-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SiDL/Trttdt4ym8q/qNoja3C5lM3iO/W7qO0cLtRoxZWJUKZ7LR7QFhW6hgKzgSK gwnNBr3Z8JOjSTRJQHy5kQ== 0000829499-98-000010.txt : 19980821 0000829499-98-000010.hdr.sgml : 19980821 ACCESSION NUMBER: 0000829499-98-000010 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980922 FILED AS OF DATE: 19980820 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSTATE BAKERIES CORP/DE/ CENTRAL INDEX KEY: 0000829499 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 431470322 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-11165 FILM NUMBER: 98694863 BUSINESS ADDRESS: STREET 1: 12 E ARMOUR BLVD CITY: KANSAS CITY STATE: MO ZIP: 64111 BUSINESS PHONE: 8165026000 MAIL ADDRESS: STREET 1: 12 E ARMOUR BLVD CITY: KANSAS CITY STATE: MO ZIP: 64111 FORMER COMPANY: FORMER CONFORMED NAME: IBC HOLDINGS CORP DATE OF NAME CHANGE: 19910612 DEF 14A 1 PROXY STATEMENT FOR 09/22/98 ANNUAL MEETING 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: ...................................................................... 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. / / 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: ....................................................... INTERSTATE BAKERIES CORPORATION 12 East Armour Boulevard Kansas City, Missouri 64111 (816) 502-4000 -------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 22, 1998 -------------- TO THE STOCKHOLDERS: The Annual Meeting of Stockholders of Interstate Bakeries Corporation (the "Company") will be held on September 22, 1998, 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 II Directors to serve a term of three years and until their successors shall be elected and qualified; 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 May 29, 1999; 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 7, 1998, 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. You may also vote via the Internet as indicated on the proxy card instructions. 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 1998 accompanies this Notice and the Proxy Statement. By order of the Board of Directors /s/ Ray Sandy Sutton Ray Sandy Sutton Corporate Secretary August 24, 1998 INTERSTATE BAKERIES CORPORATION --------------- PROXY STATEMENT --------------- This Proxy Statement, which is being mailed to stockholders on or about August 24, 1998, 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 22, 1998, 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 7, 1998, 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 7, 1998, the Company had outstanding 72,164,135 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 30, 1998 has been mailed with this Proxy Statement to each stockholder of record as of the close of business on August 7, 1998. The Company's Form l0-K as filed with the Securities and Exchange Commission for the fiscal year ended May 30, 1998, will be mailed upon request, free of charge, to all persons who are record or beneficial holders of the Common Stock as of August 7, 1998. 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. 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. 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 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 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 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. STOCK SPLIT On September 23, 1997, the Company declared a two-for-one stock split effected in the form of a stock dividend payable November 3, 1997 to stockholders of record of the Company's common stock at the close of business October 15, 1997. All share and per share amounts have been adjusted to reflect this stock split. SECURITY OWNERSHIP Principal Stockholders The following table sets forth information as of July 31, 1998, 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. Name and Address Shares and Nature of Percentage of Beneficial Owners Beneficial Ownership Held - -------------------- -------------------- ---------- VCS Holding Company(1) 30,846,154 42.4% c/o Ralston Purina Company Checkerboard Square St. Louis, MO 63164 Metropolitan Life Insurance Company(2) 4,881,260 6.7 1 Madison Avenue (10th Floor) New York, NY 10010 ______________________ (1) Includes Common Stock which may be exchangeable by Ralston Purina Company ("RPC") upon the maturity of its SAILS, as described under Certain Transactions. (2) Up to 4,825,060 of such shares are subject to a securities lending arrangement with Credit Suisse First Boston Corp., pursuant to which Credit Suisse First Boston Corp. has the right to vote such shares. Metropolitan Life may terminate such arrangement at any time and reacquire such shares. Common Stock Owned By Management The number of shares of Common Stock of the Company beneficially owned as of July 31, 1998, 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 694,961(l) 1.0% Michael J. Anderson - - G. Kenneth Baum 155,812(2) * Leo Benatar 48,000(3) * E. Garrett Bewkes, Jr. 49,810(3) * Philip Briggs 22,000(4)(5) * Robert B. Calhoun, Jr. 42,732(3) * James R. Elsesser 49,100(3) * Frank E. Horton 25,000(4) * Michael D. Kafoure 233,334(1) * H. L. Shetler 177,504(1) * Ray Sandy Sutton 47,275(1) * Paul E. Yarick 92,243(1) * All directors and executive officers as a group (14 persons) 1,659,442(1) 2.2 _____________________ *Less than 1% (l) Of the shares indicated, 276,296 (Mr. Sullivan), 233,334 (Mr. Kafoure), 95,024 (Mr. Shetler), 36,668 (Mr. Sutton), 31,017 (Mr. Yarick) and 933,672 (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 155,812 shares indicated, 40,000 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, 40,000 are attributable to currently exercisable stock options. (4) Of the shares indicated, 20,000 are attributable to currently exercisable stock options. (5) Mr. Briggs is not standing for re-election as a director. 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, 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. 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 29, 1993 against the cumulative return of the Standard and Poor's Composite 500 Stock Index ("S&P 500 Index") 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 29, 1993, in the Company's Common Stock, the S&P 500 Index 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 5/29/93 5/28/94 6/03/95 6/01/96 5/31/97 5/30/98 ------- ------- ------- ------- ------- ------- Interstate Bakeries 100.00 73.12 92.41 178.73 352.46 431.56 Corporation S&P 500 Index 100.00 99.34 125.27 147.43 194.57 263.51 S&P Food Index 100.00 104.26 125.31 160.16 207.27 270.87 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 63 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 49 President and Chief Operating Officer of the Company and Brands since September 1995; Senior Vice President of the Western Division of the Northwest Region 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 one year prior thereto. H. L. Shetler 65 Executive Vice President of the Company and Brands for more than the past five years. Ray Sandy Sutton 60 Vice President, Corporate Secretary and General Counsel of the Company and Brands for more than the past five years. John F. McKenny 48 Vice President and Corporate Controller of the Company and Brands for more than the past five years. Paul E. Yarick 59 Vice President and Treasurer of the Company and Brands for more than the past five years. 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 1998 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 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 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 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 1998 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 1998 performance was within the range of goals, therefore, Mr. Sullivan was eligible for an incentive bonus for fiscal 1998. 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. 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 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 30, 1998 and (ii) the four other most highly compensated executive officers of the Company as of May 30, 1998, whose annual compensation exceeded $100,000 for the fiscal year ended May 30, 1998 (the individuals in (i) and (ii) are collectively referred to as the Named Executive Officers). Long-Term Compensation All Other ------------- Compensa- Annual Compensation Shares Under- tion Name and Principal Fiscal ---------------------- lying Options ---------- Position Year Salary($) Bonus ($) (#) ($) (1) - ------------------ ------ --------- ------------ ------------- ---------- Charles A. Sullivan (2)(3) 1998 $800,000 $1,120,000 -- $12,800 Chairman of the 1997 615,385 1,120,000 150,000 12,800 Board and Chief 1996 600,000 598,416 -- 12,400 Executive Officer Michael D. Kafoure 1998 401,923 467,500(4) 200,000 12,800 President and Chief 1997 307,692 440,000 100,000 12,800 Operating Officer 1996 228,367 248,568 100,000 37,400(5) H. L. Shetler 1998 195,385 220,000(4) 30,000 12,800 Executive Vice 1997 186,138 220,000 40,000 12,800 President 1996 180,415 220,000 -- 12,400 Ray Sandy Sutton 1998 202,308 177,726 50,000 12,800 Vice President, 1997 172,308 177,726 30,000 12,800 Corporate Secretary 1996 145,577 161,580 -- 12,400 and General Counsel Paul E. Yarick 1998 145,769 96,954 24,000 12,800 Vice President 1997 133,461 96,954 20,000 12,800 and Treasurer 1996 119,576 88,146 -- 12,400 _____________________ (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. (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, none of the shares have vested and Mr. Sullivan holds no restricted stock. (4) Of the bonus amounts indicated, 100% (Mr. Shetler) and 15% (Mr. Kafoure) have been deferred. (5) Mr. Kafoure was employed by the Company on July 19, 1995. In conjunction with his employment, Mr. Kafoure was paid a relocation bonus of $25,000. Stock Options The following two tables set forth information for the last completed fiscal year relating to (i) the grant of stock options to the Named Executive Officers and (ii) the exercise and appreciation of stock options held by the Named Executive Officers. OPTION GRANTS IN THE FISCAL YEAR ENDED MAY 30, 1998 Exer- Number of Percent of cise Potential Realizable Shares Total Options or Value of Stock Price Underlying Granted to Base Appreciation(2) Options Employees Price Expiration ---------------------- Name Granted(1) In FY ($/sh) Date 5% 10% - ---- ---------- ------------- ------ ---------- ---------- ----------- Charles A. Sullivan -- -- $ -- -- $ -- $ -- Michael D. Kafoure 200,000 7.97 33.90 09/22/07 4,264,698 10,807,582 H. L. Shetler 30,000 1.20 33.90 09/22/07 639,705 1,621,137 Ray Sandy Sutton 50,000 1.99 33.90 09/22/07 1,066,175 2,701,895 Paul E. Yarick 24,000 .96 33.90 09/22/07 511,764 1,296,910 __________________ (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. AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND OPTION VALUES AT MAY 30, 1998 Number of Shares Value of Underlying Unexercised 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 60,000 $1,395,000 226,296 100,000 $5,271,642 $1,412,500 Michael D. Kafoure -- -- 133,332 266,668 2,710,815 941,686 H. L. Shetler 41,842 1,301,021 51,690 56,668 1,242,208 376,686 Ray Sandy Sutton 10,000 301,875 10,000 70,000 141,250 282,500 Paul E. Yarick 45,316 1,355,824 16,350 37,334 405,064 188,343 _____________________ (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 30, 1998 ($32.0625). 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 Company's 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 Company's 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 ("SAILS") which may be exchangeable upon maturity on August 1, 2000, for shares of the Common Stock of the Company 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 1997 the Company purchased from RPC 2,000,000 shares of the Company's 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 1998 the Company has purchased from RPC 1,200,000 shares of the Company's Common Stock at an average price of $31.375 per share. 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, three Class II 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 II Directors at the Meeting. Robert B. Calhoun, Jr. and Frank E. Horton, current Class II Directors of the Company, have been nominated for re-election and Michael J. Anderson has been nominated as a new Class II Director. Philip Briggs who also currently serves as a Class II Director is not standing for re-election. The following table sets forth certain information with respect to the three nominees, the Class III Directors (whose terms expire in 1999) and the Class I Directors (whose terms expire in 2000). 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 II DIRECTORS FOR A THREE YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING Principal Occupation Director or Employment for the Last Name Age Since Five Years and Directorships ---- --- -------- ---------------------------- Michael J. Anderson 46 1998 President and Chief Operating Officer of The Andersons, Inc. since 1996; Vice President and General Manager of the Retail Group of The Andersons, Inc. from 1994 to 1996; Vice President and General Manager Grain Group of The Andersons, Inc. for more than one year prior thereto. Mr. Anderson is a director of The Andersons, Inc. Robert B. Calhoun, Jr. 55 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., Hvide Marine and TravelCenters of America, Inc. Frank E. Horton(1)(2) 59 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. 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) 68 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 one year prior thereto. Mr. Baum is a director of H & R Block, Inc., JPS Packaging Company and Unitog Company. E. Garrett Bewkes, Jr.(1)(2) 71 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. James R. Elsesser 54 1995 Vice President and Chief Financial Officer of Ralston Purina Company for more than the past five years. CLASS I DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING Principal Occupation Director or Employment for the Last Name Age Since Five Years and Directorships ---- --- -------- ---------------------------- Charles A. Sullivan 63 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) 68 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. _____________________ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. During the 1998 fiscal year, the Board of Directors held six meetings (one meeting was held by means of telephone conference call) and acted by written consent on four separate occasions. All directors attended more than 75% of the Board of Directors' meetings. 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, 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 1998 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 1998 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 1998, each of the non-employee directors was granted an option to purchase 20,000 shares of the Company's Common Stock at an exercise price of $33.90625 per share, which was the closing sales price of the Company's Common Stock on the date of the grant (September 23, 1997), 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 May 29, 1999. 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 1999 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 26, 1999, in order to be eligible for inclusion in the Company's fiscal year 1999 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 FORM OF PROXY INTERSTATE BAKERIES CORPORATION ANNUAL MEETING Atkins Auditorium The Nelson-Atkins Museum of Art 4525 Oak Street Kansas City, Missouri Tuesday, September 22, 1998 10:00 a.m. Central Daylight Time VOTE BY INTERNET Your Internet vote is quick, convenient and your vote is immediately submitted. Just follow these easy steps: 1. Read the accompanying Proxy Statement. 2. Visit our Internet voting site at http://www.umb.com/proxy and follow the instructions on the screen. Your Internet vote authorizes the named proxies to vote your shares to the same extent as if you marked, signed, dated and returned the proxy card. Please note that all votes cast by Internet must be submitted prior to 5:00 p.m. Central Time, September 21, 1998. If you vote by Internet, please do not return your proxy by mail. THANK YOU FOR YOUR VOTE. 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 22, 1998, 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 Michael J. Anderson, Robert B. Calhoun, Jr., Frank E. Horton 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 May 29, 1999. / / 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.) INTERSTATE BAKERIES CORPORATION ANNUAL MEETING Atkins Auditorium The Nelson-Atkins Museum of Art 4525 Oak Street Kansas City, Missouri Tuesday, September 22, 1998 10:00 a.m. Central Daylight Time VOTE BY INTERNET Your Internet vote is quick, convenient and your vote is immediately submitted. Just follow these easy steps: 1. Read the accompanying Proxy Statement. 2. Visit our Internet voting site at http://www.umb.com/proxy and follow the instructions on the screen. Your Internet vote authorizes the named proxies to vote your shares to the same extent as if you marked, signed, dated and returned the proxy card. Please note that all votes cast by Internet must be submitted prior to 5:00 p.m. Central Time, September 21, 1998. If you vote by Internet, please do not return your proxy by mail. THANK YOU FOR YOUR VOTE. 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 , 1998 --------------------------- --------------------------------------- (Signature) --------------------------------------- (Signature) Please sign exactly as name appears at 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. -----END PRIVACY-ENHANCED MESSAGE-----