, all shares of common
stock of INTERSTATE BAKERIES CORPORATION (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders to be held on Tuesday, September 23, 1997, at 10:00 a.m. at the
Waddell & Reed Auditorium, 6300 Lamar, Shawnee Mission, Kansas or any
adjournment thereof, as follows:
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below)
Charles A. Sullivan Leo Benatar
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
-----------------------------------------------
2. APPROVAL OF AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
3. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP as independent
auditors of the Company for the fiscal year ending May 30, 1998.
/ / FOR / / AGAINST / / ABSTAIN
4. In accordance with their discretion upon such other matters as may
properly come before the meeting and any adjournment thereof.
( to be signed and dated on reverse side.)
<PAGE>
When properly executed, this proxy will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this proxy will be
voted FOR the election of Directors, FOR amendment of the Company's Restated
Certificate of Incorporation and FOR ratification of the appointment of
Deloitte & Touche LLP as auditors of the Company. The Board of Directors
recommends a vote FOR proposals 1, 2 and 3.
Please sign exactly as name appears below.
DATED , 1997
---------------------------
---------------------------------------
(Signature)
---------------------------------------
(Signature)
Please sign here exactly as name appears to the
left. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. Each joint owner or
trustee should sign the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
