SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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<PAGE>
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<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 21, 1999
-------------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Interstate Bakeries Corporation (the
"Company") will be held on September 21, 1999, at 10:00 a.m., in the Atkins
Auditorium of The Nelson-Atkins Museum of Art, 4525 Oak Street, Kansas City,
Missouri 64111, for the following purposes:
1. To elect three Class III Directors to serve a term of three years
expiring in 2002;
2. 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 June 3, 2000; and
3. 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 6, 1999, 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 1999 accompanies this Notice and the Proxy
Statement.
By Order of the Board of Directors
/s/ Ray Sandy Sutton
Ray Sandy Sutton
Corporate Secretary
August 23, 1999
<PAGE>
INTERSTATE BAKERIES CORPORATION
----------
PROXY STATEMENT
----------
This Proxy Statement, which is being mailed to stockholders on or about
August 23, 1999, 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 21, 1999, commencing at 10:00 a.m. in the Atkins Auditorium of The
Nelson-Atkins Museum of Art, 4525 Oak Street, Kansas City, Missouri 64111. 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 6, 1999, 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
6, 1999, the Company had outstanding 70,293,437 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 29, 1999 has been mailed with this Proxy Statement to
each stockholder of record as of the close of business on August 6, 1999. The
Company's Form 10-K as filed with the Securities and Exchange Commission for the
fiscal year ended May 29, 1999, will be mailed upon request, free of charge, to
all persons who are record or beneficial holders of the Common Stock as of
August 6, 1999. 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.
1
<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 and FOR the ratification of the appointment of
Deloitte & Touche LLP as independent auditors of the Company. 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 three 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 on 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
ratification of the appointment of 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 ratify the appointment of auditors, an instruction to
"abstain" from voting 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 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.
2
<PAGE>
SECURITY OWNERSHIP
Principal Stockholders
The following table sets forth information as of July 30, 1999, regarding
the ownership of the Common Stock by each person known to the Company to be the
beneficial owner of more than 5% of the Common Stock.
Amount and Nature of Percentage
Name and Address of Beneficial Owners Beneficial Ownership Held
- ------------------------------------- -------------------- ----
VCS Holding Company(1) 30,346,154 43.17%
c/o Ralston Purina Company
Checkerboard Square
St. Louis, MO 63164
- -------------------
(1) Includes Common Stock which may be exchangeable by Ralston Purina
Company ("RPC") upon the maturity of its SAILS, as described under Certain
Transactions.
<PAGE>
Common Stock Owned By Management
The number of shares of Common Stock of the Company beneficially owned as of
July 30, 1999, by the directors, the Named Executive Officers (as defined below)
and all directors and executive officers as a group, are set forth below:
Amount and Nature of Percentage
Name Beneficial Ownership Held
- ---- -------------------- ----
Charles A. Sullivan 710,750(1)(6) 1.01%
Michael J. Anderson 20,150(5) *
G. Kenneth Baum 175,812(2) *
Leo Benatar 66,610(3) *
E. Garrett Bewkes, Jr. 79,810(3) *
Robert B. Calhoun, Jr. 62,732(3) *
James R. Elsesser 69,100(3) *
Frank E. Horton 45,000(4) *
Michael D. Kafoure 341,668(1) *
Ray Sandy Sutton 69,163(1) *
Brian E. Stevenson 45,725(1) *
Mark D. Dirkes 122,756(1) *
All directors and executive officers 1,946,253(1)(6) 2.72
as a group (15 persons)
- ---------------------
*Less than 1%
(1) Of the shares indicated, 216,088 (Mr. Sullivan), 341,668 (Mr. Kafoure),
68,334 (Mr. Sutton), 43,334 (Mr. Stevenson), 79,738 (Mr. Dirkes) and 1,192,514
(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 175,812 shares indicated, 60,000 are attributable to currently
exercisable stock options and 72,358 of such shares are held by George K. Baum
Group, Inc. Mr. Baum may be deemed to beneficially own all 72,358 shares of the
Common Stock held by George K. Baum Group, Inc.
(3) Of the shares indicated, 60,000 are attributable to currently
exercisable stock options.
(4) Of the shares indicated, 40,000 are attributable to currently
exercisable stock options.
(5) Of the shares indicated, 20,000 are attributable to currently
exercisable stock options.
(6) Includes 133,333 shares vested, or to be vested within 60 days, under
the 200,000 deferred share award granted September 23, 1997, as described in
footnote 3 to the Summary Compensation Table.
3
<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 copies of such forms and amendments thereto
furnished to the Company and written representations from the executive officers
and directors, to the Company's knowledge, all forms required to be filed by
"reporting persons" of the Company were timely filed pursuant to Section 16(a)
of the Exchange Act, with the exception of a Form 4 inadvertently filed late for
James R. Widler and a Form 3 inadvertently filed late for Robert P. Morgan.
COMMON STOCK PERFORMANCE
The following performance graph compares the changes, for the period
indicated, in the cumulative total value of $100 hypothetically invested in each
of (a) the Common Stock, (b) the S&P 500 Index, and (c) S&P Food Index. Both the
indices are weighted by capitalization. The S&P 500 Index reflects the
performance of 500 large companies measured by their level of capitalization.
The S&P Food Index reflects the performance of 12 companies represented in the
foods sector of the S&P 500 Index. For the purpose of preparing this graph it
has been assumed that all dividends have been reinvested. The historical stock
price performance shown on this graph is not necessarily indicative of future
performance.
[PERFORMANCE GRAPH]
5/28/94 6/03/95 6/01/96 5/31/97 5/30/98 5/29/99
------- ------- ------- ------- ------- -------
Interstate Bakeries
Corporation 100.00 126.38 244.43 482.03 590.21 400.19
S&P 500 Index 100.00 120.19 154.37 199.77 261.08 315.97
S&P Food Index 100.00 126.11 148.56 196.06 265.53 234.55
4
<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 and its wholly owned subsidiaries, Interstate Brands Corporation and
Interstate Brands West Corporation (such subsidiaries collectively referred to
herein as "Brands"). The executive officers of the Company and Brands 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 64 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; director of the Company
since August 1989.
Michael D. Kafoure 50 President and Chief Operating Officer of the
Company and Brands since September 1995; Senior
Vice President of the Western Division -
Northwest Region from July 1995 to September
1995; President and Chief Operating Officer of
Merico, Inc., a subsidiary of Campbell Taggart,
Inc., for more than one year prior thereto.
Frank W. Coffey 56 Senior Vice President and Chief Financial Officer
of the Company and Brands since May 1999; Vice
President of Corporate Development of the Company
from January 1999 to May 1999; President and
Co-Owner of My Bread Baking Co. for more than
five years prior thereto.
Mark D. Dirkes 52 Senior Vice President and Director of Corporate
Marketing of Brands since September 1995; Vice
President of Marketing of Brands for more than
one year prior thereto.
Brian E. Stevenson 44 Senior Vice President and Director of Purchasing
of Brands since September 1997; Director of
Marketing of Farmland Grain, a division of
Farmland Industries, from August 1995 to
September 1997; Vice President of Tradigrain,
Inc. for more than one year prior thereto.
Ray Sandy Sutton 61 Vice President, Corporate Secretary and General
Counsel of the Company and Brands for more than
the past five years.
John F. McKenny 49 Vice President and Corporate Controller of the
Company and Brands for more than the past five
years.
Paul E. Yarick 60 Vice President and Treasurer of the Company and
Brands for more than the past five years.
5
<PAGE>
EXECUTIVE COMPENSATION
The Compensation and Stock Incentive Committee (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 1999 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.
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 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 or earnings per share objectives. The Chief
Executive Officer submits proposed minimum, target and maximum operating cash
flow and earnings per share 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 and/or earnings per share 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.
<PAGE>
Awards granted pursuant to the Company's 1996 Stock Incentive Plan (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.
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 Stock Option Plan (the "1991 Plan") and the 1996
6
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.
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 1999 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 earnings per share objectives
defined with minimum, target and maximum levels. Fiscal 1999 performance was
within the range of goals, therefore, Mr. Sullivan was eligible for an incentive
bonus for fiscal 1999. The Compensation Committee also believes it important to
provide incentive to Mr. Sullivan through equity participation plans. In
furtherance of this goal, during fiscal 1998 the Company granted to Mr. Sullivan
the right to receive in the future up to 200,000 shares of Common Stock, which
vests over three years, one-third per year that he remains employed by the
Company, as described in footnote 3 to the Summary Compensation Table.
<PAGE>
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
7
<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 29, 1999 and (ii) the four other most highly compensated
executive officers of the Company and Brands as of May 29, 1999, whose annual
compensation exceeded $100,000 for the fiscal year ended May 29, 1999 (the
individuals in (i) and (ii) are collectively referred to as the Named Executive
Officers).
Long-Term All
Compensation Other
------------- Compen-
Annual Compensation Shares Under- sation
Name and Principal Fiscal -------------------- lying Options --------
Position Year Salary($) Bonus($) (#) ($) (1)
-------- ---- --------- ---------- ------------- --------
Charles A. Sullivan (2)(3) 1999 $ 800,000 $ 324,211 -- $ 12,800
Chairman of the Board 1998 800,000 1,120,000 -- 12,800
and Chief Executive 1997 615,385 1,120,000 150,000 12,800
Officer
Michael D. Kafoure 1999 425,000 135,329 25,000 12,800
President and Chief 1998 401,923 467,500(4) 200,000 12,800
Operating Officer 1997 307,692 440,000 100,000 12,800
Ray Sandy Sutton 1999 230,000 51,447 15,000 12,800
Vice President, 1998 202,308 177,726 50,000 12,800
Corporate Secretary 1997 172,308 177,726 30,000 12,800
and General Counsel
Brian E. Stevenson 1999 170,000 28,066 10,000 12,800
Senior Vice President 1998 87,885 96,954 50,000 50,300(5)
and Director of 1997 -- -- -- --
Purchasing
Mark D. Dirkes 1999 155,538 38,260 15,000 12,800
Senior Vice President 1998 135,384 132,170 50,000 12,800
and Director of 1997 124,477 132,170 30,000 12,800
Marketing
- -------------------
(1) These amounts represent contributions by the Company to the Company's
Retirement Income Plan for the benefit of each executive.
(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.
<PAGE>
(3) Pursuant to a deferred share award granted under the 1996 Plan, on
September 23, 1997, the Company granted to Mr. Sullivan the right to receive in
the future 200,000 shares of Common Stock. Mr. Sullivan's right to receive the
Common Stock in the future vests over three years, one-third per year that he
remains employed by the Company. Such vesting is accelerated upon Mr. Sullivan's
death, disability or upon the occurrence of a Change of Control Event (as
defined in the 1996 Plan). The shares with respect to which rights shall have
vested shall be issued to Mr. Sullivan on the first day of the fiscal year
following the fiscal year in which his employment terminates. As of the date of
this Proxy Statement, one-third of the shares have vested and Mr. Sullivan holds
no restricted stock.
(4) Of the bonus amount indicated, 25% has been deferred.
(5) Mr. Stevenson was employed by the Company on September 15, 1997. In
conjunction with his employment, Mr. Stevenson was paid a sign-on bonus of
$37,500.
8
<PAGE>
Stock Options
The following two tables set forth information for the last completed fiscal
year relating to (i) the grant of stock options to the Named Executive Officers
and (ii) the exercise and appreciation of stock options held by the Named
Executive Officers.
OPTION GRANTS IN THE FISCAL YEAR ENDED MAY 29, 1999
Potential
Realizable
Exer- Value of
Number of Percent of cise Stock Price
Shares Total Options or Appreciation
Underlying Granted Base Expir- (2)
Options to Employees Price ation ---------------------
Name Granted (1) in FY ($/sh) Date 5% 10%
- ---------- ----------- ------------- -------- ---------- --------- -----------
Charles A.
Sullivan - -% $ - - $ - $ -
Michael D.
Kafoure 25,000 2.60 27.0625 08/06/08 425,487 1,078,266
Ray Sandy
Sutton 15,000 1.56 27.0625 08/06/08 255,292 646,960
Brian E.
Stevenson 10,000 1.04 27.0625 08/06/08 170,195 431,307
Mark D.
Dirkes 15,000 1.56 27.0625 08/06/08 255,292 646,960
- ----------
(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
third one-third after three years.
(2) Potential realizable value is based on the assumption that the price of
the Common Stock appreciates at the annual rate shown (compounded annually) from
the date of option grant until the end of the 10-year option term. There can be
no assurance that the potential realizable values shown in the table will be
achieved.
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND OPTION VALUES AT MAY 29, 1999
Number of Shares
Underlying
Unexercised Value of Unexercised
Options In-The-Money Options
Shares at Fiscal Year-end at Fiscal Year-end (1)
Acquired ------------------- ------------------------
on Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercise Realized able able able able
- ---------- -------- ---------- -------- ---------- ---------- -----------
Charles A.
Sullivan 56,208 $1,059,357 220,088 50,000 $2,151,918 $168,750
Michael D.
Kafoure - - 233,334 191,666 1,389,998 112,502
Ray Sandy
Sutton - - 36,668 58,332 67,500 33,750
Brian E.
Stevenson - - 30,000 30,000 - -
Mark D.
Dirkes 4,000 96,500 48,072 58,332 301,989 33,750
- ---------------------
(1) 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 Common Stock
at May 29, 1999 ($21.875).
CERTAIN TRANSACTIONS
On July 22, 1995, the Company acquired Continental Baking Company ("CBC")
from Ralston Purina Company ("RPC") for $220,000,000 in cash and 33,846,154
shares of the Common Stock. In connection therewith, RPC 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 RPC
reduce its ownership of the Common Stock below 15% by August 15, 2000.
On July 29, 1997, RPC issued $479,953,687.50 of 7% Stock Appreciation Income
Linked Securities(SM) ("SAILS") which may be exchanged upon maturity on August
1, 2000, for shares of the Common Stock owned by RPC. 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, during
fiscal 1997 the Company purchased from RPC 2,000,000
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shares of the Common Stock for $60,079,375 or $30.0396875 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 $30.96875, less a 3% discount.
During fiscal 1998, the Company purchased from RPC 1,200,000 shares of the
Common Stock at an average price of $31.375 per share, and during fiscal 1999,
the Company purchased from RPC 500,000 shares at $28.375 per share.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Company's Board of Directors consists of between five and nine members,
with the exact number as determined by the Board from time to time, 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, three Class III 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 three persons in the election
of Class III Directors at the Meeting. G. Kenneth Baum, E. Garrett Bewkes, Jr.
and James R. Elsesser, current Class III Directors of the Company, have been
nominated for re-election. The following table sets forth certain information
with respect to the three nominees, the Class I Directors (whose terms expire in
2000) and the Class II Directors (whose terms expire in 2001). 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 III DIRECTORS FOR
A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING
Director Principal Occupation or Employment for
Name Age Since the Last Five Years and Directorships
- ---- --- ----- ------------------------------------------
G. Kenneth Baum (2) 69 1988 Chairman of the Board of George K. Baum
Group, Inc. for more than the past five
years. Mr. Baum is a director of H & R
Block, Inc. and JPS Packaging Company.
E. Garrett Bewkes, 72 1991 Consultant and Chairman for a number of
Jr. (1)(2) 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.
James R. Elsesser 55 1995 Vice President and Chief Financial Officer
of Ralston Purina Company for more than
the past five years.
<PAGE>
CLASS I DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
Director Principal Occupation or Employment for
Name Age Since the Last Five Years and Directorships
- ---- --- ----- --------------------------------------
Charles A. Sullivan 64 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., JPS Packaging Company
and The Andersons, Inc.
Leo Benatar (1) 69 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, JPS
Packaging Company and Aaron Rents, Inc.;
Chairman and director of Federal Reserve
Bank of Atlanta until January 1996.
10
<PAGE>
CLASS II DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
Director Principal Occupation or Employment for
Name Age Since the Last Five Years and Directorships
- ---- --- ----- --------------------------------------
Michael J. Anderson (1) 48 1998 President and Chief Executive Officer of
The Andersons, Inc. since 1999; President
and Chief Operating Officer from 1996
to 1998; Vice President and General
Manager of the Retail Group of The
Andersons, Inc. for more than two years
prior thereto. Mr. Anderson is a director
of The Andersons, Inc.
Robert B. Calhoun, Jr. 56 1991 Managing Director of Monitor Clipper
Partners since April 1997; Chief
Executive Officer of the Clipper Group,
L.P. since January 1991. Mr. Calhoun
is a director of Avondale Mills, Inc.,
Hvide Marine, TravelCenters of America,
Inc. and David's Bridal, Inc.
Frank E. Horton (1)(2) 60 1992 Principal Associate, Horton & Associates,
consultants in higher education, Denver,
Colorado, since 1999; President, The
University of Toledo for more than five
years prior thereto. Dr. Horton is a
member of the Advisory Board of Keybank
of Northwest Ohio.
- --------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
During the 1999 fiscal year, the Board of Directors held five meetings and
acted by written consent on three 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
Committee to assist in handling the various functions of the Board.
The Audit Committee members are Leo Benatar, Michael J. Anderson, 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 1999 fiscal year.
All members of the Audit Committee attended the meetings.
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 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 Plan pursuant to which only stock options were awarded. The Compensation
Committee held three meetings during the 1999 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
11
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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 1999, each of the non-employee directors was granted an
option to purchase 10,000 shares of the Common Stock at an exercise price of
$27.0625 per share, which was the closing sales price of the Common Stock on the
date of the grant (August 6, 1998), exercisable immediately. Directors may also
elect to receive their retainers in the form of Common Stock pursuant to the
1996 Plan.
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.
PROPOSAL NO. 2 - 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 June 3, 2000.
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 2000 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 25, 2000, in order to be eligible for inclusion in
the Company's fiscal year 2000 proxy materials.
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
Corporate Secretary
12
<PAGE>
FORM OF PROXY
Cut or tear along perforated edge
- -------------------------------------------------------------------------------
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 21, 1999, at 10:00
a.m. in the Atkins Auditorium of The Nelson-Atkins Museum of Art, 4525 Oak,
Kansas City, Missouri, 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) below
G. Kenneth Baum, E. Garrett Bewkes, Jr., James R. Elsesser
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
--------------------------------------------------------------
2. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP as independent
auditors of the Company for the fiscal year ending June 3, 2000.
/ / FOR / / AGAINST / / ABSTAIN
3. In accordance with their discretion upon such other matters as may
properly come before the meeting and any adjournment thereof.
(Continued and to be signed and dated on reverse side.)
<PAGE>
Cut or tear along perforated edge
- -------------------------------------------------------------------------------
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 and FOR ratification of the appointment of
Deloitte & Touche LLP as independent auditors of the Company. The Board of
Directors recommends a vote FOR proposals 1 and 2. None of the above proposals
are related to or conditioned on the approval of other matters, and each
proposal has been proposed by the Company.
Please sign exactly as name appears below.
Dated __________________________, 1999
______________________________________
(Signature)
______________________________________
(Signature if held jointly)
Please sign 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.
