12-22052-rdd doc 1710 filed 11/16/12 entered 11/16/12 07 ... · protection to pre-petition secured...

Proposed Interim Hearing Date and Time November 19, 2012 at 2:00 p.m. Proposed Objection Deadline: November 19, 2012 at 10:00 a.m.

CLI-2044408v2

JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers

- and -

JONES DAY 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 Ryan T. Routh

Attorneys for Debtors and Debtors in Possession

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------------- In re Hostess Brands, Inc., et al.,1 Debtors. --------------------------------------------------------------

x : : : : : : x

Chapter 11 Case No. 12-22052 (RDD) (Jointly Administered)

EMERGENCY MOTION OF DEBTORS AND DEBTORS

IN POSSESSION FOR INTERIM AND FINAL ORDERS, PURSUANT TO SECTIONS 105, 363, 365 AND 503(c) OF THE BANKRUPTCY CODE: (A) APPROVING

(I) A PLAN TO WIND DOWN THE DEBTORS' BUSINESSES, (II) THE SALE OF CERTAIN ASSETS, (III) GOING-OUT-OF-BUSINESS SALES AT THE DEBTORS'

RETAIL STORES, (IV) THE DEBTORS' NON-CONSENSUAL USE OF CASH COLLATERAL AND MODIFICATIONS TO FINAL DIP ORDER, (V) AN EMPLOYEE

RETENTION PLAN, (VI) A MANAGEMENT INCENTIVE PLAN, (VII) PROTECTIONS FOR CERTAIN EMPLOYEES IMPLEMENTING THE WINDDOWN

OF THE DEBTORS' BUSINESSES, (VIII) THE USE OF CERTAIN THIRD PARTY CONTRACTORS AND (IX) PROCEDURES FOR THE EXPEDITED REJECTION OF CONTRACTS AND LEASES; AND (B) AUTHORIZING THE DEBTORS TO

TAKE ANY AND ALL ACTIONS NECESSARY TO IMPLEMENT THE WINDDOWN

1 The Debtors are the following six entities (the last four digits of their respective taxpayer identification

numbers follow in parentheses): Hostess Brands, Inc. (0322), IBC Sales Corporation (3634), IBC Services, LLC (3639), IBC Trucking, LLC (8328), Interstate Brands Corporation (6705) and MCF Legacy, Inc. (0599).

12-22052-rdd Doc 1710 Filed 11/16/12 Entered 11/16/12 07:01:55 Main Document Pg 1 of 65

¨1¤64T,+0 $;«

1222052121116000000000004

Docket #1710 Date Filed: 11/16/2012

CLI-2044408v2 -i-

TABLE OF CONTENTS

Page

BACKGROUND .............................................................................................................................1

JURISDICTION ..............................................................................................................................2

RELIEF REQUESTED ....................................................................................................................2

SPECIFIC BACKGROUND ...........................................................................................................3

The Winddown Plan ..........................................................................................................10

Financing the Winddown Plan ...........................................................................................18

Further Modifications to Final DIP Order and DIP Credit Agreement .............................23

The Employee Retention Plan and Senior Management Incentive Plan ...........................25

The Use of Third Party Contractors ...................................................................................29

Exculpation and Indemnification for Protected Persons ....................................................30

Expedited Contract Rejection Procedures .........................................................................31

ARGUMENT .................................................................................................................................33

Justifications for the Winddown Plan ................................................................................33

Justifications for Approving the Liquidation Budget and the Debtors' Non-Consensual Use of Cash Collateral................................................................36

Justifications for Relief from Certain Advance Notice Periods Contained in Government Regulations .......................................................................................40

Justifications for Authorizing the Sale of Excess Ingredients and Excess Packaging ...............................................................................................................42

Authorization for GOB Sales at Retail Stores ...................................................................44

Justification for Implementation of the Payment Grace Period .........................................46

Justifications for the Employee Retention Plan and the Senior Management Incentive Plan.........................................................................................................47

The Exculpation and Injunction are Supported by Precedent and Policy Considerations and Should be Approved ...............................................................51

Approval of the Expedited Contract Rejection Procedures ...............................................53

REQUEST FOR IMMEDIATE RELIEF AND WAIVER OF STAY ..........................................55

NOTICE .........................................................................................................................................56


CLI-2044408v2 -ii-

EXHIBITS EXHIBIT A – Winddown Plan

EXHIBIT B – Carroll Declaration

EXHIBIT C – Imhoff Declaration

EXHIBIT D – Rush Declaration

EXHIBIT E – Rayburn Declaration

EXHIBIT F – Liquidation Budget

EXHIBIT G – Form of Notice of Payment Grace Period

EXHIBIT H – Seventh Amendment to the DIP Credit Agreement

EXHIBIT I – Employee Retention Plan

EXHIBIT J – Senior Management Incentive Plan

EXHIBIT K – Nonexclusive List of Third Party Contractors

EXHIBIT L – Protected Persons

EXHIBIT M – Form of Rejection Notice

EXHIBIT N – Proposed Form of Interim Order EXHIBIT O – Proposed Form of Final Order


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TABLE OF AUTHORITIES

Page CASES

Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963 (9th Cir. 2005) ...................................................................................................52

Bregman v. Meehan (In re Meehan), 59 B.R. 380 (E.D.N.Y. 1986) ..................................................................................................54

Chinichian v. Campolongo (In re Chinichian), 784 F.2d 1440 (9th Cir. 1986) .................................................................................................34

Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir. 1983)...................................................................................................34

Comm. Of Asbestos-Related Litigants and/or Creditors v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612 (Bankr. S.D.N.Y. 1986) .......................................34

Homestead Holdings, Inc. v. Broome & Wellington (In re PTI Holding Corp.), 346 B.R. 820 (Bankr. D. Nev. 2006) ................................................................................. 51-52

In re 495 Cent. Park Ave. Corp., 136 B.R. 626 (Bankr. S.D.N.Y. 1992) ...............................................................................38, 39

In re Ames Dept. Stores, Inc., 136 B.R. 357 (Bankr. S.D.N.Y. 1992) .....................................................................................45

In re Balco Equities Ltd., Inc., 323 B.R. 85 (Bankr. S.D.N.Y. 2005) .......................................................................................54

In re Beker Indus. Corp., 58 B.R. 725 (Bankr. S.D.N.Y. 1986) .......................................................................................39

In re Betsey Johnson LLC, Case No. 12-11732 (JMP) (Bankr. S.D.N.Y. May 10, 2012) ............................................44, 45

In re Borders Grp., Inc., 453 B.R. 459 (Bankr. S.D.N.Y. 2011) .....................................................................................48

In re Caldor, Inc., No. 95 B 44080 (CB) (Bankr. S.D.N.Y. Oct. 2, 2001) ...................................................... 52-53

In re Creative Cuisine, Inc., 96 B.R. 144 (Bankr. N.D. Ill. 1989) ........................................................................................52

In re Dana Corp., 358 B.R. 567 (Bankr. S.D.N.Y. 2007) .....................................................................................48

In re Dial-A-Mattress Operating Corp., No. 09-41966, 2009 WL 1851059 (Bankr. E.D.N.Y. Jun. 24, 2009) ......................................41


TABLE OF AUTHORITIES (Continued)

Page

CLI-2044408v2 -iv-

In re Finlay Enters., Inc., Case No. 09-14873 (Bankr. S.D.N.Y. Sept. 25, 2009) ......................................................44, 45

In re First Merchants Acceptance Corp., No. 97-1500, 1997 WL 873551 (D. Del. Dec. 15, 1997) ........................................................29

In re Global Home Prods., LLC, 369 B.R. 778 (Bankr. D. Del. 2007) ........................................................................................48

In re Gucci, 193 B.R. 411 (S.D.N.Y. 1996) .................................................................................................53

In re Helm, 335 B.R. 528 (Bankr. S.D.N.Y. 2006) .....................................................................................54

In re HQ Global Holdings, Inc., 282 B.R. 169 (Bankr. D. Del. 2002) ........................................................................................47

In re Interpictures Inc., 168 B.R. 526 (Bankr. E.D.N.Y. 1994) .....................................................................................46

In re King, 392 B.R. 62 (Bankr. S.D.N.Y. 2008) .......................................................................................46

In re LTV Steel Co., Inc., No. 00-43866 (Bankr. N.D. Ohio Dec. 7, 2001) ......................................................................53

In re Markos Gurnee P'ship, 182 B.R. 211 (Bankr. N.D. Ill. 1995), aff'd, 195 B.R. 380 (N.D. Ill. 1996) ............................51

In re New York Investors Mutual Group, Inc., 143 F. Supp. 51 (S.D.N.Y. 1956).............................................................................................46

In re Old Carco LLC, 406 B.R. 180 (Bankr. S.D.N.Y. 2009) .....................................................................................41

In re Polaroid Corp., 460 B.R. 740 (B.A.P. 8th Cir. 2011)........................................................................................39

In re R.H. Macy & Co., Inc., 170 B.R. 69 (Bankr. S.D.N.Y. 1992) .......................................................................................45

In re Riodizio, Inc., 204 B.R. 417 (Bankr. S.D.N.Y. 1997) .....................................................................................54

In re Shihai, 392 B.R. 62 (Bankr. S.D.N.Y. 2008) .......................................................................................47



Page

CLI-2044408v2 -v-

In re Steve & Barry's Manhattan LLC, Case No. 08-12579 (ALG) (Bankr. S.D.N.Y. Aug. 22, 2008) ..........................................44, 45

In re Sundial Asphalt Co., 147 B.R. 72 (E.D.N.Y. 1992) ..................................................................................................54

Johns-Manville Corp. v. Asbestos Litig. Grp. (In re Johns-Manville Corp.), 40 B.R. 219 (S.D.N.Y. 1984) ...................................................................................................51

Johns-Manville Corp. v. Asbestos Litig. Grp. (In re Johns-Manville Corp.), 26 B.R. 420 (Bankr. S.D.N.Y. 1983) .......................................................................................52

Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380 (2d Cir. 1997).....................................................................................................34

Local 144 Hosp. Welfare Fund v. Baptist Med. Ctr. of New York , Inc. (In re Baptist Med. Ctr. of New York, Inc.), 781 F.2d 973 (2d Cir. 1986) .............................................................47

MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89 (2d Cir. 1988), cert. denied, 488 U.S. 868 (1988) ...............................................51

MBank Dallas, N.A. v. O'Connor (In re O'Connor), 808 F.2d 1393 (10th Cir. 1987) ...............................................................................................38

Missouri v. United States Bankruptcy Court, 647 F.2d 768 (8th Cir. 1981), cert. denied 454 U.S. 1162 (1982) ...........................................41

Momentum Mfg. Corp. v. Employee Creditors Comm. (In re Momentum Mfg. Corp.), 25 F.3d 1132 (2d Cir. 1994).....................................................................................................34

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984) .................................................................................................................53

Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095 (2d Cir. 1993).......................................................................................................53

Pereira v. United Jersey Bank, N.A., 201 B.R. 644 (S.D.N.Y. 1996) .................................................................................................41

Phar-Mor, Inc. v. Strouss Bldg. Assocs., 204 B.R. 948 (Bankr. N.D. Ohio 1997) ...................................................................................54

South Chicago Disposal, Inc. v. LTV Steel Co., Inc. (In re Chateaugay Corp.), 130 B.R. 162 (S.D.N.Y. 1991) .................................................................................................46

Westbury Real Estate Ventures, Inc. v. Bradlees, Inc. (In re Bradlees Stores, Inc.), 194 B.R. 555 (Bankr. S.D.N.Y. 1996) .....................................................................................54



Page

CLI-2044408v2 -vi-

STATUTES

11 U.S.C. § 101(31) .......................................................................................................................47

11 U.S.C. § 105(a) .........................................................................................................................51

11 U.S.C. § 361(2) .........................................................................................................................39

11 U.S.C. § 363(b)(1) ....................................................................................................................33

11 U.S.C. § 363(e) .........................................................................................................................38

11 U.S.C. § 365(a) .........................................................................................................................53

11 U.S.C. § 503(c)(3) .....................................................................................................................48

11 U.S.C. § 554(a) .........................................................................................................................46

Cal. Labor Code § 1401 (West 2012) ............................................................................................40

Kan. Stat. Ann. § 44-603 (West 2012) ..........................................................................................40

Kan. Stat. Ann. § 44-616 (West 2012) ..........................................................................................40

Philadelphia Code § 9-1502 (10th ed. 2011) .................................................................................40


CLI-2044408v2

TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:

Hostess Brands, Inc. and its five domestic direct and indirect subsidiaries, as

debtors and debtors in possession (collectively, "Hostess" or the "Debtors"), respectfully

represent as follows:

BACKGROUND

1. On January 11, 2012 (the "Petition Date"), the Debtors commenced their

reorganization cases by filing voluntary petitions for relief under chapter 11 of title 11 of the

United States Code (the "Bankruptcy Code"). The Debtors' chapter 11 cases have been

consolidated and are being administered jointly for procedural purposes only. The Debtors are

authorized to continue to operate their business and manage their properties as debtors in

possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

2. On January 18, 2012, the United States Trustee for the Southern District of

New York (the "U.S. Trustee") appointed an official committee of unsecured creditors pursuant to

section 1102 of the Bankruptcy Code (the "Creditors' Committee"). The U.S. Trustee

subsequently amended such appointments to the Creditors' Committee on January 30, 2012.

3. On February 3, 2012, the Court entered the Final Order (I) Authorizing

Debtors to (A) Obtain Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 361, 362 and 364

and (B) Utilize Cash Collateral Pursuant to 11 U.S.C. § 363, and (II) Granting Adequate

Protection to Pre-Petition Secured Parties (Docket No. 254) (as amended, the "Final DIP Order")

approving, on a final basis, the Debtors' entry into that certain Debtor-in-Possession Credit,

Guaranty and Security Agreement (as amended, the "DIP Credit Agreement").

4. Founded in 1930, Hostess is one of the largest wholesale bakers and

distributors of bread and snack cakes in the United States. Traditionally, Hostess has produced


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and sold an array of popular products under new and iconic brands such as Butternut®, Ding

Dongs®, Dolly Madison®, Drake's®, Home Pride®, Ho Hos®, Hostess®, Merita®, Nature's

Pride®, Twinkies® and Wonder®. As of the Petition Date, the Debtors operated 36 bakeries,

565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores

throughout the United States.

JURISDICTION

5. This Court has subject matter jurisdiction to consider this matter pursuant

to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper

before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

RELIEF REQUESTED

6. The Debtors hereby move the Court for the entry of interim and final

orders, pursuant to sections 105(a), 363, 365 and 503(c) of the Bankruptcy Code: (a) approving

(i) the Debtors' current plan (the "Winddown Plan") for the (A) orderly winddown of the Debtors'

various business operations and sale of assets and (B) maintenance, security and preservation of

the Debtors' assets for eventual sale (collectively, the "Winddown"); (ii) the sale and/or

abandonment and disposal of finished goods, certain excess ingredients and packaging; (iii) a

retention plan for certain of the Debtors' non-senior management employees that the Debtors

must retain to implement and effect the Winddown Plan; (iv) an incentive plan for certain of the

Debtors' senior management employees; (v) the Debtors' use of certain third party contractors as

necessary to implement the Winddown Plan; (vi) certain protections for directors and officers that

developed and approved and/or will implement and/or oversee the Winddown Plan (collectively,

the "Protected Persons"); and (vii) procedures for the expedited rejection in the future of

executory contracts and unexpired leases; (b) authorizing the non-consensual use of the cash

collateral of certain of the Debtors' lenders and approving certain modifications to the Final DIP


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Order and the DIP Credit Agreement; and (c) authorizing the Debtors to take any and all actions

that are necessary in the exercise of their business judgment to implement the Winddown Plan.

7. The current version of the Winddown Plan — setting forth, among other

things, (a) the operational actions to be taken by the Debtors in connection with the Winddown,

(b) the Debtors' contemplated timetables for such actions (and the Winddown generally) and

(c) certain of the key assumptions upon which the Winddown Plan was developed — is attached

hereto as Exhibit A and incorporated herein by reference. In support of the relief requested herein,

the Debtors submit the Declaration of Charles Carroll (the "Carroll Declaration") attached hereto

as Exhibit B, the Declaration and Expert Report of Dewey Imhoff (the "Imhoff Declaration")

attached hereto as Exhibit C, the Declaration of David Rush (the "Rush Declaration") attached

hereto as Exhibit D and the Declaration of Gregory F. Rayburn (the "Rayburn Declaration")

attached hereto as Exhibit E.

SPECIFIC BACKGROUND

8. From the outset of these chapter 11 cases until only recently, the Debtors

focused on, and pursued, the reorganization of their businesses as economically viable and

competitive going concerns. As the Debtors set forth in the Initial 1113/1114 Motion (as such

term is defined below), the threshold obstacle to such a reorganization was

an inflated cost structure that has put them at a profound competitive disadvantage. And that is so because the biggest component of the Debtors' costs — their obligations under collective bargaining agreements that cover nearly 15,000 active union employees — has never been meaningfully addressed. Nor have there been any significant modifications to union pension plan obligations or to the provisions in the collective bargaining agreements that limit the Debtors' opportunities to grow revenues. Hostess simply cannot emerge as a viable competitor unless they are relieved of significant financial commitments and arcane work rules imposed by their collective bargaining agreements.


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Initial 1113/1114 Motion, at ¶¶ 9-10. As was made clear by the third-party investor process

conducted by the Debtors earlier this year, achieving modifications to the Debtors' collective

bargaining agreements ("CBAs") and multi-employer pension benefit obligations was a sine qua

non for the Debtors' ability to attract investors willing to provide capital to the reorganized

Debtors in connection with a chapter 11 plan.

9. On January 25, 2012, the Debtors filed their Motion of Debtors and

Debtors in Possession to (A) Reject Certain Collective Bargaining Agreements and (B) Modify

Certain Retiree Benefit Obligations, Pursuant to Sections 1113(c) and 1114(g) of the Bankruptcy

Code (Docket No. 174) (the "Initial 1113/1114 Motion"), seeking authority to reject their CBAs

with (a) the 141 local affiliates of the International Brotherhood of Teamsters (the international

union, together with its local affiliates, the "IBT") and (b) the 35 local affiliates of the Bakery,

Confectionery, Tobacco and Grain Workers International Union (the international union, together

with its local affiliates, the "BCT" and collectively with the IBT, the "Unions"). On April 23,

2012, the Debtors also filed a motion (the "Other Unions 1113 Motion") seeking to reject 67

different CBAs in place with 57 local affiliates of 10 separate unions (other than the IBT and the

BCT) (the "Other Unions"). Under the Initial 1113/1114 Motion and the Other Unions 1113

Motion, the Debtors proposed to replace the rejected CBAs with agreements that modified those

agreements in a number of ways and limited the Debtors' obligations with respect to the

multiemployer pension plans, all in accordance with the Debtors' last, best and final offer made

on April 14, 2012.

10. After the filing of the Initial 1113/1114 Motion, the Debtors sought to

engage the IBT and BCT in continued negotiations. The BCT ultimately refused to continue to

negotiate with the Debtors and indicated that it would not contest the relief sought in the Initial

1113/1114 Motion. Accordingly, on May 4, 2012, May 24, 2012 and May 31, 2012, the Court


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entered orders (Docket Nos. 848, 1016 and 1058) (the "BCT Rejection Orders") granting the

Initial 1113/1114 Motion solely with respect to the BCT and authorizing, but not directing, the

Debtors to (a) reject all CBAs with the BCT still in effect as of the date of the BCT Rejection

Orders, (b) implement, and perform under, certain "Section 1113/1114 Proposals" attached as an

exhibit to the first BCT Rejection Order (the "BCT Proposals") and (c) modify, in accordance

with the BCT Proposals, any "retiree benefit" obligation the Debtors had to retirees formerly

represented by the BCT. While prolonged and extensive negotiations with the IBT continued

after the filing of the Initial 1113/1114 Motion, the Debtors and the IBT were unable to reach

agreement. Thus, the Debtors proceeded with the prosecution of the Initial 1113/1114 Motion

with respect to the IBT.

11. After the trial on the Initial 1113/1114 Motion with respect to the IBT, on

May 14, 2012, the Court issued an oral ruling on the Initial 1113/1114 Motion indicating that,

while it would deny the rejection of the Debtors' CBAs with the IBT (and related section 1114

relief sought), the Court was inclined to grant a motion brought by the Debtors (including

approval of the Debtors' exit from certain multi-employer pension plans) so long as the Debtors

made certain changes to the relief requested. The Court's ruling made clear that the Court

believed that the Debtors' exit from the multi-employer pension plans would very likely be

necessary for the Debtors to successfully emerge from bankruptcy. In accordance with the above,

on May 22, 2012, the Court entered an order (Docket No. 993) denying the Initial 1113/1114

Motion with respect to the IBT.

12. Following the Court's ruling with respect to the Initial 1113/1114 Motion,

the Debtors held discussions on an expedited basis with the IBT, certain of their key lenders and

the only potential outside equity investor that had made a viable proposal. During these

discussions, the IBT indicated that, notwithstanding the Court's May 14, 2012 ruling, its


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participation in any reorganization plan was conditioned upon Hostess remaining in all of the IBT

multi-employer pension plans. In response, Hostess' only viable outside investor indicated that it

was no longer willing to invest in the Debtors' businesses.

13. As a result, it became and remains clear that no outside investors are

interested in funding the Debtors' reorganization. Nonetheless, Hostess and certain of its key

lenders contacted the IBT and the BCT to see if it would be possible to reach an alternative

comprehensive plan that would allow the Debtors to emerge from bankruptcy as a going concern.

14. The IBT agreed to reconvene negotiations immediately. The BCT, on the

other hand, declined to do so and stated that it would not negotiate until the Debtors' negotiations

with the IBT had concluded. On August 11, 2012, following three additional months of

negotiations, the IBT agreed to submit the Debtors' revised last, best, final proposal (the "IBT

LBFO") to its members for ratification. On September 14, 2012, the IBT members ratified the

IBT LBFO.

15. After completing negotiations with the IBT, Hostess presented the BCT

with a proposal to modify the BCT CBAs. The terms of the proposal to the BCT mirrored those

of the IBT LBFO, with a few exceptions to account for, among other things, differences between

the terms of the IBT CBAs and BCT CBAs. On August 14, 2012, representatives of Hostess,

including Hostess' CEO and Vice President of Human Resources and Labor Relations, and certain

of its secured lenders met with the BCT to discuss Hostess' proposal. After further negotiations,

on August 29, 2012, Hostess made its last, best final offer to the BCT (the "BCT LBFO"), which

incorporated several modifications proposed by the BCT. Later that day, the BCT notified

Hostess that it would submit the BCT LBFO to its local affiliates for a membership vote. As of

September 14, 2012, all but three BCT locals voted to reject the BCT LBFO.


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16. After the "no" vote from the BCT, in a last ditch effort to preserve their

reorganization prospects and over 18,000 jobs, the Debtors filed a motion (Docket No. 1483)

(the "New BCT Motion") seeking to have the Court order the implementation of the BCT LBFO

notwithstanding the BCT's rejection of such terms. Testimony at a hearing in support of the New

BCT Motion established that there was, in fact, no viable purchaser waiting in the wings to

purchase the Debtors' businesses as a whole. On October 4, 2012, the Court entered an order

(Docket No. 1563) authorizing the Debtors to reject their CBAs with the local affiliates of the

BCT that voted against ratification of the BCT LBFO and to implement the terms thereof, with

the exception of 18 CBAs with the local affiliates of the BCT that had terminated

(the "Terminated BCT CBAs"). With respect to the Terminated BCT CBAs, the Court's order

authorized the Debtors to implement the terms of the BCT LBFO until such time as the Debtors

and the authorized representatives for each such Terminated BCT CBA bargained to impasse

within the meaning of the National Labor Relations Act.

17. In August 2012, during the same period the Debtors resumed negotiations

with the BCT, they also resumed negotiations with their Other Unions. Three of the Other

Unions — the Glass, Molders, Pottery, Plastics & Allied Workers International Union

(the "GMP"), the United Brotherhood of Carpenters and Joiners of America (the "UBCJA") and

the International Brotherhood of Firemen & Oilers (the "IBFO") — did not participate in those

negotiations but agreed not to contest the Other Unions 1113 Motion. The remaining seven Other

Unions agreed to submit the Debtors' last, best final offers (the "Other Union LBFOs") to their

membership for a ratification vote. As of October 3, 2012, the United Steelworkers (the "USW")

and the United Automobile, Aerospace and Agricultural Implement Workers of America

(the "UAW") had ratified their respective Other Union LBFO; the International Association of

Machinists and Aerospace Workers (the "IAM") and the International Union of Operating


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Engineers & Service Employees (the "IUOE") failed to ratify their respective Other Union LBFO;

and the Office & Professional Employees International Union (the "OPEIU"), the Retail,

Wholesale and Department Store Union (the "RWDSU") and the United Food and Commercial

Workers Union (the "UFCW") were still in the process of voting on whether to ratify their

respective Other Union LBFO.

18. A trial on the Other Unions 1113 Motion was held on September 25, 2012

and October 3, 2012. On October 4, 2012, the Court entered an order authorizing the Debtors to

reject all of their Other Union CBAs with the IAM, the IUOE, the GMP, the UBCJA and the

IBFO. The Court postponed its ruling until October 11, 2012 with respect to the RWDSU and the

UFCW to allow those Other Unions to complete their voting processes. On October 5, 2012, the

OPEIU ratified its agreement. On October 10, 2012, the GMP ratified its agreement. Also, on or

around October 10, 2012, the Debtors were informed that (a) the RWDSU had completed its

voting process and employees covered by five of the eight RWDSU CBAs voted to ratify their

respective agreements while employees covered by three of the eight RWDSU CBAs failed to

ratify their respective agreements and (b) the UFCW had completed its voting process and all of

the UFCW's applicable local unions voted to ratify their respective agreements. On October 11,

2012, the Debtors sought an order from the Court granting the Other Unions 1113 Motion with

respect to the three RWDSU bargaining units that failed to ratify their respective agreements. On

October 12, 2012, the Court entered that order (Docket No. 1610). After the entry of this order,

the three non-ratifying RWDSU locals re-voted on their respective agreements and, this time,

voted to ratify the agreements.

19. Accordingly, the Debtors have either obtained a consensual agreement or

an order of the Court regarding modifications to CBAs for each of their 12 unions. Beginning on

October 21, 2012, the Debtors began implementing the modifications to the CBAs. On


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November 7, 2012, the Debtors began to receive strike notices from various local unions

affiliated with the BCT. On November 8, 2012, the Debtors received a strike notice from the

IUOE. Between November 9 and November 13, 2012, various local unions affiliated with the

BCT commenced strikes at 12 of the Debtors' bakeries. At another 12 bakeries, picket lines were

set up by striking BCT workers, and certain BCT and other unionized workers at those bakeries

chose to honor the picket lines by not reporting for work. As a result, production was

significantly disrupted at the 24 bakeries impacted by the Strikes; however, many of the impacted

bakeries remained operational to varying degrees due to management filling in for production

workers and, in some plants, high numbers of employees crossing picket lines.1

20. Since the strikes (the "Strikes") were commenced, the Debtors have urged

striking employees to return to work. Unfortunately, at this time, thousands of the Debtors'

employees continue to participate in or honor the Strikes. As a result, a sufficient number of the

Debtors' baking facilities have become inoperable, and the Debtors are no longer able to fulfill

customer orders or sell product at their retail stores. Because of the material impairment of the

Debtors' business operations, the Debtors will soon lose access to the funding necessary to

operate their businesses, and the Debtors will have triggered certain remedial provisions of the

Final DIP Order. As a result, the Debtors are beginning to take steps to wind down their business

operations, including the relief requested in this Motion.

21. While the IBT and BCT votes were in process, the Debtors and their

investment bankers undertook numerous efforts in the marketplace to gauge interest for certain of

their brands, which complemented the substantial prior efforts made by the Debtors early this

1 On November 12, 2012, the Debtors were forced to permanently close their baking facilities located in

Cincinnati, Ohio; Seattle, Washington; and St. Louis, Missouri because those facilities had insufficient manpower to continue to bake goods. The Debtors shifted production for customers in the geographic areas served by the closed facilities to other baking facilities.


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year and in prior years both to seek an outside investor and to market the Debtors' assets. These

activities resulted in the receipt in late September 2012 of a number of potentially-viable

proposals to purchase limited pools of the Debtors' assets. No viable buyer emerged for the

Debtors as a whole. The Debtors anticipate filing in the near term certain motions seeking

approval of a bid process for and sale of certain of their assets on a stand-alone basis.

22. Given the daunting obstacles to reorganization present from the outset of

these cases, the Debtors have, in recent months, and in consultation with their advisors and

certain of their secured lenders, refined a plan for the orderly wind down and sale of their assets.

This alternative is now embodied in the Winddown Plan as described in this Motion. In light of

the foregoing, the Debtors now seek approval of, and authority to implement, the Winddown Plan

from the Court on an emergency basis. The Debtors have begun to implement a number of time-

sensitive aspects of the Winddown Plan immediately, prior to the hearing on this Motion, due to

business necessities and to preserve the assets of their estates.2

The Winddown Plan

23. The Winddown Plan (a summary of which is attached hereto as Exhibit A)

is the result of significant contingency planning by the Debtors in consultation with their advisors

and certain of their secured lenders. Generally, the Winddown Plan is designed to maximize the

value of the Debtors' now-liquidating chapter 11 estates while protecting the safety of consumers

and the Debtors' employees through, among other things: (a) the completion of tasks and

implementation of procedures to preserve, maintain and protect the Debtors' assets pending

ultimate liquidation; (b) the return, sale or disposal of certain of the Debtors' perishable

2 For example, the Debtors have begun to implement the following aspects of the Winddown Plan (among

others): (a) the removal of in process material from the Debtors' production equipment to prevent any damage thereto; (b) the "dry packing" of certain production equipment (e.g., boilers) to preserve such equipment for sale; and (c) the aggregation and securing of the Debtors' fleet and vehicle assets for return (if leased) or sale (if owned).


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ingredients and generic packaging; (c) the continued employment of initially approximately 3,200

employees to oversee the Winddown (collectively, the "Remaining Employees");3 (d) the

provision of retention payments to retain non-senior management employees (the "Non-Senior

Management Employees") and incentive payments to approximately 19 corporate officers and/or

high-level managers (the "Senior Management Employees") to motivate and encourage such

employees to complete and achieve certain tasks and goals associated with the Winddown; and

(e) the use of certain third-party contractors (e.g., security personnel; barricade providers;

millwright labor; transportation/logistics personnel; environmental consultants; and temporary

finance and accounting staff) (collectively, "Third-Party Contractors") where necessary to

implement the Winddown Plan.

24. The desired outcome of the Winddown is the sale of groups of assets that

can be operated on a going concern basis, which would result in the buyer assuming as many of

the related administrative expenses and other claims as possible. The Debtors hope to complete

the Winddown and the sale(s) of substantially all of the Debtors' assets4 in approximately one

year. For planning purposes, the Winddown has been divided into thirteen discrete four-week

phases (each, a "Winddown Period"). The Debtors have completed planning for the operational

aspects of the Winddown for 13 Winddown Periods — the entire one-year projected duration of

3 The Winddown Plan contemplates that the headcount for Remaining Employees will decrease by

approximately 94% within the first 16 weeks of the Winddown as the majority of activities necessary to sell perishable goods and inventory and to clean, secure and prepare the Debtors' various plants, depots, retail stores and corporate offices will be completed within that time frame.

4 Other than as expressly requested hereunder with respect to GOB Sales of finished goods and the sale of excess ingredients and packaging, the Debtors are not seeking authority for, or prospective approval of, any asset sales in connection with this Motion. The Debtors currently anticipate that, other than as expressly set forth herein, all non-ordinary course asset sales will be effected either pursuant to (a) discrete orders authorizing and approving such sales on an individualized basis pursuant to section 363 of the Bankruptcy Code or (b) this Court's existing Order, Pursuant to Sections 105, 363 and 365 of the Bankruptcy Code, Approving Procedures to Sell or Transfer Certain De Minimis Assets, Free and Clear of Liens, Claims and Encumbrances, and to Pay Market Rate Broker Commissions in Connection with Such Sales Without Further Court Approval (Docket No. 387), entered on February 22, 2012 (the "De Minimis Asset Sale Order").


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the Winddown. However, the Debtors have only finalized their operational and other cost

projections for the first thirteen weeks of the Winddown, as seeking to project revenues and costs

further than that would require utilizing numerous and material assumptions that may or may not

prove to be correct.

25. The Debtors, in consultation with their advisors, have organized the

Winddown Plan around four major categories of their businesses/assets: (a) bakery (or "plant")

assets at which the Debtors' products were produced (the "Plants"); (b) depots (and combination

depots/stores) (the "Depots") at which the Debtors' finished products are stored (and sold, in

instances where there is a Retail Store co-located with a depot) and at which the Debtors' route

sales representatives and other parties obtain products for delivery to customers; (c) retail and

thrift store outlets at which the Debtors' finished products are sold (the "Retail Stores");5 and

(d) the Debtors' corporate functions ("Corporate"). A unique set of activities is necessary for each

of the foregoing categories.

26. Plant Winddown. The Debtors currently own 37 Plants across the United

States, with 36 being operational. The Winddown Plan contemplates that each Plant will

maintain a dedicated team to prepare, preserve, secure and clean the real estate, the facility and

the various assets located at the facility (e.g., production equipment; fleet vehicles; finished

products; raw materials) for sale. During the initial four weeks of the Winddown, it is anticipated

that each Plant will require approximately 28 Remaining Employees to effectuate the Winddown.

By the end of the third four-week Winddown Period, it is anticipated that each Plant will maintain

only one Remaining Employee on site (while certain tasks related to security, millwright labor

5 Certain of the Debtors' locations function both as Depots and Retail Stores. Costs related to the Depot

component of such locations are addressed in the Winddown Plan for Depots (as described below) and costs for the Retail Store component of such locations are addressed in the Winddown Plan for Retail Stores (as described below).


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and transportation will be outsourced to third parties).6 The Debtors will maintain 24/7 security

at each Plant, with the heaviest presence on site during the initial Winddown Period.

27. Among other things, Remaining Employees will assist with: (a) shutting

down, cleaning and packing all equipment; (b) properly disposing of waste in accordance with

applicable environmental regulations; (c) collecting and securing the Debtors' vehicle fleet;

(d) transferring finished product to stores for liquidation or arranging for other disposal;

(e) preparing production machinery and other material handling equipment (e.g., racks, trays,

baskets and dollies) for sale (if sold separately from the Plant itself); and (f) performing other

tasks required for the orderly winddown of baking operations. All leased equipment will be

prepared for lessor/supplier pick-up upon rejection of the applicable lease.

28. All excess raw material ingredients (such as flour, sugar and corn starch)

(collectively, "Excess Ingredients") located at the Plants (as well as Excess Ingredients in transit

to the Debtors' bakeries) as of the commencement of the Winddown either have been or will be

(a) refused, (b) returned to the Debtors' suppliers or (c) sold to third parties. The Debtors estimate

that they hold approximately $29.3 million worth of Excess Ingredients. In addition, the Debtors

have less than $1 million in generic (clear or nonbranded) packaging materials ("Excess

Packaging") that the Debtors will (a) return to their suppliers or (b) sell to third parties.7

6 The Winddown Plan further provides that the Debtors will continue to employ 28 Remaining Employees

(the "Plant Oversight Staff") at various locations to serve in a "plant oversight" capacity. The Plant Oversight Staff consists of a management team that will be responsible for managing (a) the Remaining Employees located on site at each of the Debtors' individual plants and (b) the overall wind down and sales/marketing process for the Plants generally. The Winddown Plan contemplates that the headcount for Plant Oversight Staff will be reduced to 10 Remaining Employees by the end of the ninth four-week Winddown Period, and reduced to two by the end of the thirteenth four-week Winddown Period.

7 In addition, the Debtors currently hold approximately $12.0 million in pre-printed packaging that they may not be able to resell. The Debtors are not seeking authority to sell this packaging pursuant to this Motion.


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29. Costs associated with the wind down and disposition of each of the Plants

and their related assets are anticipated to total approximately $17.58 million over the first thirteen

weeks of the Winddown.8

30. Depot Winddown. The Debtors currently own 165 Depots and lease

another 388 such facilities (including the Debtors' hybrid Depot/Retail Store facilities). The

primary Winddown activities to be undertaken at the Depots are the cleaning — including the

proper handling of any environmental waste — and preparation of such sites for return (for leased

locations) or sale (for owned locations). Equipment and vehicles owned or leased by the Debtors

that are located at leased Depots will be aggregated, secured and transferred to owned locations

prior to the rejection of any underlying Depot lease. Baked goods that remain at the Depots either

have been or will be (a) sold to third-party retailers, (b) sold at the Debtors' attached Retail Store

(where applicable) or (c) donated or destroyed.9 The Debtors will maintain on-site security

during the initial stages of the Winddown at certain of their high-value Depot locations.

31. Once the Winddown is commenced, the Debtors anticipate completing the

Winddown upon an accelerated four week schedule for leased Depots and seven week schedule

for owned Depots. At the commencement of the Winddown, the Debtors anticipate that they will

require approximately 826 Remaining Employees at Depots. This number will rapidly decline to

zero by the end of the seventh week of the Winddown as the Depots are cleaned and prepared for

closure and the associated Depot leases are rejected (as applicable).

8 Of this anticipated $17.58 million in costs over this thirteen week period, approximately (a) $7.27 million is

related to salary for Remaining Employees (which includes Plant Oversight Staff), (b) $1.15 million is related to payments to Remaining Employees under the Employee Retention Plan, (c) $6.02 million is related to operational expenses, such as utility costs and taxes and (d) $3.14 million is for various third party contractors, such as security personnel and millwright labor.

9 As is the case with finished goods inventory that is at the Debtors' Plants, the Debtors expect to negotiate bulk sales of finished goods with a national chain, and for finished goods not sold to a national chain, will seek to sell excess finished goods inventory through the Debtors' own retail stores. The Debtors consider any such sale of finished goods inventory to a national chain to be an ordinary course business transaction.


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32. Costs associated with the wind down and disposition of each of the Depots



33. Retail Store Winddown. The Debtors currently own 48 stand-alone Retail

Stores, lease an additional 168 such stand-alone stores and, as noted above, own 113 hybrid

Depot/Retail Store facilities and lease another 198 such facilities. The primary Winddown

activities to be undertaken at the Retail Stores are facility cleaning and the sale and disposition of

finished product inventory. During the Winddown, all perishable baked goods inventory

("Perishable Inventory") located at the Retail Stores will be either (a) sold to customers through

going-out-of-business sales ("GOB Sales"), (b) abandoned and donated to charity or destroyed

(for Perishable Inventory that cannot be sold in the GOB Sales or for which it is uneconomical to

transport it to a retail store for sale) or (c) grouped together and transferred, as applicable, to

owned Retail Stores (for any products with significant shelf life).11 Shelving and other

miscellaneous equipment located at the Retail Stores will be disassembled, stacked and

transferred to owned Depots for eventual liquidation, as is practicable. Owned Retail Stores will

eventually be marketed and sold. The leases for the remaining Retail Stores will be rejected.

34. The GOB Sales will be conducted within the following parameters:

Conduct of Sales: The GOB Sales will be conducted in accordance with the Debtors' normal business practices and with the collection and remittance of applicable sales taxes related to any applicable goods sold during the GOB Sales. The GOB Sales will be conducted during the Debtors' normal or expanded business hours.


related to salary for Remaining Employees, (b) $782,000 is related to payments to Remaining Employees under the Employee Retention Plan, (c) $1.47 million is related to operational expenses such as lease and utility costs and (d) $598,000 is related to hiring certain third party contract security for 24 "high value" Depots.

11 Finished product inventory in transit at the time this Motion is filed is being routed to Retail Stores for sale, unless such inventory is slated to be sold to one of the Debtors' existing customers.


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Pricing: Sales of Perishable Inventory will start at current pricing levels and may be adjusted upward or downward at periodic intervals depending on the level of demand at various Retail Stores during the course of the GOB Sales in the discretion of each applicable store manager.

Payment: All Perishable Inventory will be sold in accordance with the Debtors' ordinary business practices, and the Debtors will continue to accept cash, checks and charge cards as payment for Perishable Inventory.

Advertising: The Debtors do not intend to engage in any special advertising projects with respect to the GOB Sales, but appropriate signs may be posted in and around Retail Stores and other locations to advertise the GOB Sales as circumstances warrant.

35. The Winddown of Retail Stores and the GOB Sales are expected to occur

on an expedited basis and to be completed in approximately four weeks after the commencement

of the Winddown. Initially, the Debtors expect to require a total of 1,076 Remaining Employees

to effect the Winddown of the Retail Stores and the GOB Sales (including 22 Remaining

Employees who are retail sales senior managers, retail sales managers and district sales managers

to oversee the Winddown of Retail Stores (the "Retail Store Oversight Staff")). That headcount

will drop to zero by the fifth week of the Winddown as the Retail Stores are closed and the GOB

Sales are concluded.

36. Costs associated with the wind down and disposition of each of the Retail

Stores and their related assets are anticipated to total approximately $8.76 million over the first

thirteen weeks of the Winddown.12

37. Corporate Winddown. One of the more critical challenges that the

Winddown Plan addresses is the need to simultaneously wind down the Debtors' various

corporate functions while ensuring the ability to complete tasks that are necessary for the


related to salary for Remaining Employees, including the Retail Store Oversight Staff, (b) $977,000 is related to payments to Remaining Employees under the Employee Retention Plan and (c) $2.79 million is related to operational expenses, such as lease and utility costs.


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chapter 11 process. The Debtors' large operational footprint will require the services of

approximately 237 Remaining Employees at the corporate level to implement the winddown of

the Debtors' information technology, human resources, legal and financial affairs (and to address

any related issues arising over the course of the Winddown).

38. The majority of the corporate level Remaining Employees (131 of the 237)

are financial and accounting personnel. The need to retain such a large number of financial

personnel is the direct result of the Debtors' decentralized accounting system, which necessitates

that field accounting personnel facilitate the collection of, and accounting for, remaining accounts

receivable across 18 field locations. Although workloads and headcounts will diminish over time,

the Debtors anticipate that the collection of receivables and the settlement of disputed balances by

financial personnel will continue for the duration the Winddown. The Debtors will also require

financial personnel to (a) ensure proper accounting as assets are monetized over time, (b) assist

with the Debtors' claims resolution process and (c) process various ordinary course administrative

tasks (e.g., paying the various costs associated with the Winddown).

39. The corporate level Remaining Employees will also include 19 Senior

Management Employees who will be offered incentive payments as motivation and

encouragement to take on additional job responsibilities and to complete and achieve certain tasks

and goals associated with the Winddown.

40. In addition, the Winddown Plan contemplates that the Debtors will retain

various third parties to complete the winding up of their corporate affairs (e.g., services related to

document and records management, temporary finance and accounting roles, payroll and storage).


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41. Costs associated with the winddown of the Debtors' corporate functions are

anticipated to total approximately $8.10 million over the first thirteen weeks of the Winddown.13

Financing the Winddown Plan14

42. The terms of the DIP Credit Agreement and the Final DIP Order already

contemplated that the Debtors might be required to liquidate their assets under certain

circumstances. The Debtors propose to fund the costs of the Winddown Plan and pay for other

administrative costs incurred by the Debtors' estates with borrowings under the DIP Credit

Agreement, the consensual use of the cash collateral of the DIP Lenders and the First Lien Term

Loan Lenders and the non-consensual use of the cash collateral of the ABL Lenders. These

sources of financing will be supplemented with the proceeds realized by the Debtors as their

assets are liquidated. All of the Debtors' assets are subject to the liens of the Debtors' prepetition

and postpetition lenders under the terms of the Final DIP Order.

43. Section 5.17 of the DIP Credit Agreement requires the Debtors and the DIP

Agent to cooperate in good faith to develop a revised budget (the "Liquidation Budget") to fund

the Winddown Plan.15 In addition, the terms of the DIP Credit Agreement specifically permit the

Debtors to dispose of their assets in accordance with the terms of the Liquidation Budget without

violating the DIP Credit Agreement. (DIP Credit Agreement § 6.8).


related to salary for Remaining Employees, (b) $221,000 is related to payments to Remaining Employees under the Employee Retention Plan, (c) $2.98 million is related to operational expenses and (d) $878,000 is for hiring third party contractors for certain tasks.

14 All capitalized terms used in this section and not otherwise defined in this Motion have the meanings given to them in the Final DIP Order.

15 Similarly, under paragraph 12(b) of the Final DIP Order, upon the commencement of the Winddown Plan (among other possible triggers) the Debtors, the DIP Agent and the Pre-Petition Revolving Agent are required to work together in good faith to develop the Liquidation Budget. The Debtors' negotiations with the Pre-Petition Revolving Agent are described in greater detail below.


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44. Accordingly, the Debtors have consulted and negotiated with the DIP

Agent and have developed a 13-week cash flow Liquidation Budget, which is attached hereto as

Exhibit F.16 The DIP Agent has not committed to the Debtors' use of their cash collateral past the

13-week Liquidation Budget. As provided for in paragraph 12(a) of the Final DIP Order,

however, the Debtors contemplate that the Liquidation Budget, like the Budget (as defined in the

DIP Credit Agreement and pursuant to which the Debtors have operated throughout these cases)

will be a rolling 13-week budget that will be updated monthly after negotiations with the DIP

Agent, and that such updated monthly Liquidation Budgets, as they are agreed upon, will

authorize the Debtors to make disbursements set forth therein. In addition, the variances from the

Budget permitted under the Final DIP Order shall continue to apply to the Liquidation Budget.

45. Among other things, the initial Liquidation Budget contemplates and

reflects using cash collateral and borrowings under the DIP Credit Agreement to provide funding

for the initiation of the Winddown Plan (as described in this Motion) during the 13-week period

covered thereby. The current 13-week Liquidation Budget provides adequate funds for the

Debtors to: (a) provide a pay down of all of the $45 million of ABL Pre-Petition Indebtedness as

asset sales permit and as set forth in the Liquidation Budget; (b) pay the Winddown-related

administrative expenses that arise from and after the commencement of the Winddown, as

specified in the Liquidation Budget; and (c) pay accrued ordinary course administrative expenses

that are specified in the Liquidation Budget, such as accrued wages and benefits for hours worked

prior to the commencement of the Winddown, sales taxes, utility payments and certain other

amounts.

16 Certain elements of the Liquidation Budget have been adjusted as described in footnote [17] below.


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46. As part of the agreement between the Debtors and the DIP Agent regarding

the Liquidation Budget, the Debtors have agreed that they will seek specific authorization from

the DIP Agent prior to paying certain claims. In particular, with respect to the category "Other

Pre-Liquidation Expenses" within the Liquidation Budget, the Debtors will pay claims within this

category only after consulting with and obtaining the consent of the DIP Agent. Further, while

certain administrative claims will be paid under the Liquidation Budget, the Liquidation Budget

does not include provision for payment of all of the administrative claims that have accrued

against the Debtors' estates to date. The DIP Agent and certain of the Debtors' prepetition

secured lenders have advised that they cannot at this time commit to the payment of all accrued

administrative expense claims. Only after significant assets have been sold and proceeds realized

will the parties be in a position to determine whether or not administrative claims will be paid in

full. It is possible, however, that these estates will prove to be administratively insolvent.

47. While the Debtors expect that the liquidation of their assets will generate

sufficient proceeds to pay those administrative claims that are included within the Liquidation

Budget,17 given the time it will take to liquidate assets, cash may not be available to pay included

claims as they become due. In an instance where the Liquidation Budget provides for and permits

payment of a claim, and the Debtors intend to pay such claim, but lack current liquidity necessary

to make the payment, the Debtors propose to send notice in the form attached hereto as Exhibit G

to such claimant stating that payment of such claim will be delayed for up to 90 days (subject to

further extension by the Debtors with Court approval) from the date of the notice (the "Payment 17 The Liquidation Budget currently contains line items within which certain claims ultimately may be

disputed by the Debtors. The inclusion of an item in the Liquidation Budget does not represent a commitment on the part of the Debtors to pay such amount — it simply limits the Debtors from paying more than the budgeted amount (plus any permitted variation) without obtaining additional lender consent. Nothing in the Liquidation Budget or this Motion is intended as, or should be deemed or construed as, an admission by the Debtors of the validity of any liability reflected on the Liquidation Budget. The Debtors expressly reserve all of their rights to dispute the validity of line items tentatively included within the Liquidation Budget.


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Grace Period"). Until the expiration of the Payment Grace Period, such claimants shall not be

permitted to seek relief from this Court for the immediate payment of their administrative

claim(s). If, however, the claimant remains unpaid at the expiration of the Payment Grace Period,

the claimant shall be permitted to seek relief from the Court under section 503 of the Bankruptcy

Code.

48. Consistent with paragraph 12(b) of the Final DIP Order, the Debtors have

also had discussions with the Pre-Petition Revolving Agent about the form of the Liquidation

Budget but, as of the date of this Motion, have not reached agreement. Therefore, by this Motion,

the Debtors are requesting the Court approve the Debtors' non-consensual use of the cash

collateral of the ABL Lenders.

49. Under paragraph 26 of the Final DIP Order, the Strikes may constitute a

"Cash Collateral Liquidation Event," triggering a requirement that "all collections received by the

Debtors from the Revolving Priority Collateral shall be immediately applied to the ABL

Pre-Petition Indebtedness to effectuate a reduction … of such ABL Pre-Petition Indebtedness."

(Final DIP Order ¶ 26). However, the Final DIP Order also specifies that the timing and method

of such payment will be negotiated by the Debtors, the DIP Agent and the Pre-Petition Revolving

Agent. (See Final DIP Order ¶ 26) (providing that "[u]pon a Cash Collateral Liquidation

Event … the Debtors, the DIP Agent and the Pre-Petition Revolving Agent shall work together in

good faith to adjust the Budget to reflect the change in circumstances, and the Debtors, the DIP

Agent and the Pre-Petition Revolving Agent shall work together in good faith to effectuate the

Revolver Paydown"). An immediate dollar-for-dollar application to the ABL Pre-Petition

Indebtedness as the Revolving Priority Collateral is liquidated would leave the Debtors with

insufficient funds to effectuate the Winddown Plan (including paying the employees that are

collecting and liquidating the Revolving Priority Collateral). Therefore, the Liquidation Budget


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provides for the payment of the ABL Pre-Petition Indebtedness in two installments as follows:

(a) $2.5 million in Week 8 of the Liquidation Budget; and (b) $42.5 million in Week 12 of the

Liquidation Budget.

50. In order to provide assurances to the ABL Lenders that they will be

adequately protected during the Winddown, the DIP Agent, on behalf of the Requisite DIP

Lenders, and the Pre-Petition First Lien Agent, on behalf of the First Lien Term Loan Lenders,

have agreed to provide the Pre-Petition Revolving Agent, for itself and for the benefit of the ABL

Lenders, with further adequate protection. Specifically, the DIP Agent, on behalf of the Requisite

DIP Lenders, and the Pre-Petition First Lien Agent, on behalf of the First Lien Term Loan

Lenders, have agreed to provide that the ABL Adequate Protection Liens of the Pre-Petition

Revolving Agent, for itself and for the benefit of the ABL Lenders, on the First Lien Term Loan

Priority Collateral to secure principal, interest and fees shall be senior to the DIP Liens and all

Pre-Petition Liens thereon to the extent of any diminution of the Revolving Priority Collateral as

the result of the Debtors' continued use of Cash Collateral constituting proceeds of Revolving

Priority Collateral (e.g., accounts receivable and inventory) during the Winddown.18 In addition,

as shown in the Liquidation Budget, the ABL Lenders will receive payments from the net cash

proceeds of the sale of the First Lien Term Loan Priority Collateral prior to any payments being

made from such proceeds to the DIP Lenders, the First Lien Term Loan Lenders, the Third Lien

Term Loan Lenders or the Pre-Petition Fourth Lien Parties (other than interest payments to the

DIP Lenders and payment of other adequate protection required by the Final DIP Order). As a

result of the consent of the DIP Agent and the Pre-Petition First Lien Agent to the modification to

18 The Pre-Petition Third Lien Agent and the Pre-Petition Fourth Lien Trustee have also consented to such

reordering of the lien priorities under the terms of Final DIP Order.


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the DIP Credit Agreement and the Final DIP Order, the ABL Lenders will be adequately

protected.

51. The Debtors are still hopeful that they might achieve a consensual

agreement with the Pre-Petition Revolving Agent prior to the hearing on this matter. In the event

that such agreement is not achieved, however, by this Motion the Debtors are requesting that the

Court authorize the Debtors' non-consensual use of the ABL Lenders' cash collateral in

accordance with the terms of the Liquidation Budget. The Debtors believe that, with the

amendment to the DIP Credit Agreement and the Final DIP Order proposed above, the ABL

Lenders have sufficient adequate protection to justify such non-consensual use until asset sales

permit the ABL Lenders to be paid in full.

Further Modifications to Final DIP Order and DIP Credit Agreement

52. As a corollary to the above request, the Debtors are also seeking two

changes to the covenants set forth in the Final DIP Order, as these covenants are rendered

unnecessary in light of the additional adequate protection being provided to the Pre-Petition

Revolving Agent, for itself and for the benefit of the ABL Lenders. In particular, the Debtors

seek relief from the covenant set forth in paragraph 23(a), which requires the Debtors to maintain

a "Total Borrowing Base Availability" of a specified amount. The covenant, in essence, requires

the Debtors to maintain minimum levels of accounts receivable and inventory. Because the

Debtors will be seeking to liquidate all of their accounts receivable and inventory during the

initial weeks and months of the Winddown and will not be replenishing them through operations,

the Debtors would expect that "Total Borrowing Base Availability" will decrease over time and

they might breach this covenant early in the Winddown process. Similarly, the Debtors seek to

be relieved of the Revolver Paydown obligations of paragraph 26 of the Final DIP Order. That

paragraph requires paydowns of the ABL Pre-Petition Indebtedness in the event of a winddown,


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significant workforce reduction or material labor disruptions. Providing relief from these

covenants is appropriate because the adequate protection being proposed above directly addresses

these issues. The additional adequate protection liens being provided to the Pre-Petition

Revolving Agent, for itself and for the benefit of the ABL Lenders, on collateral of a value in the

hundreds of millions of dollars is more than sufficient adequate protection for any diminution in

the value of Revolving Priority Collateral in light of the $45 million principal amount of the ABL

Pre-Petition Indebtedness. Accordingly, there is no need to require the maintenance of minimum

collateral levels or to require automatic paydowns of the ABL Pre-Petition Indebtedness.

53. Likewise, by this Motion, the Debtors are also seeking approval of a

seventh amendment to the DIP Credit Agreement (the "Seventh Amendment"), substantially in

the form attached hereto as Exhibit H. Like the Final DIP Order, the DIP Credit Agreement

contains certain provisions that need to be revised given the Debtors' change in circumstances and

to ensure the Debtors continue to have the ability to borrow funds under the terms of the DIP

Credit Agreement. Amendments to the DIP Credit Agreement are authorized under paragraph 29

of the Final DIP Order so long as notice and an opportunity to object is provided to certain parties

in interest (which notice is being provided by the filing of this Motion). Finally, because the

changes are beneficial to the Debtors and are being done with the consent of the DIP Agent, the

Debtors submit that these modifications are entirely appropriate under sections 361, 363 and 364

of the Bankruptcy Code.

54. The Seventh Amendment to the DIP Credit Agreement will, among other

things, (a) permit the Debtors to access the full amount of the $75 million loan advanced to the

Debtors pursuant to DIP Credit Agreement during the Winddown, (b) eliminate the Chapter 11

Milestones related to a plan of reorganization process and (c) make certain other changes to

ensure the Debtors do not lose access to the funding pursuant to the terms of the DIP Credit


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Agreement as a result of the implementation of the Winddown Plan. These modifications are

plainly beneficial to the Debtors and should thus be approved..

The Employee Retention Plan and Senior Management Incentive Plan

55. As described above, the primary purpose of the Winddown is to maximize

the value of the Debtors' assets. To accomplish this objective, it is imperative that the Debtors

retain the Non-Senior Management Employees and incentivize the Senior Management

Employees, in each case, to implement and effectuate the Winddown Plan. The success of the

Winddown Plan will depend on the Debtors' ability to retain Non-Senior Management Employees

who (a) have a valuable institutional knowledge of the Debtors' businesses and (b) in many

instances, specialized knowledge and skills that may be highly desirable and marketable to other

employers. Given the absence of any expectation of long-term employment with the Debtors, the

Debtors' Non-Senior Management Employees will be understandably reluctant to forgo the search

for alternative employment (or offers from other employers) during the period when the Debtors

require their services. The success of the Winddown Plan will also depend on the Debtors' ability

to incentivize Senior Management Employees who will need to take on additional job

responsibilities to ensure timely completion and achievement of certain tasks and goals associated

with the Winddown Plan. Such tasks and goals are complex and challenging, and therefore, it

will be critical for the Debtors to motivate and encourage the Senior Management Employees to

contribute their services to the Winddown Plan by providing appropriate incentives for such

employees upon the completion and achievement of certain tasks and goals.

56. Accordingly, to induce the Non-Senior Management Employees to remain

with the Debtors as needed during the Winddown, the Debtors propose to provide such

employees with a one-time retention payment of 25% of the amount of wage compensation

earned by the Non-Senior Management Employee from the date of this Motion until their


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applicable tasks under the Winddown Plan are completed (the "Employee Retention Plan").

A comprehensive summary of the proposed Employee Retention Plan is attached hereto as

Exhibit I. The total cost of the Employee Retention Plan is expected to be approximately

$4.36 million.

57. In addition, in order to incentivize the Senior Management Employees to

expeditiously and cost-effectively implement the Winddown, the Debtors propose to provide such

employees with a one-time incentive payment (the "Baseline Incentive Payment") ranging from

25% to 75% of the employee's annual base compensation (the "Senior Management Incentive

Plan"). Senior Management Employees have been split into eight groups under the Senior

Management Incentive Plan. Depending upon the Senior Management Employee, either 75% or

85% of the Baseline Incentive Payment will be paid to the Senior Management Employee based

upon the successful completion of various metrics for that employee's group. The remaining 25%

or 15% of the Baseline Incentive Payment will be paid to the Senior Management Employee if

the Debtors spend less than the budgeted amount in certain specified cost categories during the

one-year period after commencement of the Winddown. Further, to incentivize the two Senior

Management Employees that are Executive Vice Presidents (and thus will generally oversee the

Winddown process) to perform better than the Liquidation Budget as much as possible, the Senior

Management Incentive Plan includes the possibility for an additional award (the "Budget

Outperformance Award") for those two Senior Management Employees. The Budget

Outperformance Award will vary in size depending on the amount by which the Debtors perform

better than the budgeted amounts over the first year of the Winddown with respect to certain

specified cost categories. A description of the benchmarks and awards that comprise the Senior

Management Incentive Plan is attached hereto as Exhibit J. The total amount of Baseline


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Incentive Payments under the Senior Management Incentive Plan is expected to be between $0.00

and approximately $1.75 million.

58. Notably, payments under the Employee Retention Plan and the Senior

Management Incentive Plan would replace, and not be in addition to, any payments the Debtors

would have historically offered the Remaining Employees under their prepetition bonus and

severance plans, and the amount of the potential incentive or retention payments are generally in

line with market practice. The average payment per Non-Senior Management Employee under

the Employee Retention Plan is below the market average of per-employee payments under

retention plans approved in comparable recent chapter 11 cases. Likewise, the total potential cost

of the Senior Management Incentive Plan closely approximates the mean total cost for incentive

plans approved in comparable recent chapter 11 cases. In addition, total cash compensation19 for

all Senior Management Employees under the Senior Management Incentive Plan (assuming the

achievement of all metrics by all groups and achievement of the budget targets) would be

$4.02 million, or roughly equivalent to the average total cash compensation earned by such

employees in fiscal years 2009-2011. Similarly, even assuming the achievement of all targets by

all groups, total cash compensation for Senior Management Employees would be 18% less than

the market median for non-bankrupt companies with significant bakery operations or in the food /

beverage industry. The cost to the Debtors' estates of the Employee Retention Plan and the

Senior Management Incentive Plan is, thus, reasonable in light of the benefit gained by the

Debtors' from the provision of services by the Remaining Employees. Finally, all Remaining

Employees will be required to sign a general release of all claims against the Debtors and certain

19 Total cash compensation includes the potential Baseline Incentive Payments, but excludes the potential

Budget Outperformance Award for the two Executive Vice Presidents who are included in the Senior Management Incentive Plan.


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other parties as a condition to participating in either the Employee Retention Plan or the Senior

Management Incentive Plan, as applicable.

59. A failure to retain the Non-Senior Management Employees that are

necessary to implement the Winddown Plan would cause the Debtors to incur significant costs

attempting to obtain replacements for those employees. This would hinder and delay the

Winddown, thus imposing further costs upon the Debtors' estates (e.g., increased carrying costs

for assets; increased employee costs; additional taxation) and would impair the value of the

Debtors' assets to the detriment of all stakeholders. The continuity promised by the retention of

such employees, on the other hand, promotes the success of the Winddown Plan. Further,

incentivizing the Senior Management Employees to expeditiously and cost-effectively implement

the Winddown and achieve the highest possible sale value for the Debtors' assets by setting

appropriate targets for achievement will ultimately inure to the benefit of the Debtors' creditors.

Accordingly, the Employee Retention Plan and the Senior Management Incentive Plan are critical

elements of the Winddown Plan.

60. As set forth above, the Debtors are seeking interim and final orders with

respect to this Motion. On an interim basis, the Debtors are only seeking Court approval to make

payments under the Employee Retention Plan for awards that would accrue through the date of

the final hearing on this Motion. The Debtors estimate that the award amount that would accrue

through the date of the final hearing will be approximately $1.45 million, assuming a final

hearing date no later than two weeks after the interim hearing. Such awards would be considered

earned and would be paid even if the Court ultimately denies the relief sought hereunder on a

final basis. The Debtors are not seeking relief under the Senior Management Incentive Plan on an

interim basis.


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The Use of Third Party Contractors

61. In certain circumstances, the Debtors contemplate the use of Third Party

Contractors to complete certain tasks necessary to the Winddown Plan. For example, the Debtors

anticipate that they may require: (a) various security personnel and barricade providers to secure

the Debtors hundreds of locations across the country pending the preparation and disposition of

such locations; (b) millwright labor to clean, repair, pack and preserve the Debtors' production

equipment; (c) transportation/logistics personnel to coordinate the collection and transportation of,

among other things, finished product inventory and miscellaneous handling equipment, as well as

the aggregation of the Debtors' owned and leased vehicle fleet; (d) environmental consultants to

address, among other things, issues related to water management (e.g., wastewater, stormwater

and groundwater), air permits, asbestos, lead and refrigerants; (e) payroll services; (f) document

management services; and (g) various temporary services.20 A nonexclusive list of the Third

Party Contractors that the Debtors currently contemplate utilizing is attached hereto as Exhibit K.

Given the impending termination of the majority of the Debtors' workforce, the discrete nature of

the tasks to be performed and the Debtors' need for professional expertise in certain critical areas

(e.g., environmental consulting), the use of Third Party Contractors as proposed in the Winddown

Plan is the most cost effective means of performing those functions under the Winddown Plan.21

20 This list is non-exclusive. To the extent the Debtors have the authority to hire certain professional parties

under existing court orders, nothing in this Motion is intended to limit the Debtors' exercise of those rights during the Winddown.

21 None of the Third Party Contractors will be performing services that rise to the level of requiring their retention by the Debtors pursuant to section 327 of the Bankruptcy Code. Generally, courts will find that an entity rises to the level of a "professional" that must be retained by a debtor under section 327 of the Bankruptcy Code if such entity (a) plays a "central role" in the administration of a debtor's estate or (b) is permitted to exercise discretion and autonomy in addressing the administration of a debtor's estate. See In re First Merchants Acceptance Corp., No. 97-1500, 1997 WL 873551, at *2 (D. Del. Dec. 15, 1997). Neither is the case with respect to the Third Party Contractors the Debtors intend to use in connection with the Winddown Plan.


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Exculpation and Indemnification for Protected Persons

62. The Debtors recognize that the Winddown Plan, and the actions

contemplated thereby, constitute events that could be challenged by various stakeholder

constituencies interested in these chapter 11 cases. The Debtors further realize that, in such a

potentially volatile environment, parties could seek to alter the Winddown Plan and/or increase

their own recoveries to the possible detriment of other constituencies by, among other things,

making threats or seeking to obtain leverage by initiating third party actions against one or more

of the Protected Persons (collectively, the "Third Party Actions"). If this Motion is granted, such

Third Party Actions would amount to a collateral attack on any order of this Court approving the

Winddown Plan. Moreover, such actions might improperly influence the Protected Persons in the

performance of their duties and distract them from their value-maximizing efforts.

63. Successful implementation of the Winddown Plan — and, indeed, the

orderly conclusion of the Debtors' bankruptcy cases — is infeasible without a functioning board

of directors and certain key officers and employees in place to implement and oversee the

Winddown. Under these circumstances, it is unreasonable to expect the Protected Persons to

participate in the Winddown if doing so has limited benefit to them but will subject them to

potential personal liability. Accordingly, the Protected Persons — i.e., the individuals who

developed and approved the Winddown Plan and/or will be charged with its implementation and

oversight22 — should be protected for any and all actions they have taken (or will take) in good

faith, and any and all actions that they have refrained, or will refrain, from taking in good faith, to

develop, approve, implement and/or oversee the Winddown Plan (the "Exculpation"). Further,

the Exculpation should be enforced by the Court through the issuance of an injunction against the

22 The identities of the Protected Persons are set forth on Exhibit L attached hereto and incorporated herein by

reference.


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taking of such actions against the Protected Persons, and claims or causes of action challenging

the foregoing should be enjoined (the "Injunction").

64. Despite the Exculpation and the Injunction, the Protected Persons may

nevertheless become the targets of Third Party Actions, and may be required to incur costs in

defense against such actions (including, but not limited to, defenses related to the Exculpation and

Injunction). The articles of incorporation, by-laws or other constituent documents of the Debtors,

and a newly-created trust (the "Trust") the funding for which the Debtors seek approval hereby,23

generally provide for indemnification of the applicable Debtor's directors, officers and employees

to the full extent permitted under the laws of their respective states of formation. As no provision

for such claims is being made in the Liquidation Budget, the Protected Persons may, despite the

Exculpation and Injunction, terminate their relationships with the Debtors to avoid the resulting

risk of personal exposure for otherwise indemnifiable losses on exculpated and enjoined claims.

The Trust and the Debtors' directors' and officers' insurance policies are intended to provide the

Protected Persons with sufficient comfort to permit them to remain employed by the Debtors'

estates and focus on the task of implementing the Winddown Plan.

Expedited Contract Rejection Procedures

65. In connection with the Winddown, the Debtors will be required to reject

the vast majority of their executory contracts and unexpired leases. The Debtors are in the

process of identifying a number of executory contracts and unexpired leases that should be

immediately rejected (collectively, the "Immediate Rejection Contracts") as they are no longer

required as the Debtors are not actively operating their businesses. The Debtors expect that they

23 The Liquidation Budget attached to this Motion provides for the funding of the Trust.


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will soon file separate motions seeking the Court's approval of the rejection of the Immediate

Rejection Contracts.

66. In addition, the Debtors anticipate that they will need to reject a number of

additional executory contracts and unexpired leases (collectively, the "Future Rejected Contracts")

over the course of the Winddown. In order to minimize (a) any potential administrative expense

claims associated with a Future Rejected Contract and (b) costs associated with the necessity of

rejecting Future Rejected Contracts by separate motion, the Debtors propose the following

procedures (the "Expedited Contract Rejection Procedures") to effect the expedited rejection of

any Future Rejected Contract:

After one of the Debtors determines to reject a Future Rejected Contract (the "Proposed Rejection"), the applicable Debtor will send a notice describing the proposed rejection and the proposed effective date thereof (which proposed effective date will be no earlier than the date of the Rejection Notice (as defined below)), substantially in the form attached hereto as Exhibit M, via overnight delivery service, facsimile or email (if available), to the nondebtor party to the Future Rejected Contract (the "Rejection Notice"), with a copy to the following parties (collectively with the non-Debtor party to the Future Rejected Contract, the "Contract Notice Parties"): (a) counsel to the Creditors' Committee; (b) counsel to the DIP Agent; (c) counsel to the Pre-Petition Revolving Agent; and (d) the U.S. Trustee.

Contract Notice Parties (other than the U.S. Trustee) will have five business days from the date of service (the "Notice Period") to object to the Proposed Rejection.

Any objections to a Proposed Rejection (an "Objection") must be in writing, filed with the Court and served on the other Contract Notice Parties and counsel to the Debtors so as to be received prior to the expiration of the Notice Period. Each Objection must state with specificity the grounds for objecting to the Proposed Rejection.

If no Objections are properly asserted prior to the expiration of the Notice Period, the Debtors will be authorized, without further notice and without further Court order, to reject the Future Rejected Contract, effective as of the date identified in the Rejection Notice.


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If an Objection to a Proposed Rejection is properly filed and served, the Proposed Rejection may not proceed absent withdrawal of the Objection or the entry of an order of the Court specifically approving the Proposed Rejection.

Any Objection may be resolved without a hearing by an order of the Court submitted on a consensual basis by the applicable Debtor or Debtors and the objecting party(ies).

If an Objection is not resolved on a consensual basis, the applicable Debtor or Debtors or the objecting party(ies) may schedule the Proposed Rejection and the Objection for hearing at the next available omnibus hearing date in these cases by giving at least seven days' written notice of the hearing to each of the Contract Notice Parties.

On the 20th day of each month, the Debtors shall file with the Court and serve upon each of the Contract Notice Parties a notice that identifies the Future Rejected Contracts that were rejected pursuant to the foregoing procedures during the preceding month. If no Future Rejected Contracts are rejected in a given month, no monthly notice need be filed.

67. The Debtors believe that the Expedited Contract Rejection Procedures will

provide sufficient notice and opportunity to object to the Contract Notice Parties, while

preserving precious resources of the Debtors' estates and facilitating the prompt winddown of the

Debtors' businesses. Because the implementation of the Winddown Plan ultimately will obviate

the Debtors' need for all executory contracts and unexpired leases, the Debtors submit that their

future determinations to reject the Future Rejected Contracts as the Winddown gradually renders

such contracts and leases purposeless will generally represent a manifestly proper and

non-controversial exercise of their business judgment made in the best interests of their estates

and creditors.

ARGUMENT

Justifications for the Winddown Plan

68. Section 363(b) of the Bankruptcy Code provides that a debtor "after notice

and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of

the estate." 11 U.S.C. § 363(b)(1). A debtor must demonstrate a sound business justification for


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a sale or use of assets outside the ordinary course of business. See, e.g., Licensing by Paolo, Inc.

v. Sinatra (In re Gucci), 126 F.3d 380, 387 (2d Cir. 1997); Comm. of Equity Sec. Holders v.

Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983). Further, "[w]here the

debtor articulates a reasonable basis for its business decisions (as distinct from a decision made

arbitrarily or capriciously), courts will generally not entertain objections to the debtor's conduct."

Comm. Of Asbestos-Related Litigants and/or Creditors v. Johns-Manville Corp.

(In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). In addition,

section 105(a) of the Bankruptcy Code confers upon the Court broad equitable powers to fashion

relief in accordance with the policies underlying the Bankruptcy Code.24

69. As described herein, the Winddown Plan as a whole, as well as its various

discrete elements, are supported by sound business justifications and should be approved by the

Court. The Debtors have suffered significantly due to labor unrest in the past week. Since the

Strikes were commenced on November 9, the Debtors estimate that, by November 19, they will

have incurred between $7.5-9.5 million in losses in the aggregate, due to lost sales and increased

costs of production. These losses and other factors, including increased vendor payment terms

contraction, have resulted in a significant weakening of the Debtors' cash position and, if

continued, would soon result in the Debtors completely running out of cash.

70. As described in detail above and in the Carroll Declaration, the Winddown

Plan is the culmination of months of planning and analysis, developed using a comprehensive

analysis of each of the Debtors' major operating segments and separate cost and timing

assumptions for the winddown of the Debtors' Plants, Depots, Retail Stores and corporate

24 See, e.g., Momentum Mfg. Corp. v. Employee Creditors Comm. (In re Momentum Mfg. Corp.),

25 F.3d 1132, 1136 (2d Cir. 1994) ("It is well settled that bankruptcy courts are courts of equity, empowered to invoke equitable principles to achieve fairness and justice in the reorganization process."); Chinichian v. Campolongo (In re Chinichian), 784 F.2d 1440, 1443 (9th Cir. 1986) ("Section 105 sets out the power of the bankruptcy court to fashion orders as necessary pursuant to the purposes of the Bankruptcy Code.").


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functions. As is evident from the Winddown Plan, the cessation of the Debtors' operations is not

a simple matter of turning off the lights and shutting the doors: baked goods and inventory must

be sold or disposed of; production equipment must be properly cleaned, packed and prepared to

preserve its value; owned and leased assets must be collected from across the nation and

transferred to owned locations; and the Debtors' hundreds of Plants, Depots and Retail Stores

must be staffed, cleaned and secured in advance of return or disposition. The full administration

of the Debtors' chapter 11 estates requires, and will continue to require, intensive planning,

staffing and funding to ensure a proper, safe and orderly winddown thereof. A freefall shutdown

and fire sale liquidation would, among other things, irreparably damage production equipment,

could result in the failure to dispose, or improper disposal, of waste materials and could force the

Debtors to incur significant additional administrative expenses. These consequences would

dissipate the value of the Debtors' assets and harm creditor recoveries in these chapter 11 cases.

71. The responsible and orderly process contemplated by the Winddown Plan

avoids these harsh consequences, thus preventing the further devaluation of creditor recoveries

and promoting public safety. The Debtors submit that the Winddown Plan represents the best

possible outcome to be achieved in the wake of a catastrophic event for the Debtors and their

employees, business partners and creditors.

72. For these reasons, the implementation of the Winddown Plan — and each

of the constituent elements thereof — represents a sound exercise of the Debtors' business

judgment and effectuates the general policy of the Bankruptcy Code to maximize estate value for

the benefit of all stakeholders.


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Justifications for Approving the Liquidation Budget and the Debtors' Non-Consensual Use of Cash Collateral25

73. As described above, in accordance with the terms of the DIP Credit

Agreement, the Debtors and the DIP Agent have agreed to the Liquidation Budget.26 Under

paragraph 12(b) of the Final DIP Order, upon the occurrence of a Liquidation Event or a Cash

Collateral Liquidation Event (as defined in the DIP Credit Agreement and the Final DIP Order,

respectively), the Debtors, the DIP Agent and the Pre-Petition Revolving Agent are required to

"cooperate in good faith to adjust the Budget to reflect the change in circumstances … in

accordance with the DIP Credit Agreement and paragraph 26 [of the Final DIP Order]."27 After

agreeing on the Liquidation Budget, such budget becomes the "Budget" for purposes of the DIP

Credit Agreement and the Final DIP Order. (See DIP Credit Agreement § 5.17; Final DIP Order

¶ 12(b)). Further, pursuant to the terms of the DIP Credit Agreement and the Final DIP Order,

the Debtors are (a) only permitted to use borrowings under the DIP Credit Agreement and their

secured lenders' cash collateral in accordance with the terms of the Budget or the Liquidation

Budget, as the case may be, and (b) without the prior written consent of the DIP Agent, the

Pre-Petition Revolving Agent and the Pre-Petition First Lien Agent, cannot make any payment in

settlement or satisfaction of any administrative or other claim, unless in compliance with the

25 All capitalized terms used in this section and not otherwise defined in this Motion have the meanings given

to them in the Final DIP Order. 26 The terms of the Final DIP Order preclude the Debtors from seeking to charge against or recover expenses

from their secured lenders' collateral without such lenders' consent, whether under section 506(c) of the Bankruptcy Code or under any other theory. (See Final DIP Order ¶ 13).

27 As noted above, the Strikes constitute a Liquidation Event under the terms of the DIP Credit Agreement and a Cash Collateral Liquidation Event under the terms of the Final DIP Order. (See DIP Credit Agreement § 1.1; Final DIP Order ¶ 26(d)).


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Budget or the Liquidation Budget, as the case may be. (See DIP Credit Agreement §§ 5.17

and 6.19(d); Final DIP Order ¶¶ 14 and 22).28

74. The Debtors require access to cash under the DIP Credit Agreement to

survive during the Winddown. In the opening weeks of the Winddown, it is anticipated that the

Debtors' expenses will temporarily exceed the proceeds from the liquidation of the Debtors' assets.

During this time, the only source of funding for the Debtors is borrowing under the DIP Credit

Agreement and cash collateral, including proceeds of collateral liquidated during this period. If

the Liquidation Budget is not approved in its present form, and payments to the ABL Lenders are

required sooner, the Debtors will have insufficient funds under the DIP Credit Agreement to pay

essential Winddown expenses. Because the Pre-Petition Revolving Agent has not yet agreed to

the Liquidation Budget, by this Motion the Debtors are requesting that the Court approve the

non-consensual use of the ABL Lenders' cash collateral in accordance with the terms of the

Liquidation Budget until such time as the ABL Pre-Petition Indebtedness is paid in full.

75. As noted above, the DIP Credit Agreement and the Final DIP Order will be

amended to provide that the ABL Adequate Protection Liens of the Pre-Petition Revolving Agent,

for itself and for the benefit of the ABL Lenders, on the First Lien Term Loan Priority Collateral

shall be senior to the DIP Liens and all Pre-Petition Liens thereon to the extent of any diminution

of the Revolving Priority Collateral as the result of the Debtors' continued use of Cash Collateral

constituting proceeds of Revolving Priority Collateral (e.g., accounts receivable and inventory)

during the Winddown. In addition, as shown in the Liquidation Budget, the ABL Lenders will

28 Specifically, paragraph 22 of the Final DIP Order provides that "[n]otwithstanding anything herein or in any

other order by this Court to the contrary, without the prior written consent of the DIP Agent, the Pre-Petition Revolving Agent and the Pre-Petition First Lien Agent, none of the DIP Obligations, the Cash Collateral, Collateral or the Carve Out may be used for the following purposes: ... (iv) to make any payment in settlement or satisfaction of any pre-petition or administrative claim, unless in compliance with the covenants related to the Budget (as set forth herein or in the DIP Credit Agreement) ...." (Final DIP Order ¶ 22).


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receive payments from the net cash proceeds of the sale of the First Lien Term Loan Priority

Collateral prior to any payments being made from such proceeds to the DIP Lenders, the First

Lien Term Loan Lenders, the Third Lien Term Loan Lenders or the Pre-Petition Fourth Lien

Parties (other than interest payments to the DIP Lenders and payment of other adequate

protection required by the Final DIP Order). Therefore, even though it is anticipated that much of

the Revolving Priority Collateral will be liquidated prior to the ABL Pre-Petition Indebtedness

being paid in full, the ABL Lenders will be first in priority for payment from the proceeds of the

sale of First Lien Term Loan Priority Collateral, which is worth well over $45 million. As such,

the Debtors submit that the ABL Lenders are being adequately protected to justify the Debtors'

non-consensual use of their cash collateral until such time as they are paid. This adequate

protection similarly justifies providing the Debtors with relief from restrictive covenants of the

Final DIP Order that did not contemplate this additional form of valuable adequate protection.

76. In considering whether to authorize the use of cash collateral, a court must

find that the interests of the holder of the secured claim are adequately protected if they do not

consent to such use. See 11 U.S.C. § 363(e). The principal purpose of adequate protection is to

safeguard the interests of the secured creditor in the collateral against diminution in the value of

that interest postpetition. See In re 495 Cent. Park Ave. Corp., 136 B.R. 626, 631 (Bankr.

S.D.N.Y. 1992) (stating that the goal of adequate protection is to safeguard the secured creditor

from diminution in value of its interest during chapter 11).

77. There is a great deal of flexibility in terms of what may constitute adequate

protection. MBank Dallas, N.A. v. O'Connor (In re O'Connor), 808 F.2d 1393, 1396-97 (10th Cir.

1987). Ultimately, adequate protection is determined on a case-by-case basis in light of the

particular facts and circumstances presented. Id. (stating that "the courts have considered

'adequate protection' a concept which is to be decided flexibly on the proverbial 'case-by-case'


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basis); In re 495 Cent. Park, 136 B.R. at 631 (stating that, although section 361 presents some

specific illustrations of adequate protection, the statute is not exclusive and suggests a broad and

flexible definition).

78. Among other options, adequate protection may be provided by granting a

secured creditor "an additional or replacement lien to the extent that [the] stay, use, sale, lease or

grant results in a decrease in the value of such entity's interest in such property." 11 U.S.C.

§ 361(2). It is black letter law that providing a creditor with first priority liens on additional

collateral of a value in excess of any possible diminution in the value of such creditor's collateral

is sufficient adequate protection. See In re Beker Indus. Corp., 58 B.R. 725, 741 (Bankr.

S.D.N.Y. 1986) (holding that secured lender was adequately protected by virtue of receiving

replacement liens); see also In re Polaroid Corp., 460 B.R. 740, 743-44 (B.A.P. 8th Cir. 2011)

(affirming bankruptcy court's ruling that replacement lien provided sufficient adequate protection).

In this instance, the ABL Lenders are receiving additional, first priority adequate protection liens

on the First Lien Term Loan Priority Collateral as adequate protection for any diminution in the

value, which collateral is worth well in excess of the ABL Pre-Petition Indebtedness. As such, by

virtue of obtaining additional first priority liens, the ABL Lenders are more than adequately

protected from any possible diminution in the value of their collateral.

79. As shown in the Liquidation Budget, the liquidation of the Revolving

Priority Collateral is anticipated to generate cash of approximately $77 million in the first

10 weeks of the Winddown — more than 70% greater than the amount of outstanding ABL

Pre-Petition Indebtedness. The Pre-Petition Revolving Agent, for itself and for the benefit of the

ABL Lenders, will receive additional first priority ABL Adequate Protection Liens on First Lien

Term Loan Priority Collateral for every dollar of cash proceeds generated from the liquidation of

this collateral that is not paid towards the outstanding amount of the ABL Pre-Petition


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Indebtedness. Thus, by virtue of the replacement, first priority ABL Adequate Protection Liens,

the collateral position of the ABL Lenders will be preserved and maintained. Accordingly, the

Court should approve the non-consensual use of the ABL Lenders' cash collateral as the Debtors'

proceed to liquidate their estate in an orderly fashion and repay the balance of the ABL Pre-

Petition Indebtedness in a timely manner. In addition, the Court should approve the proposed

modifications to the covenants of the Final DIP Order and should approve the Seventh

Amendment to the DIP Credit Agreement, as the requested changes are necessary and appropriate

in light of the changed circumstances faced by the Debtors here.

Justifications for Relief from Certain Advance Notice Periods Contained in Government Regulations

80. Certain state and local government regulations that may be applicable to

various of the Debtors' facilities impose, or purport to impose, certain advance notice periods —

some of which can be as long as 60 days — before the Debtors would be permitted to take certain

actions such as ceasing operations or terminating the employment of certain of their workers.29

As is manifest from the description of the Winddown Plan, the immediate cessation of the

Debtors' operations at various facilities is essential to preserving and maximizing the value of the

Debtors' assets. Indeed, in light of the coordinated Strikes, the Debtors simply do not have the

ability to continue to operate all their facilities and employ their employees at this time.

Therefore, under these circumstances, it is both necessary and appropriate for the Court to waive

compliance with any state or local statute, rule, ordinance or regulation requiring advance notice

29 See, e.g., Cal. Labor Code § 1401 (West 2012) (requiring employers to provide at least 60 days' written

notice to employees and certain other parties before the cessation of operations at a commercial facility that employs 75 or more persons); Kan. Stat. Ann. §§ 44-603, 44-616 (West 2012) (requiring employers involved in the manufacture, transportation or preparation of food products, among others, to apply to the state secretary of labor for approval before discontinuing business operations); Philadelphia Code § 9-1502 (10th ed. 2011) (requiring employers within the City of Philadelphia to provide at least 60 days' written notice to employees and certain other parties before ceasing operations).


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of the closure of facilities or the termination of employment of employees (collectively, "Advance

Notice Provisions").

81. The Debtors believe that the waiver of particularized state and local notice

requirements is warranted because, as a factual matter, they have advised their employees

throughout this process regarding the potential shutdown of their facilities. In fact, on

May 3, 2012, July 18, 2012, September 5, 2012, October 5, 2012 and November 13, 2012, the

Debtors sent notices to all of their hourly employees advising them of the potential shutdown of

their facilities in the event that negotiations with the Debtors' unions were unsuccessful. These

notices were designed to comply with the federal Worker Adjustment and Retraining Notification

Act, with which the Debtors believe they have complied. Accordingly, the Debtors believe that

ample notice has been provided in substance.

82. In fact, in light of the Debtors' compliance with federal statutes and the

powers granted to bankruptcy courts over debtors, the preemption doctrine applies here. See

Missouri v. United States Bankruptcy Court, 647 F.2d 768, 776 (8th Cir. 1981) (holding that an

attempt to enforce state regulations governing the liquidation of grain warehouses directly

conflicted with the bankruptcy court's control over property of the debtor's estate and, therefore,

violated the automatic stay), cert. denied 454 U.S. 1162 (1982); Pereira v. United Jersey Bank,

N.A., 201 B.R. 644, 678 (S.D.N.Y. 1996) (noting that "[c]ourts have found a variety of state

statutory laws to be preempted by the Bankruptcy Code" and collecting cases); In re Old Carco

LLC, 406 B.R. 180, 199-207 (Bankr. S.D.N.Y. 2009) (holding that the Bankruptcy Code

preempted state automobile dealer protection statutes, including mandatory notice periods

required under state law prior to the termination of automobile dealership agreements); see also

In re Dial-A-Mattress Operating Corp., No. 09-41966, 2009 WL 1851059, at *7 (Bankr. E.D.N.Y.


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Jun. 24, 2009) (stating that "[s]tate or local laws are preempted where compliance with those laws

would frustrate a liquidation" and collecting cases).

83. The requested waiver of the Advance Notice Provisions is narrowly

tailored to facilitate the Winddown Plan and the time-sensitive nature of its implementation.

Accordingly, the relief from the Advance Notice Provisions is reasonable, necessary and

appropriate under the circumstances and should be approved.

Justifications for Authorizing the Sale of Excess Ingredients and Excess Packaging

84. The return of the Debtors' Excess Ingredients and Excess Packaging to

suppliers, or the sale of such materials to third parties, is supported by sound business

justifications and thus satisfies section 363 of the Bankruptcy Code.

85. At the outset of the Winddown, the Debtors will attempt to return Excess

Ingredients and Excess Packaging to their original suppliers. While few of the Excess Ingredients

are highly perishable, many have a relatively limited shelf life. The original suppliers know both

the quality and remaining shelf-life of the Debtors' Excess Ingredients. Also, in most instances,

the original suppliers of Excess Ingredients and Excess Packaging have a preexisting

transportation system that can be used to effectuate the return of such materials without the need

for the Debtors to engage third-party logistics and transport services. The Debtors anticipate that

the return of raw materials to the original suppliers will result in a partial to full refund of the

original purchase price for such materials and/or a reduction or elimination of any valid

administrative expense claims of such suppliers.

86. Where feasible and/or in the event a supplier refuses, and has valid legal

grounds to refuse, to accept the return of Excess Ingredients or Excess Packaging, the Debtors

will explore and, where prudent, seek to consummate, immediate sales to third parties to ensure


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the maximization of value for their estates. Given the shelf-life of Excess Ingredients as well as

the tightly-controlled ingredient recipes used by food processors, the Debtors anticipate that these

sales will need to be negotiated quickly and that many third party sales will need to be at a

discount, or even for scrap (i.e., for animal feedstock). Nevertheless, even discounted or scrap

recoveries will rid the Debtors of the need to store such ingredients in locations that the Debtors

desire to sell.

87. Because the Debtors (a) are not in the business of selling such raw

materials, (b) have no sales force to effectuate such sales and (c) do not have the preexisting

transportation infrastructure to deliver Excess Ingredients and Excess Packaging to third parties,

the Debtors may, on a case-by-case basis, hire third party liquidators to assist with such sales.

Such liquidators likely would be hired and paid in accordance with the terms of the De Minimis

Asset Sale Order.

88. While the aggregate value of the Excess Ingredients and Excess Packaging

is approximately $30.3 million, these materials are distributed throughout the Debtors' plants and

warehouses. Accordingly, the Debtors believe that most of the returns or sales will be for less

than $750,000 (per individual sale), which is the level that the Debtors can undertake sales with

no advance notice to parties in interest (other than the Debtors' DIP Lenders) under the existing

De Minimis Asset Sale Order. To ensure that the Debtors are maximizing value to their estates,

the Debtors will continue to comply with their consent obligations under the DIP Credit

Agreement with respect to asset sales and, for any sales for more than $750,000, will consult

additionally with the Creditors' Committee prior to consummating the sale.

89. In either case, whether the Debtors are able to return Excess Ingredients

and Excess Packaging to the original suppliers, or the Debtors are able to consummate sales to


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third parties, the above-described processes are designed to maximize value for the Debtors'

estates and should, therefore, be approved as a sound exercise of the Debtors' business judgment.

Authorization for GOB Sales at Retail Stores

90. As described above, as part of the Winddown, the Debtors plan to conduct

immediate GOB Sales at their Retail Stores to liquidate their Perishable Inventory. Such

immediate GOB Sales are supported by sound business justifications and are necessary to

maximize the value of Perishable Inventory. The failure to immediately sell the Debtors'

Perishable Inventory will result in the complete loss of the value of such goods. Accordingly, the

GOB Sales should be permitted pursuant to section 363(b) of the Bankruptcy Code. Courts in

this District frequently authorize going-out-of-business and store closing sales pursuant to

section 363(b) of the Bankruptcy Code where necessary to maximize value for a debtor's estate.

See, e.g., In re Betsey Johnson LLC, Case No. 12-11732 (JMP) (Bankr. S.D.N.Y. May 10, 2012)

(authorizing debtor to conduct going-out-of-business sales); In re Steve & Barry's Manhattan

LLC, Case No. 08-12579 (ALG) (Bankr. S.D.N.Y. Aug. 22, 2008) (authorizing store closing

sales); In re Finlay Enters., Inc., Case No. 09-14873 (Bankr. S.D.N.Y. Sept. 25, 2009) (same).30

91. In addition, Perishable Inventory should be sold free and clear of any

existing liens, claims, interests or encumbrances pursuant to section 363(f) of the Bankruptcy

Code. Among other things, section 363(f)(2) is satisfied because the DIP Lenders, who have

liens on substantially all of the Debtors' assets, have consented to the Winddown, the Liquidation

Budget and, therefore, the GOB Sales, and their liens will attach to the net proceeds of such sales.

To the extent that other parties may have an interest in the Perishable Inventory, the Debtors

believe one or more of the provisions of section 363(f) will be satisfied and that all parties will be

30 Hard copies of the unreported orders cited in this Motion will be provided to the Court under separate cover.


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protected by having any interests in Perishable Inventory attach to the net proceeds from the GOB

Sales. For example, the Debtors believe that section 363(f)(5) is satisfied with respect to the

Pre-Petition Revolving Agent and the ABL Lenders because such parties could be compelled to

accept a money satisfaction of their interest. Moreover, as noted above, the Pre-Petition Agent,

for itself and for the benefit of the ABL Lenders, is receiving additional ABL Adequate

Protection Liens to the extent of any diminution in their value of their collateral.

92. Many state and local laws, statutes, rules and ordinances require special

and cumbersome licenses and procedures for "going-out-of-business" or store closing sales. Such

local ordinances and state laws would impose onerous and inconsistent burdens and limitations on

the Debtors and would interfere with the successful implementation of the GOB Sales. Therefore,

the Debtors request that the Court, pursuant to section 105(a) of the Bankruptcy Code, expressly

authorize the Debtors to conduct the GOB Sales without complying with these non-bankruptcy

law requirements. Such relief is consistently granted by courts in this District in the context of

liquidation and store-closing sales. See, e.g., In re Betsey Johnson LLC, Case No. 12-11732

(JMP) (Bankr. S.D.N.Y. May 10, 2012); In re Steve & Barry's Manhattan LLC, Case

No. 08-12579 (ALG) (Bankr. S.D.N.Y. Aug. 22, 2008); In re Finlay Enters., Inc., Case

No. 09-14873 (Bankr. S.D.N.Y. Sept. 25, 2009).

93. Further, certain of the leases for the Debtors' Retail Stores may contain

provisions purporting to restrict or prohibit the Debtors from conducting going-out-of-business,

store closing, liquidation or similar sales at such leased locations. Such provisions should be

deemed unenforceable with respect to the GOB Sales. See, e.g., In re R.H. Macy & Co., Inc.,

170 B.R. 69, 77 (Bankr. S.D.N.Y. 1992) (holding that restrictive lease provisions were

unenforceable when a debtor sought to conduct a going-out-of-business sale while in bankruptcy);

In re Ames Dept. Stores, Inc., 136 B.R. 357, 359 (Bankr. S.D.N.Y. 1992) ("[T]o enforce the


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anti-GOB sale clause of the Lease would contravene overriding federal policy requiring [d]ebtor

to maximize estate assets by imposing additional constraints never envisioned by Congress.").

94. Finally, to the extent that the Debtors are unable to sell Perishable

Inventory during the GOB Sales, the Debtors request authority to abandon such unsold Perishable

Inventory pursuant to section 554(a) of the Bankruptcy Code. Section 554(a) of the Bankruptcy

Code provides that a debtor-in-possession "may abandon property of the estate that is

burdensome to the estate or is of inconsequential value and benefit to the estate." See

11 U.S.C. § 554(a). The debtor-in-possession is afforded significant discretion in determining the

value and benefits of particular property for purposes of the decision to abandon it.

In re Interpictures Inc., 168 B.R. 526, 535 (Bankr. E.D.N.Y. 1994) ("abandonment is in the

discretion of the [debtor], bounded only by that of the court"). This right to abandon exists so that

"burdensome property" can be removed and the "best interests of the estate" will be furthered.

South Chicago Disposal, Inc. v. LTV Steel Co., Inc. (In re Chateaugay Corp.), 130 B.R. 162, 166

(S.D.N.Y. 1991) (quoting In re New York Investors Mutual Group, Inc., 143 F. Supp. 51, 54

(S.D.N.Y. 1956)). If Perishable Inventory is not sold during the GOB Sales, most (if not all) will

spoil and become unsafe for consumption. Accordingly, such Perishable Inventory, once expired,

will become valueless to the Debtors. Therefore, to the extent Perishable Inventory is not sold

during the GOB Sales, the Debtors should be authorized to abandon and destroy or otherwise

properly dispose of such expired Perishable Inventory.

Justification for Implementation of the Payment Grace Period

95. The Court has the authority to approve the Payment Grace Period for those

ordinary course administrative claims that the Debtors may not be able to pay immediately when

they are due. "The timing of distributions for administrative expense payments, other than at the

close of [a bankruptcy] case, is within the discretion of the [bankruptcy] [c]ourt." In re King,


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392 B.R. 62, 67-68 (Bankr. S.D.N.Y. 2008); see also Local 144 Hosp. Welfare Fund v. Baptist

Med. Ctr. of New York , Inc. (In re Baptist Med. Ctr. of New York, Inc.), 781 F.2d 973, 974 (2d

Cir. 1986). Among other factors, courts have considered the Bankruptcy Code's goal of an

orderly and equal distribution among creditors, the need to prevent a race to a debtor's assets, the

particular needs of administrative claimants and the length and expense of the bankruptcy case's

administration. See In re Shihai, 392 B.R. 62, 68-69 (Bankr. S.D.N.Y. 2008); In re HQ Global

Holdings, Inc., 282 B.R. 169, 173 (Bankr. D. Del. 2002).

96. In this instance, approving the Payment Grace Period will prevent a

disorderly race by ordinary course administrative claimants seeking immediate payment of their

claims where cash may temporarily be insufficient to satisfy them. Further, it is also unlikely that

the proposed delay of 90 days will be unduly burdensome for claimants whose claims are

specifically included within the Liquidation Budget. Accordingly, the Court should authorize the

Debtors to implement the Payment Grace Period with respect to ordinary course administrative

claims, the payment of which is specified in the Liquidation Budget.

Justifications for the Employee Retention Plan and the Senior Management Incentive Plan

97. As described in detail above, the Employee Retention Plan is critical to the

Debtors' successful implementation of the Winddown Plan. The Employee Retention Plan is not

applicable to any "insiders" (as such term is defined by section 101(31) of the Bankruptcy

Code).31 None of the Non-Senior Management Employees are corporate officers appointed by

the Debtors' boards of directors, nor will any such employee exercise control over the Debtors. In

evaluating whether any Non-Senior Management Employees were potentially insiders, the

Debtors compared Non-Senior Management Employees to be retained under the Winddown Plan 31 Section 101(31) of the Bankruptcy Code defines "insider" to include, among other things, "an officer of the

debtor" and a "person in control of the debtor." 11 U.S.C. § 101(31).


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with the non-insider employees for which the Court approved bonuses under either the Hostess

Brands FY 2012 Variable Compensation Pay Plan (the "VCP Plan") or the other bonus payments

previously approved by the Court.32 Based on this analysis, the Debtors have determined that all

Non-Senior Management Employees are either at an equivalent level or subordinate to the

employees covered by such bonus plans. Thus, section 503(c)(1) of the Bankruptcy Code, which

generally proscribes payments to "insiders" to induce their continued employment with a debtor,

is not applicable to the Employee Retention Plan.33

98. Further, the Employee Retention Plan and the Senior Management

Incentive Plan are consistent with section 503(c)(3) of the Bankruptcy Code. Section 503(c)(3) of

the Bankruptcy Code generally permits payments to a debtor's employees outside the ordinary

course of business if such payments are justified by "the facts and circumstances of the case."

11 U.S.C. § 503(c)(3). In this and other districts, courts have concluded that whether payments to

employees are justified by the facts and circumstances of a case is to be determined by

application of the business judgment rule. See In re Borders Grp., Inc., 453 B.R. 459, 473-74

(Bankr. S.D.N.Y. 2011); In re Dana Corp., 358 B.R. at 576 (describing five factors that courts

may consider when determining whether the structure of a compensation proposal meets the

"sound business judgment test" in accordance with section 503(c)(3) of the Bankruptcy Code);

In re Global Home Prods., LLC, 369 B.R. 778, 783 (Bankr. D. Del. 2007) ("If [the proposed plans

32 See Motion of Debtors and Debtors in Possession, Pursuant to Sections 105(a) and 363(b) of the Bankruptcy

Code, for an Order Authorizing the Debtors to Perform Under Certain Employee Incentive Plans in the Ordinary Course of Business (Docket No. 264) and Order Pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code, Authorizing the Debtors to Perform Under Certain Employee Incentive Plans in the Ordinary Course of Business (Docket No. 813).

33 In addition, section 503(c)(1) of the Bankruptcy Code is not applicable to the Senior Management Incentive Plan because that plan is an incentive plan, not a retention plan, and thus is designed to "increase the value of the estate" by expeditiously and cost-effectively winding down the Debtors' businesses. In re Dana Corp., 358 B.R. 567, 584 (Bankr. S.D.N.Y. 2007).


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are] intended to incentivize management, the analysis utilizes the more liberal business judgment

review under § 363.").

99. In this instance, the Employee Retention Plan and the Senior Management

Incentive Plan are both being implemented consistent with the exercise of the Debtors' sound

business judgment. As an initial matter, the consent of many of the Debtors' secured lenders,

whose cash collateral will fund the payments under these plans, demonstrates that key creditors

concur with the Debtors' business judgment in this regard. In addition, as noted above, all

Remaining Employees will be required to execute a general release of claims against the Debtors

and certain other parties as a condition to participating in the Employee Retention Plan or Senior

Management Incentive Plan, as applicable.

100. The Employee Retention Plan is critical to retaining those Non-Senior

Management Employees that are needed to effectuate the Winddown Plan. The Debtors have

already experienced significant difficulty in retaining key Non-Senior Management Employees as

a result of the uncertainty surrounding their businesses. Attrition has accelerated since the

bankruptcy filing, which has stressed the Debtors' businesses. Given the shutdown and

liquidation of the Debtors' businesses contemplated by the Winddown Plan, it is anticipated that

the Debtors' ability to retain approximately 3,200 of their key Non-Senior Management

Employees will be significantly more difficult in the coming months.

101. During the Winddown, the Debtors can ill afford to lose additional

Non-Senior Management Employees — employees who have the experience and institutional

knowledge necessary to successfully implement the Winddown Plan. A failure to retain such

Non-Senior Management Employees once the Winddown has commenced would cause the

Debtors to incur significant costs attempting to obtain replacements for those employees. This

would hinder and delay the Winddown Plan, thus imposing further costs upon the Debtors' estates


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and would impair the value of the Debtors' assets to the detriment of all stakeholders. The

continuity promoted, and the institutional knowledge preserved, by the retention of such

employees, on the other hand, facilitates the success of the Winddown Plan.

102. The Senior Management Incentive Plan is designed to incentivize the

Senior Management Employees to expeditiously and cost-effectively execute the Winddown Plan

and control costs to maximize value for the Debtors' creditors. As demonstrated by the

challenges and complexities associated with the Winddown Plan described in this Motion, the

Winddown Plan has little precedent. Because of such challenges and complexities, it will be

critical for the Debtors to motivate and encourage the Senior Management Employees to

contribute their services to the Winddown Plan by providing appropriate incentives for such

employees upon the completion and achievement of certain tasks and goals and if costs are kept

below certain targeted amounts.

103. The metrics, including budget categories and targets, that will be used to

determine whether payments will be made under the Senior Management Incentive Plan were

developed after significant discussion and consultation with the Debtors' employees and have

been designed to reward the Senior Management Employees only if they achieve positive results

that will benefit creditors. These metrics will not be easy to achieve. Moreover, the Senior

Management Incentive Plan is consistent with a number of other plans approved by courts in

other chapter 11 cases. (See Imhoff Decl. Ex. 1). Finally, the Debtors believe that the Senior

Management Incentive Plan is reasonable because, even if all of the metrics and budget targets

are achieved, the payments made will still result in the Debtors' Senior Management Employees

being paid less than employees with similar job responsibilities at companies with significant

bakery operations or in the food/beverage industry, with a focus on production and retailing of

food and beverage products.


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104. Ultimately, the quick and cost effective wind down of the Debtors'

businesses will preserve and protect the value of the Debtors' estates for the benefit of creditors.

Accordingly, both the Employee Retention Plan and the Senior Management Incentive Plan

should be approved pursuant to section 503(c)(3) of the Bankruptcy Code.

The Exculpation and Injunction are Supported by Precedent and Policy Considerations and Should be Approved

105. The authority to approve the Exculpation and Injunction derives from

section 105(a) of the Bankruptcy Code. That section empowers a court to "issue any order,

process, or judgment that is necessary or appropriate to carry out the provisions of the

[Bankruptcy Code]." 11 U.S.C. § 105(a). Under relevant Second Circuit precedent, bankruptcy

courts are empowered to issue injunctions to prevent actions "which might interfere in the

rehabilitative process whether in a liquidation or in a reorganization case." Johns-Manville Corp.

v. Asbestos Litig. Grp. (In re Johns-Manville Corp.), 40 B.R. 219, 226 (S.D.N.Y. 1984) (quoting

2 Collier on Bankruptcy ¶ 362.05 (15 ed. 1982)). Indeed, courts frequently utilize their equitable

powers under section 105(a) to enjoin actions against non-debtors that would threaten a debtor's

efforts to effect the orderly administration of its estate. See MacArthur Co. v. Johns-Manville

Corp., 837 F.2d 89, 94 (2d Cir. 1988) (finding that enjoining actions against the debtor's insurer

that would interfere with the prospects for a "workable reorganization" was within the bankruptcy

court's authority), cert. denied, 488 U.S. 868 (1988); see also In re Markos Gurnee P'ship,

182 B.R. 211, 222 (Bankr. N.D. Ill. 1995) (holding that it was within the court's authority to issue

injunctions against actions that would "embarrass, burden, delay or otherwise impede" the

bankruptcy proceedings), aff'd, 195 B.R. 380 (N.D. Ill. 1996).

106. In these situations, courts need only find that the issuance of the requested

injunction "conform[s] to the objectives of the Bankruptcy Code." Homestead Holdings, Inc. v.


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Broome & Wellington (In re PTI Holding Corp.), 346 B.R. 820, 825 (Bankr. D. Nev. 2006)

(quoting Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 975

(9th Cir. 2005)); see Johns-Manville Corp. v. Asbestos Litig. Grp. (In re Johns-Manville Corp.),

26 B.R. 420, 425 (Bankr. S.D.N.Y. 1983) (stating that "[a] bankruptcy court may use its equitable

powers to issue injunctive relief against proceedings in other courts when the bankruptcy court is

satisfied that such a proceeding will either defeat or impair its jurisdiction with respect to a case

pending before it"); In re Creative Cuisine, Inc., 96 B.R. 144, 147 (Bankr. N.D. Ill. 1989)

(enjoining state court proceeding against debtor and debtor's principal where it was "necessary to

ensure the orderly disposition of the debtor's estate and to protect the bankruptcy court's

jurisdiction").

107. Here, the Court is being asked to approve the Winddown Plan pursuant to

section 363(b) of the Bankruptcy Code. The key directors, officers and employees of the Debtors

have developed and will implement the Winddown Plan with the blessing of the Court. As such,

in aid of the grant of authority under section 363(b), the Court may, under section 105(a) of the

Bankruptcy Code, grant the Exculpation and issue the Injunction to ensure the implementation of

the Winddown Plan and the orderly disposition of the Debtors' assets in a value-maximizing

process. Suits against the Protected Persons for designing and implementing the Winddown Plan

would be nothing more than disguised attempts to attack this Court's order approving the

Winddown Plan. Based upon just this rationale, other Courts have issued injunctions and granted

similar relief. See Creative Cuisine, 96 B.R. at 148-49 (noting that because "a corporate debtor

may only act through its agents, the same protection must be afforded to an operating officer of

the debtor-in-possession acting in his official capacity" and because "[a] contrary result would

subject debtor-in-possession officers to the risk of post-conversion claims and that risk would

significantly hinder the reorganization process"); In re Caldor, Inc., Case No. 95 B 44080 (CB)


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(Bankr. S.D.N.Y. Oct. 2, 2001), at ¶ 20 (enjoining claims against, among others, the debtors'

directors and officers in connection with the winddown of the debtors' businesses); In re LTV

Steel Co., Inc., Case No. 00-43866 (Bankr. N.D. Ohio Dec. 7, 2001), at ¶ 5 ("No person to whom

notice of this order shall come shall take any action whatsoever which would embarrass, burden,

delay or otherwise impede any person acting in good faith to implement the terms of this order,

and in addition to any other remedy available to Debtor and any such individual, the Court will

retain jurisdiction to determine if any such action constitutes contempt."). Under the same

rationale employed in those cases, the Exculpation and the Injunction for the Protected Persons

should be approved here. To hold otherwise would put the Protected Persons in the untenable

position of being subject to potential liability for acting in accordance with an order of this Court.

Approval of the Expedited Contract Rejection Procedures

108. Section 365(a) of the Bankruptcy Code provides that a debtor, "subject to

the court's approval, may assume or reject any executory contract or unexpired lease." 11 U.S.C.

§ 365(a). Courts routinely approve motions to assume, assume and assign or reject executory

contracts or unexpired leases upon a showing that the debtor's decision to take such action will

benefit the debtor's estate and is an exercise of sound business judgment. See Orion Pictures

Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993)

(stating that section 365 of the Bankruptcy Code "permits the trustee or debtor-in-possession,

subject to the approval of the bankruptcy court, to go through the inventory of executory contracts

of the debtor and decide which ones it would be beneficial to adhere to and which ones it would

be beneficial to reject."); see also NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984)

(stating that the traditional standard applied by courts to authorize the rejection of an executory

contract is that of "business judgment"); In re Gucci, 193 B.R. 411, 415 (S.D.N.Y. 1996) ("A

bankruptcy court reviewing a trustee's decision to assume or reject an executory contract should


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apply its 'business judgment' to determine if it would be beneficial or burdensome to the estate to

assume it.").

109. Courts generally will not second-guess a debtor's business judgment

concerning the assumption or rejection of an executory contract or unexpired lease.

See In re Balco Equities Ltd., Inc., 323 B.R. 85, 98 (Bankr. S.D.N.Y. 2005) ("A court 'should

defer to a debtor's decision that rejection of a contract would be advantageous.'") (citing

In re Sundial Asphalt Co., 147 B.R. 72, 84 (E.D.N.Y. 1992)); In re Riodizio, Inc., 204 B.R. 417,

424 (Bankr. S.D.N.Y. 1997) ("[A] court will ordinarily defer to the business judgment of the

debtor's management"); accord Phar-Mor, Inc. v. Strouss Bldg. Assocs., 204 B.R. 948, 951-52

(Bankr. N.D. Ohio 1997) ("Whether an executory contract is 'favorable' or 'unfavorable' is left to

the sound business judgment of the debtor . . . . Courts should generally defer to a debtor's

decision whether to reject an executory contract."). The "business judgment" test is not a strict

standard; it merely requires a showing that either assumption or rejection of the executory

contract or unexpired lease will benefit the debtor's estate. See, e.g., Bregman v. Meehan

(In re Meehan), 59 B.R. 380, 385 (E.D.N.Y. 1986) ("The business judgment test is a flexible

one . . . . The primary issue under the business judgment test is whether rejection of the contract

would benefit general unsecured creditors."); In re Helm, 335 B.R. 528, 538

(Bankr. S.D.N.Y. 2006) ("To meet the business judgment test, the debtor in possession must

establish that rejection will benefit the estate."); Westbury Real Estate Ventures, Inc. v. Bradlees,

Inc. (In re Bradlees Stores, Inc.), 194 B.R. 555, 558 n.1 (Bankr. S.D.N.Y. 1996) ("In reviewing a

debtor's decision to assume or reject an executory contract, the court must examine the contract

and circumstances and apply its best 'business judgment' to determine if the assumption or

rejection would be beneficial or burdensome to the estate.").


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110. Because the Future Rejected Contracts will be (a) generally economically

unjustified in light of the Debtors' cessation of operations, (b) unnecessary to the Winddown

and/or (c) simply unprofitable, the Debtors' obligations under the Future Rejected Contracts will

impose a burden on their chapter 11 estates. The Debtors believe that maintaining the Future

Rejected Contracts within the context of the Winddown would unnecessarily deplete the assets of

their estates to the direct detriment of their creditors. Moreover, where Future Rejected Contracts

were entered into at or above market rates, the Debtors believe that such agreements do not have

any realizable value in the marketplace. Accordingly, rejection of the Future Rejected Contracts

pursuant to section 365 of the Bankruptcy Code will be an exercise of the Debtors' sound business

judgment and in the best interests of the Debtors' estates. Therefore, the Court should approve the

Expedited Contract Rejection Procedures to obviate the need for the Debtors to incur the cost and

expense of filing separate motions seeking the rejection of Future Rejected Contracts.

REQUEST FOR IMMEDIATE RELIEF AND WAIVER OF STAY

111. Given the pressing need to implement the Winddown Plan to preserve and

protect the value of the Debtors' assets, the Debtors desire to effect such implementation

immediately upon the entry of an interim order approving this Motion (the "Interim Order").

Accordingly, the Debtors hereby request that the Court, in the discretion provided to it under

Rules 4001(b)(2) and 6004(h) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy

Rules"), immediately enter the Interim Order, waive the 14-day stay of such interim order and

approve the Debtors' use of cash collateral in accordance with the terms of the Liquidation

Budget pending a final hearing on the Motion. The Debtors submit that the exigency of their

present circumstances, as described herein, warrants the entry of the Interim Order without further

delay permitting the Debtors to immediately implement the Winddown Plan and pay the costs

associated with the Winddown arising in the near term, pending a final hearing on this Motion.


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Accordingly, the Debtors request that the Interim Order be entered and that procedures for the

consideration of the Motion on a final basis be included in such order. Similarly, the Debtors

submit that cause exists for waiving the stay imposed by Bankruptcy Rule 6004(h) to the extent it

is applicable.

NOTICE

112. Pursuant to the Administrative Order, Pursuant to Rule 1015(c) of the

Federal Rules of Bankruptcy Procedure, Establishing Case Management and Scheduling

Procedures (Docket No. 371) (the "Case Management Order"), entered on February 21, 2012,

notice of this Motion has been given to the parties identified on the Special Service List and the

General Service List (as such terms are defined in the Case Management Order). The Debtors

have also provided an abbreviated notice of this Motion to all of the Debtors' creditors that have

filed proofs of claim in the Debtors' chapter 11 cases or whose claims are listed by the Debtors in

their schedules of liabilities as undisputed, noncontingent and liquidated. The Debtors submit

that no other or further notice need be provided.


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WHEREFORE, the Debtors respectfully request that the Court enter interim and

final orders, substantially in the forms attached hereto as Exhibit N and Exhibit O: (i) approving

(A) the Winddown Plan, (B) the returns or sales of Excess Ingredients and Excess Packaging,

(C) the Employee Retention Plan, (D) the Senior Management Incentive Plan, (E) the Debtors'

use of Third Party Contractors as necessary to implement the Winddown Plan, (F) the

Exculpation, the Injunction and the creation and funding of the Trust and (G) the Expedited

Contract Rejection Procedures; (ii) authoring the Debtors' non-consensual use of cash collateral

and approving modifications to the Final DIP Order and the Seventh Amendment;

(iii) authorizing the Debtors to take any and all actions that are necessary in the exercise of their

business judgment to implement the Winddown Plan; (iv) waiving the 14-day stay under

Bankruptcy Rule 6004(h); and (v) granting such other and further relief as the Court may deem

proper.


-58- CLI-2044408v2

Dated: November 16, 2012 New York, New York

Respectfully submitted,

/s/ Corinne Ball Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 - and - Ryan T. Routh JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION


CLI-2044408v2

EXHIBIT A

Winddown Plan

12-22052-rdd Doc 1710-1 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit A Pg 1 of 30

Hostess Brands, Inc.: Winddown Plan

November 16, 2012


2

I. Winddown Plan Summary

II. Plant Winddown and Plant Oversight

III. Depot Winddown

IV. Retail Store Winddown and Retail Stores Oversight

V. Corporate Winddown

Table of Contents 12-22052-rdd Doc 1710-1 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit A

Pg 3 of 30

3

I. Winddown Plan Summary


4

Winddown Plan Summary | Key Assumptions

The Winddown Plan is a preliminary estimate of the staff, activities and associated costs that would be required to secure, maintain and sell/dispose of the assets of Hostess Brands, Inc. and its subsidiaries (“HBI” or the “Company” or the “Debtors”) during the Winddown.

In preparing the Winddown Plan, the Debtors and their advisors developed preliminary estimates of the staff, activities and associated costs to wind down

the Debtors’ operational and financial affairs over 13 Periods (a “Period” is a four-week period of time, which is how the Debtors have historically reported

their financial results). Consistent with the Liquidation Budget agreed upon by the DIP Agent, only the costs associated with the initial 13 weeks of the

Winddown Plan are presented in this document

The Debtors' operational footprint is extensive, with 37 plants, 36 of which are operational. The footprint also includes 242 Depots (190 leased, 52

owned), 311 Store / Depots (198 leased, 113 owned) and 216 Stores (168 leased, 48 owned). Additionally, there are 58 other leased or owned sites that

are primarily utilized for storage, warehousing of products or parking

The Winddown Plan was developed with input from key personnel in the Debtors' operations, real estate, human resources, legal and finance

departments based on best estimates of level of resources and associated costs needed to effectuate the Winddown Plan

The Winddown Plan contemplates a Senior Management Incentive Plan and Employee Retention Plan, each subject to approval by the Bankruptcy Court.

Participants in the Winddown Plan are collectively referred to as “Remaining Employees”

The Senior Management Incentive Plan is composed of the following awards:

Total Baseline Incentive

Based on the completion of certain metrics (75-85% of Total Baseline Incentive) and ensuring that the aggregate of actual costs of the

Winddown in select categories are equal to or less than the aggregate of projected costs in those same categories over a 13 Period time

frame (15-25% of Total Baseline Incentive)

Amounts of Total Baseline Incentives range from 25%-75% of annual base compensation


5

Winddown Plan Summary | Key Assumptions (cont.)


The Senior Management Incentive Plan is composed of the following awards: (cont.)

Budget Outperformance Award

Based on the aggregate of actual costs in select categories being less than the aggregate of projected costs in those same categories

Budget Outperformance Award amounts will be equal to 3% of each employee’s Total Baseline Incentive for each 1% of budget

outperformance

Only the two EVP Senior Management Employees are eligible for the Budget Outperformance Award

Timing of payment of Metrics Baseline Incentive will occur after a 30 day assessment period to provide time to determine if metrics were achieved during

the applicable measurement period. Earned Metrics Baseline Incentive payments will be paid as soon as practicable after the applicable measurement

period, but no later than 53 days following the end of the applicable measurement period. Accordingly, all metric-related award payments fall outside of

the initial 13 weeks of the Winddown Plan presented in this document. Similarly, earned Budget Baseline Incentive and any Budget Outperformance

Award payments will be paid as soon as practicable after the Tested Disbursements measurement period (assumed to be 13 Periods), but no later than 53

days following the end of the Tested Disbursements measurement period. Accordingly, all budget-related award payments fall outside of the initial 13

weeks of the Winddown Plan presented in this document.

The Employee Retention Plan is based on an employee remaining with the Debtors to perform the tasks necessary to effectuate the Winddown Plan. Each

employee will be notified at the commencement of the Winddown how long that particular employee will be required to remain an employee of the

Debtors (“Retention Period”) to earn the retention award. Amounts payable to an employee under the Employee Retention Plan will be 25% of

compensation earned during such employee’s Retention Period

Timing of payment of awards earned under the Employee Retention Plan will be made as soon as practicable following vesting of the retention award (but

no later than 53 days following vesting)

Payments under the Senior Management Incentive Plan and Employee Retention Plan are subject to the delivery of an effective release of claims by the

employee


6

Winddown Plan Summary | Key Assumptions (cont.)


Employee salary data was provided by the Debtors as of July 30, 2012, the Winddown Plan assumes that the commencement occurs after the Last Best

Final Offer is implemented for all employees (i.e. 8% reduction to base compensation as of July 30, 2012). Benefits costs are assumed to be 30% of base

compensation

The Winddown Plan assumes employer-side payroll tax of 7.65%, based on input from the Debtors' Treasury department

In addition to the costs associated with human capital (i.e., headcount cost, incentive and retention), the Winddown Plan includes estimates for operational

costs, such as, rent (for leased properties), utilities, fuel and facility maintenance

The Winddown Plan assumes that the Debtors will want access to all owned inventory and property located at leased sites, and thus assumes the

payment of rent for periods where such properties are occupied. All leases are assumed to be rejected as soon as the Debtors' personal property is

removed from the premises

In its real estate portfolio, the Debtors have certain owned and leased combination Depot / Store locations. Costs related to the Depot component of Depot

/ Store locations are represented in the Depot section of the Winddown Plan. Costs related to the Store component of Depot / Store locations are

represented in the Retail Stores section of the Winddown Plan


7

Winddown Plan Summary | Headcount


Winddown Plan Remaining Employees are shown by work silo in the table below

Remaining Employee headcount is highest at the beginning of the Winddown with a rapid step down in staffing levels (in particular at Depots and Retail

Stores) in Periods one and two

Corporate headcount is highest at the beginning of the Winddown with a step down over 13 Periods as the staffing levels needed to administer corporate

functions reduce commensurate with the reduction of the number of Remaining Employees and as physical property is exited and assets are monetized

Winddown End of Period Headcount

Category Headcount P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Plants 1,016 827 180 36 35 32 29 25 0 0 0 0 0 0

Depot 826 333 0 0 0 0 0 0 0 0 0 0 0 0

Retail Stores 1,054 138 0 0 0 0 0 0 0 0 0 0 0 0

Corporate 237 237 174 151 126 87 85 66 62 57 50 48 48 48

Plant Oversight 28 28 27 24 17 16 15 13 13 10 8 6 2 2

Retail Stores Oversight 22 22 0 0 0 0 0 0 0 0 0 0 0 0

Total 3,183 1,585 381 211 178 135 129 104 75 67 58 54 50 50


8

Winddown Plan Summary | Estimated Cost

The Winddown Plan is a preliminary estimate of the staff, activities and associated costs that would be required to secure, maintain and sell/dispose of the Debtors' assets during the Winddown. Retention amounts include payments awarded under the Employee Retention Plan, as described in Exhibit I of the Winddown Motion. There are no awards under the Senior Management Incentive Plan, as described in Exhibit J of the Winddown Motion, in the initial 13 weeks of the Winddown.

Winddown Period 1 Winddown Period 2 Winddown Period 3 13 Week

($000s) Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13 Total

Corporate

Payroll (1) (2) -$ 708$ 132$ 708$ 132$ 548$ 102$ 528$ 93$ 454$ 85$ 454$ 85$ 4,027$

Retention (1) - - - 65 9 - - 76 5 - - 57 8 221

Operational 202 202 202 302 191 191 191 291 248 248 248 348 115 2,978

Contractors 70 70 70 70 70 70 70 70 69 69 69 69 37 878

Total Corporate 272 980 404 1,145 402 810 364 965 415 772 402 929 244 8,104

Plants & Plant Oversight

Payroll (1) (2) - 1,731 881 1,582 758 814 231 525 231 200 60 200 60 7,273

Retention (1) - 15 24 185 223 283 - 155 233 - - 28 2 1,147

Operational 473 473 473 473 530 530 530 530 422 422 422 422 320 6,022

Contractors 522 522 522 522 128 128 128 128 127 127 127 127 28 3,137

Total Plants & Plant Oversight 995 2,741 1,899 2,762 1,640 1,756 889 1,338 1,013 749 609 776 411 17,578

Depots

Payroll (1) (2) - 2,001 308 1,127 135 358 39 32 - - - - - 4,000

Retention (1) - 138 10 337 14 230 10 44 - - - - - 782

Operational - - - 881 157 147 110 77 52 32 13 - - 1,470

Contractors 85 85 85 85 64 64 64 64 - - - - - 598

Total Depots 85 2,224 403 2,431 370 799 223 217 52 32 13 - - 6,850

Retail Stores & Oversight

Payroll (1) (2) - 2,122 1,287 1,413 172 - - - - - - - - 4,995

Retention (1) - 43 102 714 117 - - - - - - - - 977

Operational 10 10 10 1,729 276 263 206 131 93 51 9 - - 2,789

Contractors - - - - - - - - - - - - - -

Total Retail Stores & Oversight 10 2,176 1,399 3,857 565 263 206 131 93 51 9 - - 8,760

Winddown Costs

Payroll (1) (2) - 6,563 2,607 4,830 1,197 1,720 372 1,085 323 654 144 654 144 20,294

Retention (1) - 195 135 1,302 364 513 10 274 238 - - 85 10 3,126

Operational 685 685 685 3,385 1,155 1,132 1,038 1,030 814 753 691 769 435 13,259

Contractors 678 678 678 678 263 263 263 263 197 197 197 197 65 4,614

Total Winddown Costs 1,363$ 8,121$ 4,105$ 10,194$ 2,978$ 3,627$ 1,683$ 2,652$ 1,573$ 1,604$ 1,032$ 1,706$ 655$ 41,292$

(1) Includes employer-side payroll tax assumption of 7.65%

(2) Includes assumption for benefits of 30% of base compensation


9

II. Plant Winddown and Plant Oversight


10

Plant Winddown | Overview

The Winddown Plan contemplates Remaining Employees at each of the Debtors' 36 operating Plants to administer the tasks and activities associated with the shutdown, cleaning and appropriate equipment maintenance at each Plant.

Each of the Debtors' 36 operating Plants will have a dedicated team to prepare, clean, maintain and secure the Debtors' real estate, facility and assets

located at each plant (e.g., bakery production equipment, fleet vehicles, material handling equipment (“MHE”) (i.e., racks and trays), finished products and

raw materials)

Plant Winddown teams include individuals who will be tasked with administering and executing tasks associated with the Winddown of the following

functions:

Engineering – ensure bakery production equipment is shut down, cleaned and maintained for sale

Fleet – prepare an inventory of the Debtors' fleet assets and assist Logistics and Transportation with the collection and aggregation of fleet assets

to either Plants or owned Depot locations

Logistics and Transportation – coordinate with Fleet on the collection and aggregation of the Debtors' fleet and coordinate with Depots and Depot

/ Stores to re-locate select assets from leased Depots and Depot / Stores to owned locations to be auctioned or sold

Sanitation – ensure facilities and bakery production equipment are properly idled, cleaned and made ready for sale and / or disassembled

Raw materials inventory at each plant will be (i) returned to the original vendor, (ii) sold on the secondary market or (iii) disposed of as waste

Finished goods inventory at Plants will be (i) moved to Retail Stores attached to Plants for sale in going-out-of business sales (“GOB Sales”), (ii) sold to

third-party retailers or other end users (e.g., national liquidators) or (iii) destroyed / disposed of as waste


11

Plant Winddown | Headcount


Each of the Debtors' Plant facilities will have a dedicated team to clean, prepare and secure the facility for sale

Headcount at the beginning of the process will average 28 people per Plant dropping to one person (Chief Engineer) per Plant by the end of Period three

24/7 security staff will be present at each Plant for the duration of the Winddown. Security will be provided by a national firm and local third-

party contractors where necessary

Additional duties of the Plant staff include: (i) collecting and securing the Debtors' vehicle fleet; (ii) facilitating transfer of finished goods to third-party

buyers, as applicable; (iii) liquidating any saleable raw material inventory and (iv) preparing machinery and equipment for sale (if sold separately from

Plant)

Individual Plant staff work streams will coordinate Winddown activities with, and be managed by, the Plant Oversight Team

Wind Down Headcount (End of Period)

Plant Winddown Start P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Chief Engineer 36 36 36 36 35 32 29 25 0 0 0 0 0 0

Engineering Supervisor 108 108 37 0 0 0 0 0 0 0 0 0 0 0

Fleet Maint Mgr 31 31 31 0 0 0 0 0 0 0 0 0 0 0

Logistics Mgr / Supv 96 96 6 0 0 0 0 0 0 0 0 0 0 0

Plant Ops Sr Mgr 36 36 36 0 0 0 0 0 0 0 0 0 0 0

Plant Ops Supv 65 65 0 0 0 0 0 0 0 0 0 0 0 0

Production Manager III 35 35 0 0 0 0 0 0 0 0 0 0 0 0

Sanitation Manager 34 34 34 0 0 0 0 0 0 0 0 0 0 0

Sanitation Supervisor 26 26 0 0 0 0 0 0 0 0 0 0 0 0

Sanitor 271 141 0 0 0 0 0 0 0 0 0 0 0 0

Shipper 59 0 0 0 0 0 0 0 0 0 0 0 0 0

Transport Driver 219 219 0 0 0 0 0 0 0 0 0 0 0 0

Total Headcount 1,016 827 180 36 35 32 29 25 0 0 0 0 0 0


12

Plant Winddown | Budget


Estimated expense in the initial 13 weeks to substantially complete the Winddown of each of the Debtors' 36 operating Plants is approximately $16.4

million

Approximately 80% of the Plant Winddown expense for initial 13 weeks occurs in the first eight weeks due to level of activity needed to clean and

ready the Debtors' 36 plants for sale

Operational expense includes utilities, waste disposal expense, freight and grounds maintenance

Plant Winddown expense includes an estimated $2.4 million for 24/7 contract security at each plant, with heavier security presence in Periods one

and two

Plant Winddown expense also includes an estimated $720 thousand for contract millwright labor who would assist with the break-down and re-

location of heavy equipment (i.e., production equipment), as necessary

Retention

Vesting of the retention award occurs if (1) the participant is employed through the last day of the Retention Period or (2) the participant is

terminated by the Debtors for any reason other than cause prior to the end of the Retention Period. Retention awards under the Employee

Retention Plan total $1.1 million for Non-Senior Management Employees involved in the Plant Winddown and are calculated as 25% of

compensation earned during each respective participant’s Retention Period. Employees will be required to deliver an effective release of claims

prior to receiving their retention award



Plants

Payroll (1) (2) -$ 1,598$ 864$ 1,448$ 742$ 687$ 215$ 397$ 215$ 85$ 46$ 85$ 46$ 6,427$

Retention (1) - 15 24 182 223 283 - 144 233 - - 1 2 1,107

Operational 448 448 448 448 505 505 505 505 397 397 397 397 320 5,722

Contractors 522 522 522 522 128 128 128 128 127 127 127 127 28 3,137

Total Plants 970$ 2,582$ 1,858$ 2,601$ 1,599$ 1,603$ 849$ 1,175$ 972$ 609$ 570$ 610$ 397$ 16,393$

(1) Includes payroll tax assumption of 7.65%



13

Plant Oversight Winddown | Overview

The Winddown Plan contemplates Remaining Employees who will serve in a Plant Oversight capacity to manage the Plant Winddown personnel and administer the Winddown of the Debtors' Plant locations.

The Plant Oversight Remaining Employees are responsible for managing Plant Winddown personnel and coordinating the Winddown of the Debtors' 36

operating Plant locations. Plant Oversight Remaining Employees will be located in the Debtors' corporate offices or at Plant locations

Plant Oversight physical headcount at the beginning of the Winddown will total 28 people, decreasing to 10 people by the end of Period nine, as the

Debtors' Plants are wound down and made ready for sale or sold

The Plant Oversight Remaining Employees will have oversight of key areas in the Plant Winddown process (e.g., Engineering, Sanitation, Logistics and

Fleet), and overall coordination of the Winddown process

Physical Wind Down Headcount (End of Period)

Plant Oversight Headcount P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Administrative Analyst 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Engineering Director 3 3 3 3 2 2 2 1 1 1 1 1 0 0

Engineering Mgr 1 1 1 1 1 1 1 1 1 1 1 1 0 0

Engineering Sr Mgr 3 3 3 2 0 0 0 0 0 0 0 0 0 0

Fleet Maintenance Director 1 1 1 1 1 1 1 1 1 1 1 0 0 0

Inventory Control Manager 1 1 1 1 1 1 1 1 1 1 1 1 0 0

Logistics Director 2 2 2 2 1 0 0 0 0 0 0 0 0 0

Plant Ops Director 3 3 2 2 2 2 2 2 2 1 1 0 0 0

Plant Ops Spec 1 1 1 1 1 1 0 0 0 0 0 0 0 0

Plant Ops Sr Mgr 2 2 2 2 2 2 2 2 2 0 0 0 0 0

Sanitation Director 1 1 1 1 1 1 1 0 0 0 0 0 0 0

Sanitation Sr Mgr 2 2 2 0 0 0 0 0 0 0 0 0 0 0

SVP Plant Operations 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Tax Analyst 1 1 1 1 0 0 0 0 0 0 0 0 0 0

Transportation Mgr 2 2 2 2 2 2 2 2 2 2 0 0 0 0

VP Engineering 1 1 1 1 1 1 1 1 1 1 1 1 0 0

VP Plant Operations 2 2 2 2 0 0 0 0 0 0 0 0 0 0

Total Plant Oversight HC 28 28 27 24 17 16 15 13 13 10 8 6 2 2


14

Plant Oversight Winddown | Budget

The Winddown Plan contemplates Remaining Employees who will serve in a Plant Oversight capacity to manage the Plant Winddown personnel and administer the Winddown of the Debtors' Plant locations.

The Plant Oversight Remaining Employees are responsible for managing and implementing the Winddown of the Debtors' 36 operating plants. Headcount

payroll costs for the Plant Oversight team for the initial 13 weeks of the Winddown total $846,000

Total Plant Oversight costs include costs of $300,000 for travel necessitated by the Winddown of the Debtors' geographically dispersed Plant footprint

Incentive and Retention

There are no awards under the Senior Management Incentive Plan scheduled to be paid in the initial 13 weeks of the Winddown. Awards under

the Senior Management Incentive Plan related to Plant Oversight Senior Management Employees total up to $203,000 over the course of the entire

Winddown, assuming that all requirements under the Senior Management Incentive Plan are met with respect to such incentives

Incentive awards for Plant Oversight Senior Management Employees are based 85% on the achievement of certain metrics and 15% on controlling

costs in certain categories. Total Baseline Incentives are 25-50% of base compensation for employees in this category

Over the initial 13 weeks of the Winddown, retention awards under the Employee Retention Plan total $40,000 for Non-Senior Management

Employees acting as part of the Plant Oversight Team and total $280,000 over the course of the entire Winddown



Retention Plan are calculated as 25% of compensation earned during each respective participant’s Retention Period. Employees will be required to

deliver an effective release of claims prior to receiving their retention award



Plant Oversight

Payroll (1) (2) -$ 134$ 16$ 134$ 16$ 128$ 16$ 128$ 16$ 115$ 14$ 115$ 14$ 846$

Retention (1) - - - 3 - - - 11 - - - 26 - 40

Operational 25 25 25 25 25 25 25 25 25 25 25 25 - 300

Contractors - - - - - - - - - - - - - -

Total Plant Oversight 25$ 159$ 41$ 162$ 41$ 153$ 41$ 164$ 41$ 140$ 39$ 166$ 14$ 1,186$




15

III. Depot Winddown


16

Depot Winddown | Overview

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Depots to administer the tasks and activities associated with the shutdown, cleaning, aggregation, transport or disposal of certain assets at each Depot.

Each of the Debtors' stand-alone Depots (242) and Depot component of Depot / Stores (311) will have a dedicated team to clean and prepare to exit

properties (in the case of owned locations) or surrender leased properties to landlords (in the case of leased locations)

District Sales Manager and Lead Loader positions will most likely be utilized to wind down Depot and Depot / Store locations. However, due to the number

of employees in those positions, timing issues and specific headcount needs of particular locations, it is expected that other positions will be utilized where

necessary or appropriate to perform the tasks associated with the Winddown of Depots and Depot / Stores. For certain Depot locations, other positions

such as Market Unit Sales Managers and Key Account Managers will be used to perform Winddown tasks, depending on specific location needs

All leased Depot locations will be wound down on an expedited basis by the end of week four; all owned Depot locations will be wound down by the end of

week seven

Certain assets (e.g., MHE, handheld computers, printers, etc.) in leased locations will be transferred to owned Depot or Plant locations

Finished goods inventory at Depot / Store locations will be sold in the Retail Stores in GOB Sales. GOB Sales are expected to last up to three days after the

commencement of the Winddown

Fleet vehicles, MHE and other select furniture, fixtures and equipment will be aggregated and secured at owned locations for future sale


17

Depot Winddown | Headcount

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Depots to administer the tasks and activities associated with the shutdown, cleaning , aggregation, transport or disposal of certain assets at each Depot.

Depot Winddown personnel will be tasked with cleaning and

preparing Depot facilities for surrender to the owner (for leased

locations) and exit / sale (for owned locations)

Each Depot will be staffed with the following or similar positions:

Depots – (i) District Sales Manager; and (ii) Lead Loader

For certain Depot locations, other positions such as Market

Unit Sales Managers and Key Account Managers will be used

to perform Winddown tasks, depending on specific location

needs

One team may be assigned to multiple Depot locations where

appropriate

Leased Depot locations will be wound down on an expedited basis by

the end of week four. Owned Depot locations will be wound down by

the end of week seven

Headcount in owned Depot locations remains in place for longer than

in leased locations as owned locations serve as a point of aggregation

for certain assets transferred in from leased locations

SVP – Business Unit General Managers (4) and Regional Vice

Presidents (8) will coordinate the Depot Winddown and are

represented in Corporate Winddown Remaining Employees

W1 W2 W3 W4 W5 W6 W7 W8 P2 P3-P13

No. Depots left to wind down at end of week:

Owned Depots 52 52 52 52 52 32 12 0 0 0 0

Leased Depots 190 171 105 46 0 0 0 0 0 0 0

Owned Depot / Stores (Depots) 113 113 113 113 113 62 11 0 0 0 0

Leased Depot / Stores (Depots) 198 178 109 50 0 0 0 0 0 0 0

Total Depots 553 514 378 260 165 94 24 0 0 0 0

Winddown

Depot Headcount Headcount

MU Sales Manager 47 47 43 31 19 10 6 4 0 0 0

District Sales Managers 593 593 546 383 239 127 79 12 0 0 0

Key Account Managers 29 29 26 18 11 5 3 2 0 0 0

Loader 157 157 145 102 64 34 1 1 0 0 0

826 826 760 534 333 176 89 19 0 0 0


18

Depot Winddown | Budget

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Depots to administer the tasks and activities associated with the shutdown, cleaning, aggregation, transport or disposal of certain assets at each Depot.

Total estimated expense to wind down each of the Debtors' 242 Depots and Depot component of the Debtors' 311 Depot / Stores is approximately $6.9

million

Costs include wages for the Remaining Employees to consolidate, shut down and prepare the Debtors' Depots for exit and prepare associated

assets for (i) sale by third-parties or (ii) transfer to either Plants or owned Depot or Plant locations for future sale

Depot Winddown costs include contract security for 24 “high value” Depot locations

Operational costs include rent for leased locations and utilities for leased and owned locations until they are wound down

Retention awards under the Employee Retention Plan total $782,000 for Non-Senior Management Employees involved in the Depot Winddown



Retention Plan are calculated as 25% of compensation earned during each respective participant’s Retention Period. Employees will be required to

deliver an effective release of claims prior to receiving their retention award



Depots

Payroll (1) (2) -$ 2,001$ 308$ 1,127$ 135$ 358$ 39$ 32$ -$ -$ -$ -$ -$ 4,000$

Retention (1) - 138 10 337 14 230 10 44 - - - - - 782

Operational - - - 881 157 147 110 77 52 32 13 - - 1,470

Contractors (3) 85 85 85 85 64 64 64 64 - - - - - 598

Total Depots 85$ 2,224$ 403$ 2,431$ 370$ 799$ 223$ 217$ 52$ 32$ 13$ - - 6,850$



(3) Includes assumption for security at 24 high value depots


19

IV. Retail Store Winddown and Retail Stores Oversight


20

Retail Store Winddown | Overview

The Winddown Plan contemplates Remaining Employees at each of the Debtors‘ Retail Store locations to administer the tasks and activities associated with going-out-of-business sales, shutdown and cleaning of each Retail Store location.

Each of the Debtors' Retail Store and Store component of Depot / Store locations will have a Winddown team tasked with administering GOB Sales and

cleaning and preparing locations for surrender to the owner (for leased locations) or exit / sale (for owned locations)

Each Retail Store location will be staffed with both a (i) Retail Sales Manager and (ii) Lead Store Clerk or similar positions

Disposition of finished goods inventory at Retail Stores:

Finished goods inventory at the Retail Stores will be sold to customers through GOB sales lasting approximately three days. GOB sales will be done

on a business as usual basis, with pricing for day one of the GOB sale at current retail prices. Retail Store Winddown personnel may apply

discounted pricing based on the Retail Sales Manager’s discretion in days two and three

Finished goods inventory at Retail Stores not sold through GOB sales will be donated to charity (e.g., food banks) or destroyed

Shelf-stable product (e.g., jams, chips, cookies, etc) will either be (i) sold via GOB Sales, (ii) donated to food banks or (iii) destroyed

Each of the Debtors’ Retail Stores will be broom cleaned with furniture, fixtures and equipment aggregated at the back of each Retail Store location

Shelving and other furniture will be disassembled and positioned at the back of Retail Stores to be either abandoned or sold by third parties, with any

logistics related to third-party sales performed by those third parties

MHE will be aggregated at the Retail Stores for transfer to owned Plants, Depots and Retail Stores and stored on premise and in available trailers


21

Retail Store Winddown | Headcount

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Retail Store locations to administer the tasks and activities associated with going-out-of-business sales, shutdown and cleaning of each Retail Store location.

Preparing each of the Debtors' 216 owned and leased Retail Stores and 311 owned and leased Depot / Stores (Stores) for Winddown within a four week

time frame is assumed to require two employees at each location to facilitate and administer the process. As Retail Stores are wound down, properties will

be vacated and closed

Retail Store headcount will be tasked with (i) managing GOB Sales for two to three days and (ii) cleaning and preparing both leased and owned locations

for either surrender to the owner or to exit the facility

Winddown headcount for Retail Stores (including the Store component of Depot / Stores) during the Winddown Period starts at 1,054 and then is reduced

by approximately 90% to 138 by the start of week four. No Retail Store Winddown personnel will be required after week four

Winddown

Headcount W1 W2 W3 W4 W5 W6 W7 W8 P2 P3 - P13

Per Retail Store Headcount

Retail Sales Manager 1 1 1 1 1 0 0 0 0 0 0

Lead Loader 1 1 1 1 1 0 0 0 0 0 0

No. stores left to wind down at end of week Start

Owned Stores 48 48 41 10 0 0 0 0 0 0 0

Leased Stores 168 168 126 17 0 0 0 0 0 0 0

Total Retail Stores Headcount

Owned Retail Stores 96 96 96 82 19 0 0 0 0 0 0

Leased Retail Stores 336 336 336 252 34 0 0 0 0 0 0

Total Retail Stores Headcount 432 432 432 334 53 0 0 0 0 0 0

Per Depot / Store (Stores) Headcount

Retail Sales Manager 1 1 1 1 1 0 0 0 0 0 0

Lead Loader 1 1 1 1 1 0 0 0 0 0 0

No. stores left to wind down at end of week

Owned Depot / Store (Stores) 113 113 96 23 0 0 0 0 0 0 0

Leased Depot / Store (Stores) 198 198 149 20 0 0 0 0 0 0 0

Total Depot / Store (Stores) Headcount

Owned Depot / Store (Stores) 226 226 226 192 45 0 0 0 0 0 0

Leased Depot / Store (Stores) 396 396 396 297 40 0 0 0 0 0 0

Total Depot / Stores (Stores) Headcount 622 622 622 489 85 0 0 0 0 0 0

Total Retail Stores Headcount 1,054 1,054 1,054 823 138 0 0 0 0 0 0


22

Retail Store Winddown | Budget

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Retail Store locations to administer the tasks and activities associated with GOB Sales, shutdown and cleaning of each Retail Store location.

Total estimated expense to wind down each of the Debtors' 216 stand-alone Retail Stores and 311 Depot / Stores (Stores) is approximately $8.5 million

As no Retail Stores are expected to be wound down in week one, there is no retention cost expected in week one

Retention awards under the Employee Retention Plan total $948,000 for Non-Senior Management Employees involved in the Retail Store

Winddown



Retention Plan are calculated as 25% of compensation earned during each respective participant’s Retention Period. Employees will be required

to deliver an effective release of claims prior to receiving their retention award



Retail Stores

Payroll (1) (2) -$ 2,058$ 1,279$ 1,348$ 164$ -$ -$ -$ -$ -$ -$ -$ -$ 4,849$

Retention (1) - 43 102 686 117 - - - - - - - - 948

Operational - - - 1,719 276 263 206 131 93 51 9 - - 2,749

Contractors - - - - - - - - - - - - - -

Total Retail Stores - 2,101$ 1,381$ 3,753$ 557$ 263$ 206$ 131$ 93$ 51$ 9$ - - 8,546$




23

Retail Stores Oversight Winddown | Overview

The Winddown Plan contemplates Remaining Employees at each of the Debtors' Retail Store locations to administer the tasks and activities associated with GOB Sales, shutdown and cleaning of each Retail Store location. The Retail Stores Oversight team will be responsible for coordinating the Winddown of the Debtors' Retail Store locations.

The Retail Store Oversight team will be responsible for managing and coordinating the Winddown of the Debtors' Retail Stores. The Retail Store Oversight

team will be geographically dispersed

The Retail Stores Oversight team is comprised of 22 Retail Sales Senior Managers, Retail Sales Managers and District Sales Managers and will remain for

four weeks to oversee GOB Sales at, and the Winddown of, the Debtors' 216 Retail Stores and the Retail Store component of 311 Depot / Stores

Retention awards under the Employee Retention Plan total $28,000 for Non-Senior Management Employees acting as part of the Retail Stores Oversight

team

Vesting of the retention award occurs if (1) the participant is employed through the last day of the Retention Period or (2) the participant is terminated by

the Debtors for any reason other than cause prior to the end of the Retention Period. Retention awards under the Employee Retention Plan are calculated

as 25% of compensation earned during each respective participant’s Retention Period. Employees will be required to deliver an effective release of claims

prior to receiving their retention award



Retail Stores Oversight

Payroll (1) (2) -$ 65$ 8$ 65$ 8$ -$ -$ -$ -$ -$ -$ -$ -$ 145$

Retention (1) - - - 28 - - - - - - - - - 28

Operational 10 10 10 10 - - - - - - - - - 40

Contractors - - - - - - - - - - - - - -

Total Retail Stores Oversight 10$ 75$ 18$ 103$ 8$ - - - - - - - - 214$




24

V. Corporate Winddown


25

Corporate Winddown | Overview

The Winddown Plan contemplates Remaining Employees in certain Corporate roles to perform the financial, accounting, human resources, legal, real estate and technology functions needed to facilitate the Winddown Plan.

Corporate Winddown staff consists of individuals necessary to administer and wind down the financial and accounting, human resources, legal and

technology affairs of the Debtors. The Debtors' accounting and human resources functions are de-centralized, and accordingly, significant resources are

required in the field to effectuate the Winddown Plan (e.g., collection of receivables, settling disputed balances, termination processing, etc.)

Finance - Finance Winddown staff accounts for the greatest number of Corporate Winddown personnel. An estimated 131 Finance Remaining

Employees will be tasked with the collection of the Debtors' accounts receivable, processing payments to vendors during the Winddown, preparing

all necessary tax filings and continued financial and bankruptcy reporting tasks as needed for the duration of the Winddown Plan

Human Resources – Human resources Winddown staff will be tasked with processing the termination of the approximate 15,000 employees who

will not be retained as well as Remaining Employees as they roll off the Winddown team, and addressing issues arising from termination (such as

COBRA). Staff will continue to perform all HR functions (benefits, payroll, etc,) during the Winddown

Operations – Operations Winddown staff will be tasked with the disposition of finished goods / raw materials and vendor negotiations. Further,

certain members of the Operations Winddown staff will be responsible for coordinating and managing the Winddown of the Debtors' 242 Depot

locations and the Depot component of the Debtors' 311 Depot / Store locations

Legal – Legal Winddown staff will be tasked with administering the legal requirements of the bankruptcy cases and the legal requirements of the

Winddown Plan (e.g., asset sales, contract negotiation, etc.)

Technology – Technology Winddown staff will be tasked with implementing appropriate user access to the Debtors' network, systems and

applications


26

Corporate Winddown | Headcount


Corporate Winddown staff consists of individuals necessary to successfully Winddown the corporate affairs of the Debtors

The Debtors currently employ approximately 552 employees in the corporate function. Approximately 60% of those employees will be terminated

with the commencement of the Winddown

The number of Finance Winddown staff is a direct result of the Debtors' de-centralized accounting function (18 field locations). The number of

human resources Winddown staff is a direct result of the Debtors' expansive geographic footprint, as the Debtors have locations in 48 states

(Alaska and the lower 48 states, excluding New Mexico)

Beginnning End of Period Headcount

Corporate Function Headcount P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Finance 131 131 127 110 92 55 53 43 41 38 35 33 33 33

Human Resources 76 76 25 25 22 20 19 16 16 14 10 10 10 10

Legal 8 8 8 6 6 6 5 5 3 3 3 3 3 3

Operations 19 19 11 8 4 4 3 1 1 1 1 1 1 1

Marketing 3 3 3 2 2 2 1 1 1 1 1 1 1 1

Total Corporate 237 237 174 151 126 87 81 66 62 57 50 48 48 48


27

Corporate Winddown | Budget


Estimated expense for the initial 13 weeks to wind down the Debtors' Corporate affairs is approximately $8.1 million

Approximately 50% of the headcount cost associated with the Corporate Winddown personnel relates to financial personnel

Operational expense includes three months rent for the Irving location as the Debtors’ corporate functions are consolidated to the owned Kansas

City location. Additionally, operational expense also includes office supplies, security supplies and outside storage fees

Contractor expense includes amounts for contract human resources, accounting, finance resources who perform various roles in the Debtors’

corporate organization



Corporate

Payroll (1) (2) -$ 708$ 132$ 708$ 132$ 548$ 102$ 528$ 93$ 454$ 85$ 454$ 85$ 4,027$

Retention (1) - - - 65 9 - - 76 5 - - 57 8 221

Operational 202 202 202 302 191 191 191 291 248 248 248 348 115 2,978

Contractors 70 70 70 70 70 70 70 70 69 69 69 69 37 878

Total Corporate 272$ 980$ 404$ 1,145$ 402$ 810$ 364$ 965$ 415$ 772$ 402$ 929$ 244$ 8,104$




28

Corporate Winddown | Budget (cont.)


Incentive and Retention

There are no awards under the Senior Management Incentive Plan that are payable in the initial 13 weeks of the Winddown. Total Baseline

Incentives under the Senior Management Incentive Plan may total up to approximately $1.5 million (this amount does not include Total Baseline

Incentives for Plant Oversight Senior Management Employees) with respect to such incentives over the course of the entire Winddown, assuming

that all requirements under the Senior Management Incentive Plan are met

Incentive awards under the Senior Management Incentive Plan are based on achievement of certain metrics related to participants’ roles and

responsibilities under the Winddown Plan, and are subject to an effective release of claims by the employee. Total Baseline Incentive under the

Senior Management Incentive Plan are 25% - 75% of annual base compensation

Over the initial 13 weeks of the Winddown, retention awards under the Employee Retention Plan total $221,000 for Non-Senior Management

Employees involved in the Corporate Winddown and total an estimated $1.2 million over the course of the entire Winddown



Retention Plan are calculated as 25% of compensation earned during each respective participant’s Retention Period. Employees will be required

to deliver an effective release of claims prior to receiving their retention award



Corporate

Payroll (1) (2) -$ 708$ 132$ 708$ 132$ 548$ 102$ 528$ 93$ 454$ 85$ 454$ 85$ 4,027$

Retention (1) - - - 65 9 - - 76 5 - - 57 8 221

Operational 202 202 202 302 191 191 191 291 248 248 248 348 115 2,978

Contractors 70 70 70 70 70 70 70 70 69 69 69 69 37 878

Total Corporate 272$ 980$ 404$ 1,145$ 402$ 810$ 364$ 965$ 415$ 772$ 402$ 929$ 244$ 8,104$




29


CLI-2044408v2

EXHIBIT B

Carroll Declaration

12-22052-rdd Doc 1710-2 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit B Pg 1 of 15

CLI-2044440v1


- and -



UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------- In re Hostess Brands, Inc., et al.,1 Debtors.

---------------------------------------------------------------

x : : : : : : : x


DECLARATION OF CHARLES W. CARROLL

IN SUPPORT OF THE DEBTORS' EMERGENCY WINDDOWN MOTION

I, Charles W. Carroll, make this Declaration under 28 U.S.C. § 1746 and state the

following under penalty of perjury:

1. I am a senior managing director at FTI Consulting, Inc. ("FTI

Consulting"), a business advisory firm serving as financial advisors to Hostess Brands, Inc. and




CLI-2044440v1 -2-

the other above captioned debtors and debtors-in-possession (collectively, the "Debtors"

or "Hostess").

2. I submit this Declaration in support of the Emergency Motion of Debtors

and Debtors in Possession For Interim and Final Orders, Pursuant to Sections 105, 363, 365

and 503(c) of the Bankruptcy Code: (A) Approving (I) A Plan to Wind Down the Debtors'

Businesses, (II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales at the Debtors'

Retail Stores, (IV) The Debtors' Non-Consensual Use of Cash Collateral and Modifications to

Final DIP Order, (V) An Employee Retention Plan, (VI) A Management Incentive Plan,

(VII) Protections for Certain Employees Implementing the Winddown of the Debtors' Businesses,

(VIII) The Use of Certain Third Party Contractors and (IX) Procedures for the Expedited

Rejection of Other Contracts and Leases; and (B) Authorizing the Debtors to Take Any and All

Actions Necessary to Implement the Winddown (the "Motion").

3. Capitalized terms not otherwise defined herein have the meanings given to

them in the Motion.

4. Except as otherwise indicated, all statements in this Declaration are based

on my personal experience and knowledge, my discussions with responsible management and

professionals of the Debtors and/or my review of relevant documents. If called to testify, I could

and would testify to each of the facts set forth herein based on such personal knowledge,

discussions and/or review of documents. I am authorized to submit this Declaration on behalf of

the Debtors.

Qualifications

5. For the past twenty years, I have provided financial advisory services to

companies and their stakeholders in a variety of industries, and I have completed more than


CLI-2044440v1 -3-

60 restructuring assignments during that time. The scope of this work includes business

diagnostics and strategic plan development, capital structure review, cash management,

corporate overhead review and reduction implementation, debt negotiations and repayment

strategies, financial statement analysis, financial projection development, valuation (including

liquidation analyses), bankruptcy preparation and plan of reorganization formation and

negotiation.

6. Prior to joining FTI in 2002, I worked in the U.S. division of

PricewaterhouseCoopers' ("PwC") Business Recovery Services group. Before that, I worked in

PwC's Assurance and Business Advisory Services group performing audits of financial services

clients, including securities brokers and dealers, mortgage companies and life insurance

companies. Prior to joining PwC, I was a financial analyst for a national real estate development

and management firm.

7. My notable engagements include American Plumbing & Mechanical;

Club Corp.; Discovery Zone; Encompass Services; GasMark; Global Power Equipment Group;

Integrated Electrical Services; Midcon Offshore; Minorplanet Systems; NR Marine; Orthodontic

Centers of America; Patriot Coal; Pillowtex; Q-Entertainment; Quality Beverage; Reliant Energy;

and Sun Healthcare. Further, I have provided advice to companies operating in the retail

industry, including to Bruno's, Fiesta Supermarkets, 50-Off Stores, Homeland Stores, Stanley

Stores and Blockbuster, Inc.

8. I received an M.A. in accounting from the University of Texas at Austin

and a B.S. in finance from Southwest Texas State University. I am a certified insolvency and

restructuring advisor, certified public accountant and certified turnaround professional. I am a


CLI-2044440v1 -4-

member of the Association of Insolvency & Restructuring Advisors, the Texas Society of

Certified Public Accountants and the Turnaround Management Association.

The Winddown Plan

9. The Winddown Plan is the result of significant contingency planning by

the Debtors in consultation with their advisors and certain of their secured lenders. Generally,

the Winddown Plan is designed to maximize the value of the Debtors' now-liquidating

chapter 11 estates while protecting the safety of consumers and the Debtors' employees through,

among other things: (a) the completion of tasks and implementation of procedures to preserve,

maintain and protect the Debtors' assets pending ultimate liquidation; (b) the return, sale or

disposal of certain of the Debtors' perishable ingredients and generic packaging; (c) the

continued employment of approximately 3,200 employees to oversee the Winddown

(collectively, the "Remaining Employees");2 (d) the provision of retention payments to retain

non-senior management employees (the "Non-Senior Management Employees") and incentive

payments to approximately 19 corporate officers and/or high-level managers (the "Senior

Management Employees") to motivate and encourage such employees to complete and achieve

certain tasks and goals associated with the Winddown; and (e) the use of certain third-party

contractors (e.g., security personnel; barricade providers; millwright labor;

transportation/logistics personnel; environmental consultants; and temporary finance and

accounting staff) (collectively, "Third-Party Contractors") where necessary to implement the

Winddown Plan.

2 The Winddown Plan contemplates that the headcount for Remaining Employees will decrease by more than

94% within the first 16 weeks of the Winddown as the majority of activities necessary to sell perishable goods and inventory and to clean, secure and prepare the Debtors' various plants, depots, retail stores and corporate offices will be completed within that time frame.


CLI-2044440v1 -5-

10. The desired outcome of the Winddown is the sale of groups of assets that

can be operated on a going concern basis, which would result in the buyer assuming as many of

the related administrative expenses and other claims as possible. The Debtors hope to complete

the Winddown and the sale(s) of substantially all of the Debtors' assets in approximately one

year. For planning purposes, the Winddown has been divided into discrete four-week phases

(each, a "Winddown Period"). The Debtors have completed planning for the operational aspects

of the Winddown for thirteen Winddown Periods — the entire one-year projected duration of the

Winddown. However, the Debtors have only finalized their operational and other cost

projections for the first thirteen weeks of the Winddown, as seeking to project revenues and costs

further than that would require utilizing numerous and material assumptions that may or may not

prove to be correct.

11. As outlined in greater detail in Exhibit A to the Motion, the Debtors, in

consultation with their advisors, have organized the Winddown Plan around four major

categories of their businesses/assets: (a) bakery (or "plant") assets at which the Debtors' products

were produced (the "Plants"); (b) depots (and combination depots/stores) (the "Depots") at which

the Debtors' finished products are stored (and sold, in instances where there is a Retail Store

co-located with a depot) and at which the Debtors' route sales representatives and other parties

obtain products for delivery to customers; (c) retail and thrift store outlets at which the Debtors'

finished products are sold (the "Retail Stores");3 and (d) the Debtors' corporate functions

("Corporate"). A unique set of activities is necessary for each of the foregoing categories.

3 Certain of the Debtors' locations function both as Depots and Retail Stores. Costs related to the Depot

component of such locations are addressed in the Winddown Plan for Depots (as described below) and costs for the Retail Store component of such locations are addressed in the Winddown Plan for Retail Stores (as described below).


CLI-2044440v1 -6-

12. Plant Winddown. The Debtors currently own 37 Plants across the United

States, with 36 being operational. The Winddown Plan contemplates that each Plant will

maintain a dedicated team to prepare, preserve, secure and clean the real estate, the facility and

the various assets located at the facility (e.g., production equipment; fleet vehicles; finished

products; raw materials) for sale. During the initial four weeks of the Winddown, it is

anticipated that each Plant will require approximately 28 Remaining Employees to effectuate the

Winddown. By the end of the third four-week Winddown Period, it is anticipated that each Plant

will maintain only one Remaining Employee on site (while certain tasks related to security,

millwright labor and transportation will be outsourced to third parties).4 The Debtors will

maintain 24/7 security at each Plant, with the heaviest presence on site during the initial

Winddown Period.

13. Among other things, Remaining Employees will assist with: (a) shutting

down, cleaning and packing all equipment; (b) properly disposing of waste in accordance with

applicable environmental regulations; (c) collecting and securing the Debtors' vehicle fleet;

(d) transferring finished product to stores for liquidation or arranging for other disposal

(potentially through third party liquidators); (e) preparing production machinery and other

material handling equipment (e.g., racks, trays, baskets and dollies) for sale (if sold separately

from the Plant itself); and (f) performing other tasks required for the orderly winddown of baking

4 The Winddown Plan further provides that the Debtors will continue to employ 28 Remaining Employees

(the "Plant Oversight Staff") at various locations to serve in a "plant oversight" capacity. The Plant Oversight Staff consists of a management team that will be responsible for managing (a) the Remaining Employees located on site at each of the Debtors' individual plants and (b) the overall wind down and sales/marketing process for the Plants generally. The Winddown Plan contemplates that the headcount for Plant Oversight Staff will be reduced to 10 Remaining Employees by the end of the ninth four-week Winddown Period, and reduced to two by the end of the thirteenth four-week Winddown Period.


CLI-2044440v1 -7-

operations. All leased equipment will be prepared for lessor/supplier pick-up upon rejection of

the applicable lease.

14. All excess raw material ingredients (such as flour, sugar and corn starch)

(collectively, "Excess Ingredients") located at the Plants (as well as Excess Ingredients in transit

to the Debtors' bakeries) as of the commencement of the Winddown either have been or will be

(a) refused, (b) returned to the Debtors' suppliers or (c) sold to third parties. It is estimated that

the Debtors hold approximately $29.3 million worth of Excess Ingredients. In addition, it is

estimated that the Debtors have less than $1 million in generic (clear or nonbranded) packaging

materials ("Excess Packaging") that the Debtors will (a) return to their suppliers or (b) sell to

third parties.5

15. Costs associated with the wind down and disposition of each of the Plants

and their related assets are anticipated to total approximately $17.58 million over the first


16. Depot Winddown. The Debtors currently own 165 Depots and lease

another 388 such facilities (including the Debtors' hybrid Depot/Retail Store facilities). The

primary Winddown activities to be undertaken at the Depots are the cleaning — including the

proper handling of any environmental waste — and preparation of such sites for return (for

leased locations) or sale (for owned locations). Equipment and vehicles owned or leased by the

Debtors that are located at leased Depots will be aggregated, secured and transferred to owned 5 In addition, the Debtors currently hold approximately $12.0 million in pre-printed packaging that they may

not be able to resell.

6 Of this anticipated $17.58 million in costs over this thirteen week period, approximately (a) $7.27 million is related to salary for Remaining Employees (which includes Plant Oversight Staff), (b) $1.15 million is related to payments to Remaining Employees under the Employee Retention Plan, (c) $6.02 million is related to operational expenses, such as utility costs and taxes and (d) $3.14 million is for various third party contractors, such as security personnel and millwright labor.


CLI-2044440v1 -8-

locations prior to the rejection of any underlying Depot lease. Baked goods that remain at the

Depots either have been or will be (a) sold to third-party retailers, (b) sold at the Debtors'

attached Retail Store (where applicable) or (c) donated or destroyed. The Debtors will maintain

on-site security during the initial stages of the Winddown at certain of their high-value Depot

locations.

17. It is anticipated that once the Winddown is commenced, the Debtors will

complete the Winddown upon an accelerated four week schedule for leased Depots and seven

week schedule for owned Depots. At the commencement of the Winddown, it is anticipated that

the Debtors will require approximately 826 Remaining Employees at Depots. This number will

rapidly decline to zero by the end of the seventh week of the Winddown as the Depots are

cleaned and prepared for closure and the associated Depot leases are rejected (as applicable).

18. Costs associated with the wind down and disposition of each of the Depots



19. Retail Store Winddown. The Debtors currently own 48 stand-alone Retail

Stores, lease an additional 168 such stand-alone stores and, as noted above, own 113 hybrid

Depot/Retail Store facilities and lease another 198 such facilities. The primary Winddown

activities to be undertaken at the Retail Stores are facility cleaning and the sale and disposition of

finished product inventory. During the Winddown, all perishable baked goods inventory

("Perishable Inventory") located at the Retail Stores will be either (a) sold to customers through


related to salary for Remaining Employees, (b) $782,000 is related to payments to Remaining Employees under the Employee Retention Plan, (c) $1.47 million is related to operational expenses such as lease and utility costs and (d) $598,000 is related to hiring certain third party contract security for 24 "high value" Depots.


CLI-2044440v1 -9-

going-out-of-business sales ("GOB Sales"), (b) abandoned and donated to charity or destroyed

(for Perishable Inventory that cannot be sold in the GOB Sales or for which it is uneconomical to

transport it to a retail store for sale) or (c) grouped together and transferred, as applicable, to

owned Retail Stores (for any products with significant shelf life).8 Shelving and other

miscellaneous equipment located at the Retail Stores will be disassembled, stacked and

transferred to owned Depots for eventual liquidation, as is practicable. Owned Retail Stores will

eventually be marketed and sold. The leases for the remaining Retail Stores will be rejected.

20. The GOB Sales will be conducted within the following parameters:

Conduct of Sales: The GOB Sales will be conducted in accordance with the Debtors' normal business practices and with the collection and remittance of applicable sales taxes related to any applicable goods sold during the GOB Sales. The GOB Sales will be conducted during the Debtors' normal or expanded business hours.

Pricing: Sales of Perishable Inventory will start at current pricing levels and may be adjusted upward or downward at periodic intervals depending on the level of demand at various Retail Stores during the course of the GOB Sales in the discretion of each applicable store manager.

Payment: All Perishable Inventory will be sold in accordance with the Debtors' ordinary business practices, and the Debtors will continue to accept cash, checks and charge cards as payment for Perishable Inventory.

Advertising: The Debtors do not intend to engage in any special advertising projects with respect to the GOB Sales, but appropriate signs may be posted in and around Retail Stores and other locations to advertise the GOB Sales as circumstances warrant.

21. The Winddown of Retail Stores and the GOB Sales are expected to occur

on an expedited basis and to be completed in approximately four weeks after the commencement

of the Winddown. Initially, it is expected that the Debtors will require a total of 1,076

8 Finished product inventory in transit at the time the Motion is filed is being routed to Retail Stores for sale,

unless such inventory is slated to be sold to one of the Debtors' existing customers.


CLI-2044440v1 -10-

Remaining Employees to effect the Winddown of the Retail Stores and the GOB Sales (including

22 Remaining Employees who are retail sales senior managers, retail sales managers and district

sales managers to oversee the Winddown of Retail Stores (the "Retail Store Oversight Staff")).

That headcount will drop to zero by the fifth week of the Winddown as the Retail Stores are

closed and the GOB Sales are concluded.

22. Costs associated with the wind down and disposition of each of the Retail

Stores and their related assets are anticipated to total approximately $8.76 million over the first


23. Corporate Winddown. One of the more critical challenges that the

Winddown Plan addresses is the need to simultaneously wind down the Debtors' various

corporate functions while ensuring the ability to complete tasks that are necessary for the chapter

11 process. The Debtors' large operational footprint will require the services of approximately

237 corporate level Remaining Employees at the corporate level to implement the winddown of

the Debtors' information technology, human resources, legal and financial affairs (and to address

any related issues arising over the course of the Winddown).

24. The majority of the corporate level Remaining Employees (131 of the 237)

are financial and accounting personnel. The need to retain such a large number of financial

personnel is the direct result of the Debtors' decentralized accounting system, which necessitates

that field accounting personnel facilitate the collection of, and accounting for, remaining

accounts receivable across 18 field locations. Although workloads and headcounts will diminish


related to salary for Remaining Employees, including the Retail Store Oversight Staff, (b) $977,000 is related to payments to Remaining Employees under the Employee Retention Plan and (c) $2.79 million is related to operational expenses, such as lease and utility costs.


CLI-2044440v1 -11-

over time, the Debtors anticipate that the collection of receivables and the settlement of disputed

balances by financial personnel will continue for the duration the Winddown. The Debtors will

also require financial personnel to (a) ensure proper accounting as assets are monetized over time,

(b) assist with the Debtors' claims resolution process and (c) process various ordinary course

administrative tasks (e.g., paying the various costs associated with the Winddown).

25. The corporate level Remaining Employees will also include 19 Senior

Management Employees who will be offered incentive payments as motivation and

encouragement to take on additional job responsibilities and to complete and achieve certain

tasks and goals associated with the Winddown.

26. In addition, the Winddown Plan contemplates that the Debtors will retain

various third parties to complete the winding up of their corporate affairs (e.g., services related to

document and records management, temporary finance and accounting roles, payroll and

storage).

27. Costs associated with the winddown of the Debtors' corporate functions

are anticipated to total approximately $8.10 million over the first thirteen weeks of the

Winddown.10

The Value of the First Lien Term Loan Priority Collateral in the Context of the Winddown

28. FTI has undertaken a preliminary analysis to determine the value of

certain of the Debtors' assets that constitute First Lien Term Loan Priority Collateral in the

context of the Winddown. FTI has assessed the potential liquidation sale value of the Debtors'


related to salary for Remaining Employees, (b) $221,000 is related to payments to Remaining Employees under the Employee Retention Plan, (c) $2.98 million is related to operational expenses and (d) $878,000 is for hiring third party contractors for certain tasks.


CLI-2044440v1 -12-

265 owned real estate properties, including bakeries, depots, depot/stores, stores and other

property, and assigned a high and low expected recovery value. Allowances for property taxes,

as well as commissions and closing costs, were deducted from potential recoveries. Based on

this assessment, FTI concluded that the Debtors' real property had a likely liquidation value in

excess of $200 million. FTI similarly assessed the potential liquidation sale value of the Debtors'

machinery and equipment ("M&E") based upon the realized historical sales pricing of similar

M&E as well as the fair value in-exchange percentages disclosed in the American Appraisal

Associates, Inc. Summary Appraisal Report, dated May 28, 2011 and discussions with the

Debtors. Based on this assessment, FTI determined that the Debtors' M&E has a liquidation

value in excess of $12 million. Finally, FTI undertook a preliminary assessment of the potential

liquidation value of the Debtors' intellectual property and determined that such assets would have

substantial value. Based on these assessments and other work performed by myself and other

professionals at FTI, and accounting for the sales anticipated to occur in the first 13 weeks of the

Liquidation Budget, I believe that at all times during the first 13 weeks of the Winddown the

value of the First Lien Term Loan Priority Collateral that has not yet been sold will be hundreds

of millions of dollars, and will certainly exceed $100 million at all times during this period.

The Use of Third Party Contractors

29. In certain circumstances, it is contemplated that the Debtors will use Third

Party Contractors to complete certain tasks necessary to the Winddown Plan. For example, it is

anticipated that the Debtors may require: (a) various security personnel and barricade providers

to secure the Debtors hundreds of locations across the country pending the preparation and

disposition of such locations; (b) millwright labor to clean, repair, pack and preserve the Debtors'

production equipment; (c) transportation/logistics personnel to coordinate the collection and

transportation of, among other things, finished product inventory and miscellaneous handling


CLI-2044440v1 -13-

equipment, as well as the aggregation of the Debtors' owned and leased vehicle fleet;

(d) environmental consultants to address, among other things, issues related to water

management (e.g., wastewater, stormwater and groundwater), air permits, asbestos, lead and

refrigerants; (e) payroll services; (f) document management services; and (g) various temporary

services. A nonexclusive list of the Third Party Contractors that it is currently contemplated the

Debtors may utilize is attached to the Motion as Exhibit K. Given the impending termination of

the majority of the Debtors' workforce, the discrete nature of the tasks to be performed and the

Debtors' need for professional expertise in certain critical areas (e.g., environmental consulting),

the use of Third Party Contractors as proposed in the Winddown Plan is the most cost effective

means of performing those functions under the Winddown Plan.

The Rejection of Executory Contracts and Unexpired Leases

30. In connection with the Winddown, the Debtors will be required to reject

the vast majority of their executory contracts and unexpired leases. The implementation of the

Winddown Plan ultimately will obviate the Debtors' need for all executory contracts and

unexpired leases, gradually rendering such contracts and leases purposeless. The creation of

procedures allowing for a fast and efficient rejection process will minimize the accrual of

administrative claims after the Winddown is commenced.

[The remainder of this page is intentionally blank.]


CLI-2044440v1

I, the undersigned, declare under penalty of perjury that the foregoing is true and

correct.

Executed on November 16, 2012 By: _/s/ Charles W. Carroll_________________ Charles W. Carroll


CLI-2044408v2

EXHIBIT C

Imhoff Declaration

12-22052-rdd Doc 1710-3 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit C Pg 1 of 31

CLI-2044439v1


- and -



UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------- In re Hostess Brands, Inc., et al.,1 Debtors.

---------------------------------------------------------------

x : : : : : : : x


DECLARATION AND EXPERT REPORT OF DEWEY IMHOFF

IN SUPPORT OF THE DEBTORS' EMERGENCY WINDDOWN MOTION

I, Dewey Imhoff, declare under penalty of perjury as follows, pursuant to the

provisions of 28 U.S.C. § 1746:

1. I submit this Declaration and Expert Report in support of the Emergency

Motion of Debtors and Debtors in Possession For Interim and Final Orders, Pursuant to

Sections 105, 363, 365 and 503(c) of the Bankruptcy Code: (A) Approving (I) A Plan to Wind




CLI-2044439v1 -2-

Down the Debtors' Businesses, (II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales

at the Debtors' Retail Stores, (IV) The Debtors' Non-Consensual Use of Cash Collateral and

Modifications to Final DIP Order, (V) An Employee Retention Plan, (VI) A Management

Incentive Plan, (VII) Protections for Certain Employees Implementing the Winddown of the

Debtors' Businesses, (VIII) The Use of Certain Third Party Contractors and (IX) Procedures for

the Expedited Rejection of Other Contracts and Leases; and (B) Authorizing the Debtors to Take

Any and All Actions Necessary to Implement the Winddown (the "Motion").2


on my personal experience and knowledge, my opinion, my discussions with the Debtors'

management and professionals and/or my review of relevant documents.3 If called to testify, I

could and would testify to each of the facts and opinions set forth herein.

I. Qualifications

3. I am a Senior Managing Director at FTI Consulting, Inc. ("FTI"). Prior to

joining FTI, I was a partner at PricewaterhouseCoopers. Prior to that, I was a senior manager at

a prominent nationally recognized crisis management and turnaround boutique firm and a vice

president of the Special Assets group at Prudential Capital.

4. I received my MBA in accounting from Rutgers University and a B.A.

from William Paterson University. I am a certified insolvency and restructuring advisor and a

certified public accountant (retired). I am a member of the Association of Insolvency &

Restructuring Advisors, the American Bankruptcy Institute, the New Jersey Society of Certified 2 Capitalized terms not otherwise defined herein have the meanings given to them in the Motion.

3 Certain of the statements made herein relate to matters within the personal knowledge of other professionals at FTI working under my supervision or the Debtors' employees and are based on information provided by them.


CLI-2044439v1 -3-

Public Accountants, the American Institute of Certified Public Accountants, and the Turnaround

Management Association.

5. I have more than 30 years of advisory and management experience in the

financial services, retail, healthcare, manufacturing, forest products, professional sports and

sporting venues, real estate and energy sectors. I have worked in positions with responsibility

for financial and statutory reporting, troubled loans, asset sales, fraud auditing, strategic planning

and administrative and operational management. In addition, I have developed or consulted on

more than 30 employee retention plans and employee incentive plans, representing creditors with

respect to certain plans and representing debtors on other plans. In connection with that work, I

have performed numerous comparative studies of employee retention plans and employee

incentive plans similar to the comparisons described below. I previously testified as an expert

witness on employee retention plans and employee incentive plans in the following matters:

In re Fibermark, Inc., Case No. 04-10463 (Bankr. D. Vt. Mar. 30, 2004) and In re Nelson

Nutraceutical, Inc., Case No. 06-10072-CSS (Bankr. D. Del. Jan. 28, 2006). I was also retained

to testify as an expert witness about employee retention plans, although ultimately was not

required to provide any testimony, in In re Cornerstone Propane, L.P., Case No. 04-bk-13856

(Bankr. S.D.N.Y. June 3, 2004), and was retained to testify, but never admitted as an expert

witness, in In re Fleming Co., Inc., Case No. 03-bk-10945 (Bankr. D. Del. Apr. 1, 2003). I was

the co-editor of The Credit Executive's Guide to Business Restructuring (Dewey Imhoff and

Elliot Fuhr eds., FTI Consulting 2006) and collaborated on The Practical Guide to Corporate

Restructuring (Cooper & Lybrand L.L.P. 1997).


CLI-2044439v1 -4-

6. I am not being compensated specifically for this testimony other than

indirectly through the payments received by FTI for my services in connection with FTI's

employment in these chapter 11 cases.

II. The Debtors' Loss of Key Employees And the Need For The Employee Retention

Plan

7. As a result of the uncertainty surrounding their businesses, the Debtors

have suffered from high attrition rates with respect to all of their employees, including

management personnel and other key employees. As detailed below, in order to implement their

Winddown Plan effectively, the Debtors will need to implement employee incentive plans

designed to motivate and retain the employees assisting with the Winddown.

A. The Non-Senior Management Employee Retention Plan

8. Since the Petition Date, the Debtors have experienced significant difficulty

in retaining key non-senior management employees ("Non-Senior Management Employees") as

a result of the uncertainty surrounding their businesses. Given the shutdown and liquidation of

the Debtors' businesses contemplated by the Winddown Plan, the Debtors anticipate that the

retention of Non-Senior Management Employees will become even more difficult in the coming

months. The Debtors estimate that they initially will need the services of approximately 3,200

Non-Senior Management Employees to effect the Winddown.

9. While the Debtors believe it is possible that many of their employees

initially will agree to work during the Winddown without the promise of a retention payment,

retaining those employees for the full amount of time they are needed will be challenging. The

Non-Senior Management Employees will be understandably reluctant to forgo the search for

alternative employment (or offers from other employers) during the period when the Debtors

require their services. For example, an employee who agrees to stay for two months of the


CLI-2044439v1 -5-

Winddown would have little to no incentive to remain with the Debtors if that employee received

a job offer a few weeks into the Winddown. In such a scenario, after such employee's departure,

the Debtors would be forced to: (i) locate former employees (that were not part of the

approximately 3,200 originally retained) to offer them the vacated position; (ii) hire contract

employees; or (iii) take other steps to adjust the Winddown process. Any of these actions would

be time-consuming during a period where efficiency will be at a premium. In this environment,

it will be critical for the Debtors to offer the Non-Senior Management Employees a reason to

stay with them for the period that their services are needed during the Winddown by providing

appropriate retention incentives for such employees to assist with the Winddown Plan.

10. Moreover, during the Winddown, the Debtors can ill afford to lose

important Non-Senior Management Employees — employees who have the experience and

institutional knowledge necessary to successfully implement the Winddown Plan. A failure to

retain Non-Senior Management Employees once the Winddown has commenced would cause

the Debtors to incur significant costs in attempting to obtain replacements for such employees.

This would hinder and delay the Winddown Plan, thus imposing further costs upon the Debtors'

estates, and would impair the value of the Debtors' assets to the detriment of all stakeholders.

The continuity promoted, and the institutional knowledge preserved, by the retention of such

employees, on the other hand, facilitates the success of the Winddown Plan. Moreover, the

expeditious and cost-effective implementation of the Winddown Plan will help the Debtors

preserve and protect the value of their assets. Ultimately, the quick and cost effective Winddown

of the Debtors' businesses will preserve and protect the value of the Debtors' estates for the

benefit of creditors.


CLI-2044439v1 -6-

11. The Debtors' Winddown Plan has little precedent in terms of its scope and

complexity. It contemplates the rapid completion of numerous tasks at the Debtors' 36

operational Plants, 242 Depots, 216 Retail Stores, 311 hybrid Depot/Retail Store locations and

58 other leased or owned locations across the United States. In this environment, the

institutional knowledge of the Non-Senior Management Employees is essential. Attempting to

hire or retain third parties (as opposed to the Debtors' current employees) to perform tasks

required by the Winddown would be impracticable and very likely impossible. Indeed, the

Debtors' current employees have critical experience and institutional knowledge necessary to

successfully implement the Winddown Plan. Moreover, attempting to hire and train employees

across such a huge geographical area would cause significant delay to the Debtors' Winddown.

Given the time constraints imposed by the perishable nature of many of the Debtors' raw material

ingredients and products and the need to promptly clean baking equipment, such delays would

result in significant losses and could potentially derail the Winddown Plan. Therefore, the

success of the Winddown Plan will depend on the Debtors' ability to retain the Non-Senior

Management Employees.

12. Accordingly, a retention plan has been designed to retain the Non-Senior

Management Employees who are necessary to assist with the winddown of the Debtors' estates

(the "Employee Retention Plan").

B. The Employee Retention Plan

13. To induce the Non-Senior Management Employees to remain with the

Debtors as needed during the Winddown, FTI, in consultation with the Debtors' management and

other advisors, has designed the Employee Retention Plan. A comprehensive summary of the

terms of the Employee Retention Plan are attached to the Motion as Exhibit I.


CLI-2044439v1 -7-

14. Under the Employee Retention Plan, Non-Senior Management Employees

(who are comprised of approximately 49% union-represented employees and 51% nonunion

employees) would receive a one-time retention payment calculated as 25% of such employee's

base compensation earned during the employee's service during the Winddown. Total potential

payments to all employees under the Employee Retention Plan would be approximately

$4.36 million. The average payment to Non-Senior Management Employees under the

Employee Retention Plan would be approximately $1,400. Awards under the Employee

Retention Plan would vest upon (a) the last day a Non-Senior Management Employee is required

to work under the Winddown Plan (the "Retention Period") or (b) the involuntary termination of

a Non-Senior Management Employee prior to the end of the Retention Period other than for

cause. Payments to Non-Senior Management Employees under the Employee Retention Plan

will be made as soon as practicable following the vesting of the retention award (but no later

than 53 days following vesting of the award), subject to the delivery of an effective release of

claims by the employee. The Debtors estimate that the award amount that would accrue through

the date of a final hearing on the Motion will be approximately $1.45 million, assuming a final

hearing date no later than two weeks after the interim hearing on the Motion.

C. The Process for Developing the Employee Retention Plan

15. The Employee Retention Plan was designed after months of planning and

multiple discussions and meetings between FTI and the Debtors. I believe that the Employee

Retention Plan will provide necessary and sufficient compensation to the Non-Senior

Management Employees to induce many of the Non-Senior Management Employees to remain

in the Debtors' employ while their services are needed, but it will not provide more

compensation than is necessary and required to achieve the retention targets. The Employee

Retention Plan has been narrowly designed to retain Non-Senior Management Employees who


CLI-2044439v1 -8-

are vital to the successful implementation of the Winddown Plan and the maximization of value

for the benefit of all parties in interest.

16. In connection with developing the Employee Retention Plan, FTI

reviewed the terms of key employee retention plans approved in 11 other chapter 11 bankruptcy

cases since 2008. The details of that comparison are reflected on pages 8 to 9 of the expert

report attached hereto as Exhibit 1.

17. I believe that the design and structure of the Employee Retention Plan, and

the payments to be made thereunder, are generally in line with market standards and practice.

Specifically, while the number of employees covered by the Employee Retention Plan is larger

than normal, this is justified by the sheer number of locations, the complexity and geographic

scope of the Debtors' operations, the need to deal quickly with perishable goods and ingredients

and other factors. Importantly, the cost per employee is consistent with market practice (with

cost per employee of the Employee Retention Plan less than the 25th percentile of retention plans

in comparator cases). Additionally, payout timing based on completion of service, case or event

is consistent with market practice.

III. The Need for The Senior Management Incentive Plan

18. Given the significant challenges and complexities associated with the

Winddown Plan, it also will be critical for the Debtors to motivate and encourage 19 of their

corporate officers and/or high-level managers (the "Senior Management Employees") to

complete expeditiously the tasks and goals set forth in the Winddown Plan.

19. In many instances, the job responsibilities of Senior Management

Employees during the Winddown differ significantly from such employees' normal, prepetition

and pre-Winddown job responsibilities. As a result, the Debtors' prepetition and pre-Winddown


CLI-2044439v1 -9-

compensation structure (which typically included the payment of bonus incentives based on the

achievement of certain operational and financial goals) is not aligned with the tasks and goals

that will need to be achieved in the context of the Winddown Plan. Therefore, it is necessary to

modify the Senior Management Employees' prepetition and pre-Winddown compensation

structure in a way that is consistent with the tasks and goals that now need to be completed and

achieved in connection with the Winddown Plan. Providing incentives to the Senior

Management Employees will motivate and encourage such employees to shoulder the additional

job responsibilities necessary to complete and achieve such results in a timely, and sometimes

expedited, fashion.

20. Each and every task associated with the Winddown Plan has a specific

deadline by which such task must be completed. Failure to complete such tasks by the specified

deadlines will result in a delay of the Winddown Plan and will likely lead to increased costs for

the Debtors. Providing incentives to the Senior Management Employees will motivate and

encourage such employees to ensure the timely completion and achievement of such tasks,

thereby reducing the Debtors' costs and maximizing the net proceeds received by the Debtors'

estates for the benefit of the Debtors' creditors.

21. Accordingly, an incentive plan has been developed to motivate and

encourage the Senior Management Employees that remain in the Debtors' employ to complete

and achieve the tasks and goals necessary to ensure the success of the Winddown Plan

(the "Senior Management Incentive Plan").

A. The Senior Management Incentive Plan

22. A detailed description of the tasks, goals and awards that comprise the

Senior Management Incentive Plan is attached to the Motion as Exhibit J. Under the Senior

Management Incentive Plan, Senior Management Employees will be entitled to receive a


CLI-2044439v1 -10-

one-time incentive payment (the "Baseline Incentive Payment") consisting of up to 25% to 75%

of the employee's annual base compensation.

23. The Senior Management Employees will be divided into eight groups.

Each group will have a specific set of tasks that must be completed in the specified time frames.

If such tasks are completed in the specified time frames, the Senior Management Employee

responsible for completion of those tasks would receive either 75% or 85% (depending on the

Senior Management Employee) of such employee's Baseline Incentive Payment (the "Metrics

Baseline Incentive"). The remaining 25% or 15% of the Baseline Incentive Payment will be paid

to the Senior Management Employee if the Debtors spend less than the budgeted amount in

certain specified cost categories during the one-year period after commencement of the

Winddown (the "Budget Baseline Incentive").

24. Total potential Baseline Incentive Payments to all employees under the

Senior Management Incentive Plan are anticipated to be in the range of $0.00 to approximately

$1.75 million. The average Baseline Incentive Payment to Senior Management Employees

under the Senior Management Incentive Plan (assuming the achievement of all metrics) is

approximately $92,200. It is anticipated that Metrics Baseline Incentive payments will be made

to each group after a 30-day assessment period, during which time it will be determined if the

applicable metrics were achieved, but no later than 53 days after the achievement of the last

metric for the applicable group. It is anticipated that the Budget Baseline Incentive Payment will

be paid as soon as possible after the measurement period (which is assumed to be 13 Winddown

Periods), but no later than 53 days following the end of the budget measurement period. Should

a Senior Management Employee be terminated for cause or leave voluntarily prior to the

achievement of each and every metric (excluding budget-related metrics) for such employee's


CLI-2044439v1 -11-

designated group, that employee would forfeit his/her right to any payment under the Senior

Management Incentive Plan. All awards under the Senior Management Incentive Plan are

subject to the delivery of an effective release of claims by Senior Management Employees.

25. In addition, two of the Debtors' Senior Management Employees who are

currently Executive Vice Presidents will generally oversee the Winddown process. To

incentivize those two individuals to perform better than what is anticipated in the Liquidation

Budget, the Senior Management Incentive Plan includes the possibility for an additional award

(the "Budget Outperformance Award") for those two Senior Management Employees (assuming

they remain in the Debtors' employ). The Budget Outperformance Award will vary in size

depending on the amount by which the Debtors perform better than the budgeted amounts over

the first year of the Winddown with respect to certain specified cost categories and will increase

in size depending on the percentage by which "Tested Disbursements" are less than "Budgeted

Tested Disbursements."4 For every 1% outperformance of Tested Disbursements as compared to

Budgeted Tested Disbursements, the applicable Senior Management Employees will receive an

additional 3% of their Baseline Incentive Payment, which in aggregate for both such employees

will total approximately $16,000. For example, if Tested Disbursements are 5% better than

Budgeted Tested Disbursements, each applicable Senior Management Employee would receive

an additional payment in an amount equal to 15% of their Baseline Incentive Payment (for total

incentive payments of 115% of their Baseline Incentive Payment).

4 "Tested Disbursements" and "Budgeted Tested Disbursements" include the following line-items in the

Liquidation Budget: (a) payroll/payroll taxes; (b) benefits; (c) retention; (d) MRO (i.e., maintenance, repair and operations); (e) professional fees (ordinary course); (f) other (which includes bank fees, licensing fees, uniform costs, laundry, waste management, lawn maintenance, vehicle insurance, and other miscellaneous expenses); and (g) retained professionals (post-liquidation).


CLI-2044439v1 -12-

B. The Process for Developing the Senior Management Incentive Plan

26. Like the Employee Retention Plan, the Senior Management Incentive Plan

was designed after months of planning and multiple discussions and meetings among FTI, the

Debtors and the Debtors' other professionals. I believe that, assuming that the Senior

Management Employees are willing to remain with the Debtors, the Senior Management

Incentive Plan will provide appropriate and sufficient incentives to motivate Senior Management

Employees to achieve, or exceed, the metrics identified therein — which metrics are necessary

for the successful completion of the Winddown. The Senior Management Incentive Plan has

been narrowly designed to incentivize remaining insider, Senior Management Employees who

are vital to the successful implementation of the Winddown Plan and the maximization of value

for the benefit of all parties in interest. The Senior Management Incentive Plan was not designed

primarily for retentive effect.

27. Further, in connection with the development of the Senior Management

Incentive Plan, FTI reviewed the terms of key employee incentive plans approved in 11 other

chapter 11 bankruptcy cases since 2008. The details of that comparison are reflected on pages 6

to 7 of the report attached hereto as Exhibit 1.

28. I believe that the design and structure of the Senior Management Incentive

Plan, and the payments to be made thereunder, are generally in line with market standards and

practice. Specifically, the number of the Senior Management Employees covered by the Senior

Management Incentive Plan is generally in line with that of comparable cases. The total cost of

the Baseline Incentive Payments under the Senior Management Incentive Plan closely

approximates the mean for comparable cases. As a percentage of revenue, however, the cost of

the Baseline Incentive Payments under the Senior Management Incentive Plan closely

approximates the 25th percentile of comparable case costs and the 25th percentile on a


CLI-2044439v1 -13-

percentage of assets basis. The payout determination and timing of payments are also both

generally consistent with market practice. Moreover, when compared to compensation provided

to equivalent level employees at other, non-bankrupt companies with significant bakery

operations or in the food / beverage industry, total cash compensation5 for Senior Management

Employees under the Senior Management Incentive Plan (assuming the achievement of all

metrics by all groups) would still be 18% less than the market median. Even including a Budget

Outperformance Award based upon Tested Disbursements being 5% better than Budgeted Tested

Disbursements (which itself is deemed unlikely given the difficulty of even maintaining

performance to the Liquidation Budget), the increase in the total cash compensation for the

Debtors' two Executive Vice Presidents would not be material given the cost savings that would

be achieved.

29. In developing the Senior Management Incentive Plan, FTI also compared

the compensation that may be earned under the Senior Management Incentive Plan to the

Debtors' historical compensation structure. The details of that comparison are reflected on

pages 11 to 12 of the report attached hereto as Exhibit 1. To summarize, total cash compensation

for Senior Management Employees under the Senior Management Incentive Plan is generally in

line with the three-year average of the total cash compensation of such employees during the

years 2009 through 2011.

[The remainder of this page is intentionally blank.]

5 Total cash compensation includes the potential Total Baseline Incentive, but excludes the potential Budget

Outperformance Award for the two Executive Vice Presidents who are included in the Senior Management Incentive Plan, as it is not assumed that the Debtors will perform better than budget.


CLI-2044439v1


correct.

Executed on November 16, 2012 By: _/s/ Dewey Imhoff____________________ Dewey Imhoff


CLI-2044439v1

EXHIBIT 1


Hostess Brands, Inc.: Senior Management Incentive Plan and Employee Retention Plan

November 16, 2012


2

Table of Contents

I. Introduction

II. Background

III. Summary of Proposed Plans

IV. Analysis of Proposed Plans A. Senior Management Incentive Plan B. Employee Retention Plan C. Compensation Benchmarking D. Appendix


3

Introduction

The success of the Winddown Plan of Hostess Brands, Inc. and its subsidiaries (the “Debtors” or the “Company”) will depend on senior management employees (the “Senior Management Employees”) and selected non-senior management employees’ (“Non-Senior Management Employees”) skills, knowledge and understanding of the Debtors’ operations, customer and supplier relationships, systems and infrastructure.

The Debtors’ Winddown Plan is designed to prepare, clean, sanitize, maintain, and secure its operational footprint of 863

locations across 48 states (36 baking plants, 242 depots, 311 combined depots/stores, 216 stores, 58 other locations) and ultimately wind down its estate

This plan is complex and requires coordination across all parts of the organization

The 3,183 employees (3,164 Non-Senior Management Employees and 19 Senior Management Employees) selected to assist

with winding down the estate’s operational footprint are essential to achieving a successful Winddown

2,946 employees are assigned to Plant Oversight , Retail Store Oversight, Individual Plants, Retail Stores and Depots

237 employees are assigned to Corporate

Management estimated that the Winddown employees will be comprised of approximately 49% Union employees and 51% Non-Union employees

The cost and timing of successfully implementing and executing the Winddown Plan is contingent upon (1) the retention of the Non-Senior Management Employees and (2) incentivizing the Senior Management Employees. If (1) the Debtors are forced to hire outside resources that do not possess the same expertise and knowledge of the operations as the Non-Senior Management Employees or (2) the Winddown Plan is delayed because the Senior Management Employees did not complete and achieve certain tasks and goals by specified deadlines, then the cost and timing to effectuate the Winddown Plan may need to be revised to reflect higher costs and a longer winddown period


4

Background

In July 2012, the Debtors requested that FTI Consulting, Inc. (“FTI”) assist with the evaluation for the need and in the development of the proposed Senior Management Incentive Plan and Employee Retention Plan for critical employees involved in the Winddown Plan, should the need to implement a Winddown arise.

The Debtors have not yet implemented these programs pending bankruptcy court approval In assessing the appropriateness and competitiveness of these plans, FTI reviewed 11 bankruptcy cases since November 2008

that implemented liquidation/going-out-of-business wind-down plans, section 363 sales-oriented plans, and stand-alone restructuring plans The comparison plans are identified in the Appendix Of the 11 comparison plans selected, 2 of the Debtors were larger in size, 1 was roughly equivalent in size, and 8 were

smaller

This report presents FTI’s assessment and commentary of the proposed plans in the context of this case and the marketplace

FTI believes that the efforts of the Senior Management Incentive Plan participants and Employee Retention Plan participants are essential to maximize the recovery of the assets for the benefit of the key stakeholders. Further, both proposed plans are reasonable in the context of standard practice for companies in Chapter 11, the magnitude of the Debtors’ business operations, and the complexity of the Winddown Plan


5

Summary of Proposed Plans

The Senior Management Incentive Plan and Employee Retention Plan summarized in the table below have been designed in order to help maximize value for the estate by achieving key case milestones. The combined proposed programs cover approximately 17% of the Debtors existing employee base and 100% of the employees assisting with the Winddown.

Plan Description No. Participants Target

Payout Average Per Employee

Senior Management Incentive Plan

Depending on the position of the Senior Management Employee, either 75% or 85% of the Total Baseline Incentive will be paid based upon the successful completion of various metrics for the employee’s group The remaining 25% or 15% of the Total Baseline Incentive will be paid if the Debtors spend equal to or less than the budgeted amount in certain specified cost categories during the one-year period after the commencement of the Winddown

19 $1.8 million (1) $92, 200

Employee Retention Plan

Covers critical Non-Senior Management Employees across all functions of the Debtors that are required to wind down the estate (approximately 17% of the employee population). Awards are based on retention through a specific date based on role in the Winddown Plan

3,164 $4.4 million $1,400

TOTAL 3,183 $6.2 million $1,900

(1) Does not include the potential award amounts for the two Executive Vice President (“EVP”) participants if the Debtors perform better than the budgeted amounts for specified cost categories during the one-year period after the commencement of the Winddown (the “Budget Outperformance Award”)


6

Analysis of Proposed Plans | Senior Management Incentive Plan Comparison to Standard Practice

The proposed Senior Management Incentive Plan is not excessive in terms of number of participants and cost and is appropriate in the context of the magnitude of the Debtors' business operations and the complexity of the Winddown Plan.

Key

Components Current Proposed Standard Practice Observation

Participants 19 participants excluding the CEO -- (2) Executive Vice Presidents, (8) Senior Vice Presidents, (8) Vice Presidents and (1) Director

The total number of participants is slightly higher than the mean of comparable group cases; justified by the larger size of these chapter 11 cases

Total Cost Awards based on 25% - 75% of annual base salary which amounts to a maximum total payout of $1.8 million (not including any potential Budget Outperformance Award) and $92.2 thousand per employee (0.07% of Revenues and 0.17% Assets)

The cost of the Senior Management Incentive Plan closely approximates the mean of comparable cases; and as a percentage of revenue and assets, the plan cost closely approximates the 25th percentile of comparable cases

Metrics For EVPs, 75% of target award based on achieving 100% of group goals within the specified period of time. For non-EVPs, 85% of target award based on achieving 100% of group goals within the specified period of time

GOB/Liquidation plan awards are based on completion of specific tasks and, to a lesser extent, financial goals. Reorganization Chapter 11 proceedings based awards on achieving deal completion/timing and/or specific financial goals

Evaluating completion of specific tasks within a specified period of time is consistent with standard practice for liquidating cases; requiring 100% achievement of goals is equal to or more stringent than standard practice

No.

Market Participants

25th%ile 5

Mean 18

50th%ile 15

75th%ile 21

Hostess 19

($000s) Max $ / Max Cost %

Market Cost Participant Revenue Assets

25th%ile 395 51.9 0.08% 0.16%

Mean 1,769 175.1 0.18% 0.36%

50th%ile 2,300 143.9 0.15% 0.28%

75th%ile 2,780 225.0 0.20% 0.48%

Hostess 1,752 92.2 0.07% 0.17%


7

Analysis of Proposed Plans | Senior Management Incentive Plan Comparison to Standard Practice (cont.)

The proposed Senior Management Incentive Plan is not excessive in terms of number of participants and cost and is appropriate in the context of the magnitude of the Debtors' business operations and the complexity of the Winddown Plan.

Key Components Current Proposed Standard Practice Observation

Disbursements For EVPs, 25% of target award is based on the Debtors spending less than the budgeted amount in certain specified cost categories during the one-year winddown period. For non-EVPs, 15% of target award is based on this criteria

GOB/Liquidation plan awards are based on completion of specific tasks and, to a lesser extent, financial goals. Reorganization Chapter 11 proceedings based awards on achieving deal completion/timing and/or specific financial goals

Making some component of award dependent upon achieving budgetary target is consistent with standard practice

Payout Timing Made within 53 days after the applicable measurement period for metric and budget-based awards subject to the delivery of an effective release of claims by the employee

Payout determined upon completion of applicable performance based milestones and/or financial goals at conclusion of measuring period

The timing is consistent with standard practice

Other Incentive Plans Senior Management Incentive Plan is in place of the variable compensation plan

None of the comparable group cases’ plans were additive to annual incentive plans

Replacing the existing bonus plan with the Senior Management Incentive Plan is consistent with standard practice


8

Analysis of Proposed Plans | Employee Retention Plan Comparison to Standard Practice

The proposed Employee Retention Plan and number of participants and cost is reasonable and appropriate in the context of the magnitude of the Debtors' business operations and the complexity of the Winddown Plan.


Participants Approximately 3,164 critical Non-Senior Management Employees, across all functions of the Debtors (approximately 17% of the total employee population)

For debtors that implemented a wind down/liquidation oriented KERP and/or a restructuring KERP, eligible participants ranged from 12 to 137 employees

The total number of 3,164 participants is significantly higher than the comparable group cases although the size and complexity of the Debtors’ operations and the magnitude of the Winddown Plan justifies this differential

Total Cost Maximum total payout of $4.4 million and approximately $1,400 per participant (0.17% of Revenues and 0.43% Assets)

The cost of the Employee Retention Plan is significantly higher in total (not on a per participant basis) than the comparable group cases, although the size and complexity of the Debtors’ operations and the number of participants required to implement the Winddown Plan justifies this differential

($000s) Max $ / Max Cost %

Market Cost Participant Revenue Assets

25th%ile 271 10.8 0.03% 0.09%

Mean 684 18.2 0.05% 0.13%

50th%ile 493 13.7 0.04% 0.10%

75th%ile 1,050 16.4 0.08% 0.16%


9

Analysis of Proposed Plans | Employee Retention Plan Comparison to Standard Practice (continued)

The proposed Employee Retention Plan and number of participants and cost is reasonable and appropriate in the context of the magnitude of the Debtors' business operations and the complexity of the Winddown Plan.


Payout Amount Award based on 25% of wages earned during the Retention Period (i.e., the period of time the employee will be required to remain an employee of the Debtors to earn the retention payment)

Payouts are determined on percentage of wages based on continued employment through applicable time-based milestones and, in certain instances, financial goals

Fixed payments based on retention through a specific date is consistent with standard practice

Payout Timing Payment will be made as soon as practicable following vesting of the retention award (but no later than 53 days following vesting of the retention award), subject to the delivery of an effective release of claims by the employee. Vesting of the retention award occurs if (i) the participant is employed through the last day of the Retention Period or (ii) the participant is terminated by the Debtors for any reason other than cause prior to the end of the Retention Period

Payment generally based upon completion of service, case or event

The timing is consistent with standard practice


10

Analysis of Proposed Plans | Compensation Benchmarking

The proposed Senior Management Incentive Plan is reasonable in terms of the number of participants and amount. The participants’ base salary and incentive compensation on average is below the market median.

FTI benchmarked the salaries of all positions included in the Senior Management Incentive Plan as part of its development

In connection with this exercise, FTI compared Senior Management Incentive Plan participants’ annual base salary and Senior Management Incentive Plan

award to market Total Cash Compensation (“TCC”) and concluded that the Debtors' Senior Management Employees would be significantly

undercompensated absent some form of incentive-based compensation

Peer companies chosen were those with significant bakery operations or in the food/beverage industry, with a focus on production and retailing of

food/beverage products

The table below presents the overall competitiveness of the proposed Senior Management Incentive Plan (assuming all targets are achieved for all groups,

but excluding any Budget Outperformance Award):

In evaluating base compensation only, these individuals would be, on average, 44% below the median of benchmark positions

In evaluating base compensation + Senior Management Incentive Plan payments (assuming the achievement of all targets for all groups, but excluding any

Budget Outperformance Award) the total cash compensation would place these individuals, on average, 18% below the median of benchmark positions

It should be noted that any additional awards for the two EVPs related to outperforming budget are not considered in this benchmarking analysis as the

degree to which actual disbursements are less than projected disbursements, if at all, is unknown

Base Compensation Variance Base Compensation + Senior Management Incentive Plan

From Market Median

Senior Management Total -44% -18%

Variance From Market Median


11

Analysis of Proposed Plans | Compensation Benchmarking (cont.)

The proposed Senior Management Incentive Plan is reasonable in terms of the number of participants and amounts and is appropriate based on historical salary and incentive compensation programs as well as the magnitude of the Debtors’ business operations and the complexity of the Winddown Plan.

FTI evaluated the historical compensation of the proposed Senior Management Incentive Plan participants in connection with its assessment of the

reasonableness of the plan

The Debtors have, in recent history, had two incentive plans, the Variable Compensation Plan (“VCP”) and the District Sales Performance Incentive Plan

(“DSPIP”)

The 2012 VCP for exempt employees not covered by a collective bargaining agreement or not participating in another short-term cash variable

compensation plan was based on attaining specific financial and safety goals for Q3 and Q4 in FY 2012 and was calculated as a percentage of the

participants’ quarterly FY 2012 regular base pay earnings

The VCP in 2010 and 2011 covered the same exempt employees as the 2012 VCP but was based on attaining specific EBITDA goals and certain

individual performance standards for the fiscal year and was calculated as a percentage of annual regular base pay earnings

The 2009 incentive plan was discretionary for a select number of management employees

The DSPIP for sales personnel was based on attaining specific Net Revenue amounts, returned product goals and behaviors that assure a safe

working environment

None of the proposed Senior Management Incentive Plan participants participate in the DSPIP program

In evaluating the reasonableness of the Senior Management Incentive Plan, FTI obtained each participant’s annual base salary and VCP (including any

discretionary and signing bonuses) for 2009 through 2011 and compared them to what the participants could potentially earn under the Winddown Plan if

all targets are achieved for all groups (but assuming no Budget Outperformance Award)


12

Analysis of Proposed Plans | Compensation Benchmarking (cont.)

The proposed Senior Management Incentive Plan is reasonable in terms of the number of participants and amounts and is appropriate based on historical salary and incentive compensation programs as well as the magnitude of Hostess’ business operations and the complexity of the Winddown Plan.

The table below presents the overall average of total cash compensation earned compared to the overall average of the proposed compensation under the

Senior Management Incentive Plan amounts

It should be noted that any additional awards for the two EVPs related to outperforming budget are not considered in this benchmarking analysis as the

degree to which actual disbursements are less than projected disbursements, if at all, is unknown

Winddown

($000's) 2009 2010 2011 Plan (2)

Total Cash Compensation (1) $3,510 $3,332 $4,544 $4,022

No. SMIP Participants 15 18 19 19

(1) Includes incentive payments from prior bankruptcy incentive program, VCP, signing bonus, as applicable

(2) Total Cash Compensation in 2009-2011 represents actual amounts earned by the Senior Management Incentive Plan

participants where the Total Cash Compensation in the Winddown Plan column represents the estimated amounts to be

earned if all targets are achieved by all groups; the Winddown Plan contemplates service of less than one full year for

certain participants


13

APPENDIX


14

Market Study Overview

FTI used 11 comparable chapter 11 cases to benchmark the proposed Senior Management Incentive Plan and Employee Retention Plan programs.

To conduct the market study used for benchmarking the Senior Management Incentive Plan and Employee Retention Plan, FTI relied upon various

bankruptcy cases that had incentive plans and retention plans that were approved by a bankruptcy court to analyze companies that fit the following

criteria:

Filed for chapter 11 protection since November 10, 2008

Comparable group cases resulted in going-out-of-business or liquidation, reorganization or on-going restructuring efforts

Implemented an incentive plan for participants that is based on financial and task-oriented criteria

The Debtors’ revenues and assets are larger than the median size of the Comparison Group

Comparator Group

($ millions) Petition

Company Date Revenue Assets

Circuit City 11/10/08 $11,743 $3,400

Goody's LLC 1/13/09 786 206

Gottschalk 1/14/09 557 283

Movie Gallery 2/2/10 1,400 534

Borders Group 2/16/11 2,300 1,275

Robb & Stucky 2/18/11 140 99

Filene's Basement 11/2/11 445 236

Buffets 1/18/12 1,180 546

Eastman Kodak 1/19/12 6,022 4,678

Velo Holdings, Inc. 4/2/12 486 348

Betsey Johnson 4/26/12 60 21

Comparator Group Statistics:

Median $786 $348

Average $2,284 $1,057


15


CLI-2044408v2

EXHIBIT D

Rush Declaration

12-22052-rdd Doc 1710-4 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit D Pg 1 of 8

CLI-2044441v1


- and -



UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

--------------------------------------------------------------- In re Hostess Brands, Inc., et al.,1 Debtors.

---------------------------------------------------------------

x : : : : : : : x


DECLARATION OF DAVID RUSH IN

SUPPORT OF THE DEBTORS' EMERGENCY WINDDOWN MOTION




CLI-2044441v1 -1-

I, David Rush, make this Declaration under 28 U.S.C. § 1746 and state the

following under penalty of perjury:

1. I am the Interim Treasurer of Hostess Brands, Inc. ("Hostess"), one of the

debtors and debtors in possession in the above-captioned cases (collectively with Hostess,

the "Debtors").

2. I submit this Declaration in support of the Emergency Motion of Debtors









Actions Necessary to Implement the Winddown (the "Motion").2


on my personal knowledge of the Debtors' operations and financial condition or my review of

relevant documents regarding the Debtors' operations and financial condition. If called to testify,

I could and would testify to each of the facts set forth herein.

Qualifications

4. As Interim Treasurer of Hostess, I work with the Debtors' management

and employees to refine Hostess' existing cash flow forecasts, related analyses and reporting. I

2 Capitalized terms used but not otherwise defined herein have the meanings given to them in the Motion.


CLI-2044441v1 -2-

also provide recommendations with respect to Hostess' existing cash flow practices and

methodologies. I have served in this position with Hostess since July 1, 2011.

5. I am also a Senior Managing Director of the Corporate

Finance/Restructuring practice at FTI Consulting, Inc. ("FTI Consulting"). I have more than

14 years of corporate recovery and financial advisory experience. I have corporate recovery and

financial advisory expertise in the oil and gas, energy, financial services, retail, refining, oilfield

services, mining and insurance industries, among other industries. I have advised numerous

clients with regard to debtor in possession financing, covenant negotiations, bankruptcy

preparation, asset sales, avoidance actions and litigation support matters. I have been involved in

numerous chapter 11 cases including, among others, Fremont General Corporation, Enron,

Bombay Company, ASARCO, Texas Petrochemicals, Orion Refining, Link Energy, TransCom

USA, Tri-Union Development, Tokheim Corporation, American Eco, and Weiner's Stores.

6. Prior to joining FTI Consulting, I was a Director with KPMG's Financial

Advisory Services practice and a Manager with PricewaterhouseCoopers' Business Recovery

Services practice.

7. I have an M.B.A. from the Jones Graduate School of Management at Rice

University and a B.B.A magna cum laude in accounting from the University of Houston. I am a

certified public accountant in Texas, a certified insolvency and restructuring advisor and a

certified turnaround professional.


CLI-2044441v1 -3-

Losses Arising from Strikes

8. Since the Strikes were commenced on November 9, the Debtors estimate

that, by November 19, they will have incurred between $7.5-9.5 million in losses in the

aggregate, due to lost sales and increased costs of production. These losses and other factors,

including increased vendor payment terms contraction, have resulted in a significant weakening

of the Debtors' cash position and, if continued, would soon result in the Debtors completely

running out of cash.

The Liquidation Budget

9. The Liquidation Budget was prepared by me and those working under my

supervision and is the culmination of months of planning and analysis. The Liquidation Budget

is also the product of extensive negotiations with the DIP Agent.

10. Among other things, the initial Liquidation Budget contemplates and

reflects using cash collateral and borrowings under the DIP Credit Agreement to provide funding

for the initiation of the Winddown Plan (as described in the Motion) during the 13-week period

covered thereby.

11. The current 13-week Liquidation Budget provides adequate funds for the

Debtors to: (a) provide a pay down of all of the $45 million of ABL Pre-Petition Indebtedness as

asset sales permit and as set forth in the Liquidation Budget; (b) pay the Winddown-related

administrative expenses that arise from and after the commencement of the Winddown, as

specified in the Liquidation Budget; and (c) pay accrued ordinary course administrative expenses

that are specified in the Liquidation Budget, such as accrued wages and benefits for hours

worked prior to the commencement of the Winddown, sales taxes, utility payments and certain

other amounts. In other words, the Liquidation Budget provides for the payment of fees and

expenses that were determined to relate directly to implementing the Winddown.


CLI-2044441v1 -4-

Need for Use of Cash Collateral

12. In the opening weeks of the Winddown, it is anticipated that the Debtors'

expenses will temporarily exceed the proceeds from the liquidation of the Debtors' assets.

During this time, the only source of funding for the Debtors is borrowings under the DIP Credit

Agreement and cash collateral, including proceeds of collateral liquidated during this period. If

the Liquidation Budget is not approved in its present form, and payments to the ABL Lenders are

required sooner, the Debtors will have insufficient funds under the DIP Credit Agreement to pay

essential Winddown expenses.

13. The Debtors estimate that the gross amount of accounts receivable

(without any deductions or discounts for returns, disputes, setoffs, etc.) as of the commencement

of the Winddown will be approximately $106 million. The Debtors estimate that the gross

amount of inventory (including raw materials, packaging and finished goods) at book value as of

the commencement of the Winddown will be approximately $46 million.

14. As shown in the Liquidation Budget, the liquidation of the accounts

receivable and inventory that constitutes Revolving Priority Collateral is anticipated to generate

cash of approximately $77 million in the first 10 weeks of the Winddown. The cash collateral

generated from the liquidation of accounts receivable and inventory that constitute Revolving

Priority Collateral, combined with borrowings up to the $75 million limit under the DIP Credit

Agreement, provide the necessary funds for the Debtors to prepare their various assets for sale

and implement other key features of the Winddown Plan (such as, for example, the Employee

Retention Plan). After the preparation of assets for sale is complete, the Liquidation Budget

contemplates that proceeds from the sales of assets can be used in large part to begin paying off

the Debtors' secured debt.


CLI-2044441v1 -5-

15. Payments to the ABL Lenders with respect to their secured debt are made

under the Liquidation Budget as fast as they can be made without jeopardizing the Winddown

process. Presently, the Liquidation Budget contemplates that $2.5 million will be paid to the

ABL Lenders in week 8 of the Winddown, with the remaining $42.5 million balance paid in

week 12 of the Winddown. Even with these modest paydowns, the Debtors' liquidity will be

tight during the initial 12 weeks of the Winddown. The Liquidation Budget contemplates that

during weeks 8 through 11 of the Winddown, the Debtors will have utilized essentially all of the

availability under their $75 million postpetition financing facility. During this period, the

Debtors are proposing to maintain a minimum cash balance of $15 to $20 million to pay for

accrued amounts and for contingencies and variances. For an enterprise the size of the Debtors,

this minimal cash position is necessary and ensures that the Debtors have sufficient funds for

essential expenses such as accrued payroll and benefits for remaining employees and unexpected

contingencies. The Winddown Plan contemplates the shutdown, preservation and sale of over

850 locations in 48 states. It is inevitable that unanticipated contingencies will arise that will

require cash payments. If the Debtors are left with no funds in the budget to address these

unanticipated contingencies, the Winddown would be jeopardized. Accordingly, the Debtors

have determined that committing in the Liquidation Budget to faster payment of the ABL

Lenders would harm their estates and creditors.

16. The continued use of the cash collateral will (a) ensure that the Debtors

can make the payments that are necessary to initiate the Winddown Plan, (b) provide assurances

to the various constituencies necessary to initiate the Winddown Plan, including the Remaining

Employees and Third Party Contractors, that they will be paid for their services, and

(c) generally provide the liquidity that the Debtors require in the initial weeks of the Winddown.


CLI-2044441v1 -6-

Cash to be Utilized Before Final Hearing

17. The Winddown will be cash intensive, particularly in its initial stages. In

the first two weeks of the Winddown, the Liquidation Budget contemplates that the Debtors will

receive $33.8 million from the liquidation of Revolving Priority Collateral and that nearly all of

these proceeds will be used to pay the expenses of the Winddown during this two week period.

Immediate and Irreparable Harm

18. The Debtors must have the immediate continued ability to use cash

collateral to initiate the Winddown. Without the use of cash collateral, the Debtors will have

insufficient liquidity to pay amounts necessary to initiate the Winddown. Given the Debtors'

circumstances, the Winddown Plan is the best way to preserve and maximize value for all parties

in interest. It is, thus, essential that the Debtors immediately obtain authority to use cash

collateral pending a final hearing on the Motion.


correct.

Executed on November 16, 2012 By: /s/ David Rush David Rush

Interim Treasurer Hostess Brands, Inc.


CLI-2044408v2

EXHIBIT E

Rayburn Declaration

12-22052-rdd Doc 1710-5 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit E Pg 1 of 14

CLI-2044442v1


- and -



UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

--------------------------------------------------------------- In re Hostess Brands, Inc., et al.,1

Debtors.

---------------------------------------------------------------

x : : : : : : : x


DECLARATION OF GREGORY F. RAYBURN IN SUPPORT OF THE DEBTORS' EMERGENCY WINDDOWN MOTION

I, Gregory F. Rayburn, declare under penalty of perjury as follows, pursuant to

the provisions of 28 U.S.C. § 1746:

1. On March 7, 2012, the board of directors of Hostess Brands, Inc. (together

with the other above captioned debtors, "Hostess") voted to appoint me Chief Executive Officer

and member of the board of directors of Hostess Brands, Inc., effective as of March 9, 2012.




-2- CLI-2044442v1

I served as Hostess Brands, Inc.'s Chief Restructuring Officer from February 22, 2012 through

March 8, 2012.

2. I submit this declaration in support of the Emergency Motion of Debtors









Actions Necessary to Implement the Winddown (the "Motion").

3. Capitalized terms not otherwise defined herein have the meanings given to

them in the Motion.

4. Except as otherwise indicated, all facts set forth in this declaration are

based on my personal knowledge, my review of relevant documents, my opinion, my experience

as a restructuring advisor or my conversations with Hostess' employees and/or advisors working

at my direction. If called on to testify, I could and would testify to the facts set forth herein. I am

authorized to submit this Declaration on behalf of the Debtors.

Qualifications

5. I am the Managing Partner of Kobi Partners, LLC, a restructuring advisory

services firm. I have over 29 years of experience in the reorganization and restructuring of

companies. I have served as chief executive officer or chief restructuring officer for several


-3- CLI-2044442v1

companies in financially distressed situations, including New York City Off Track Betting

Association, Magna Entertainment Corporation, aaiPharma, WorldCom and Sunterra

Corporation. Most recently, I served as the Chief Restructuring Officer of Indianapolis Downs,

LLC.

6. I am a licensed certified public accountant, with my professional

accounting status currently non-practicing. I also have testified and have been qualified as an

expert witness in federal and state courts on various issues, including business viability, valuation,

strategic plan assessment, damages, bankruptcy and reorganization.

The Necessity of the Winddown Plan

7. From the outset of these chapter 11 cases until only recently, the Debtors

focused on, and pursued, the reorganization of their businesses as economically viable and

competitive going concerns. As was made clear by the third-party investor process conducted by

the Debtors earlier this year, achieving modifications to the Debtors' collective bargaining

agreements ("CBAs") and multi-employer pension benefit obligations was a sine qua non for the

Debtors' ability to attract investors willing to provide capital to the reorganized Debtors in

connection with a chapter 11 plan.

8. On January 25, 2012, the Debtors filed their Motion of Debtors and

Debtors in Possession to (A) Reject Certain Collective Bargaining Agreements and (B) Modify

Certain Retiree Benefit Obligations, Pursuant to Sections 1113(c) and 1114(g) of the Bankruptcy

Code (Docket No. 174) (the "Initial 1113/1114 Motion"), seeking authority to reject their CBAs

with (a) the 141 local affiliates of the International Brotherhood of Teamsters (the international

union, together with its local affiliates, the "IBT") and (b) the 35 local affiliates of the Bakery,

Confectionery, Tobacco and Grain Workers International Union (the international union, together


-4- CLI-2044442v1

with its local affiliates, the "BCT" and collectively with the IBT, the "Unions"). On April 23,

2012, the Debtors also filed a motion (the "Other Unions 1113 Motion") seeking to reject 67

different CBAs in place with 57 local affiliates of 10 separate unions (other than the IBT and the

BCT) (the "Other Unions"). Under the Initial 1113/1114 Motion and the Other Unions 1113

Motion, the Debtors proposed to replace the rejected CBAs with agreements that modified those

agreements in a number of ways and limited the Debtors' obligations with respect to the

multiemployer pension plans, all in accordance with the Debtors' last, best and final offer made on

April 14, 2012.

9. After the filing of the Initial 1113/1114 Motion, the Debtors sought to

engage the IBT and BCT in continued negotiations. The BCT ultimately refused to continue to

negotiate with the Debtors and indicated that it would not contest the relief sought in the Initial

1113/1114 Motion. Accordingly, on May 4, 2012, May 24, 2012 and May 31, 2012, the Court

entered orders (Docket Nos. 848, 1016 and 1058) (the "BCT Rejection Orders") granting the

Initial 1113/1114 Motion solely with respect to the BCT and authorizing, but not directing, the

Debtors to (a) reject all CBAs with the BCT still in effect as of the date of the BCT Rejection

Orders, (b) implement, and perform under, certain "Section 1113/1114 Proposals" attached as an

exhibit to the first BCT Rejection Order (the "BCT Proposals") and (c) modify, in accordance

with the BCT Proposals, any "retiree benefit" obligation the Debtors had to retirees formerly

represented by the BCT. While prolonged and extensive negotiations with the IBT continued

after the filing of the Initial 1113/1114 Motion, the Debtors and the IBT were unable to reach

agreement, forcing the Debtors to proceed with the prosecution of the Initial 1113/1114 Motion

with respect to the IBT.


-5- CLI-2044442v1

10. After the trial on the Initial 1113/1114 Motion with respect to the IBT, on

May 14, 2012, the Court issued an oral ruling on the Initial 1113/1114 Motion indicating that,

while it would deny the rejection of the Debtors' CBAs with the IBT (and related section 1114

relief sought), the Court was inclined to grant a motion brought by the Debtors (including

approval of the Debtors' exit from certain multi-employer pension plans) so long as the Debtors

made certain changes to the relief requested. The Court's ruling made clear that the Court

believed that the Debtors' exit from the multi-employer pension plans would very likely be

necessary for the Debtors to successfully emerge from bankruptcy. In accordance with the

above, on May 22, 2012, the Court entered an order (Docket No. 993) denying the Initial

1113/1114 Motion with respect to the IBT.

11. Following the Court's ruling with respect to the Initial 1113/1114 Motion,

the Debtors held discussions on an expedited basis with the IBT, certain of their key lenders and

the only potential outside equity investor that had made a viable proposal. During these

discussions, the IBT indicated that, notwithstanding the Court's May 14, 2012 ruling, its

participation in any reorganization plan was conditioned upon Hostess remaining in all of the

IBT multi-employer pension plans. In response, Hostess' only viable outside investor indicated

that it was no longer willing to invest in the Debtors' businesses.

12. As a result, it became and remains clear that no outside investors are

interested in funding the Debtors' reorganization. Nonetheless, Hostess and certain of its key

lenders contacted the IBT and the BCT to see if it would be possible to reach an alternative

comprehensive plan that would allow the Debtors to emerge from bankruptcy as a going

concern.


-6- CLI-2044442v1

13. The IBT agreed to reconvene negotiations immediately. The BCT, on the

other hand, declined to do so, stating that it would not negotiate until the Debtors' negotiations

with the IBT had concluded. On August 11, 2012, following three additional months of

negotiations, the IBT agreed to submit the Debtors' revised last, best, final proposal (the "IBT

LBFO") to its members for ratification. On September 14, 2012, the IBT members ratified the

IBT LBFO.

14. After completing negotiations with the IBT, Hostess presented the BCT

with a proposal to modify the BCT CBAs. The terms of the proposal to the BCT mirrored those

of the IBT LBFO, with a few exceptions to account for, among other things, differences between

the terms of the IBT CBAs and BCT CBAs. On August 14, 2012, I, along with Hostess' Vice

President of Human Resources and Labor Relations and certain of the Debtors' secured lenders,

met with the BCT to discuss Hostess' proposal. At that meeting, Hostess explained why the

proposal was critical to the Debtors' survival as a going concern. In addition, Hostess provided

the BCT with updated information necessary to understand the proposal, as well as all

information upon which the proposal was based. That information included analyses performed

by Hostess' financial advisors, which showed that implementation of the BCT proposal (together

with the relief Hostess is seeking from its other constituents as part of a global settlement) would

allow Hostess to reorganize as a competitive entity with long-term viability. During the

following weeks, the BCT and its advisors made numerous information requests about the

proposal. Hostess provided information responsive to each of those requests.

15. On August 29, 2012, Hostess made its last, best final offer to the BCT

(the "BCT LBFO"), which incorporated several modifications proposed by the BCT. Later that


-7- CLI-2044442v1

day, the BCT notified Hostess that it would submit the BCT LBFO to its local affiliates for a

membership vote.

16. As soon as the BCT leadership agreed to put the BCT LBFO to a vote, that

same leadership commenced a concerted effort to defeat it. In addition, both the BCT leadership

and the local stewards repeatedly assured their membership that a buyer for all of the bakeries

was waiting in the wings and that a "no" vote would not affect their members' job prospects.

That information was not accurate. Nevertheless, as a result, all but three of the BCT locals

voted to reject the BCT LBFO.

17. After the "no" vote from the BCT, in a last ditch effort to preserve their

reorganization prospects and over 18,000 jobs, the Debtors filed a motion (Docket No. 1483)

(the "New BCT Motion") seeking to have the Court order the implementation of the BCT LBFO

notwithstanding the BCT's rejection of such terms. I testified and others testified at a hearing on

the New BCT Motion that there was no viable purchaser waiting in the wings to purchase the

Debtors' businesses as a whole. On October 4, 2012, the Court entered an order granting the

New BCT Motion and related relief.

18. In August 2012, during the same period the Debtors resumed negotiations

with the BCT, they also resumed negotiations with their Other Unions. Three of the Other

Unions — the GMP, the UBCJA and the IBFO — did not participate in those negotiations but

agreed not to contest the Other Union 1113 Motion. The remaining seven Other Unions agreed

to submit the Debtors' last, best final offers (the "Other Union LBFOs") to their membership for

a ratification vote. As of October 5, 2012, the USW, the UAW and the OPEIU had ratified their

respective Other Union LBFO; the IAM and the IUOE failed to ratify their respective Other


-8- CLI-2044442v1

Union LBFO; and the RWDSU and the UFCW were still in the process of voting on whether to

ratify their respective Other Union LBFO.

19. A trial on the Other Unions 1113 Motion was held on September 25, 2012

and October 3, 2012. On October 4, 2012, the Court entered an order authorizing the Debtors to

reject all of their Other Union CBAs with the IAM, the IUOE, the GMP, the UBCJA and the

IBFO. The Court postponed its ruling until October 11, 2012 with respect to the RWDSU and

the UFCW to allow those Other Unions to complete their voting processes. On October 5, 2012,

the OPEIU ratified its agreement. On October 10, 2012, the GMP ratified its agreement. Also,

on or around October 10, 2012, the Debtors were informed that (a) the RWDSU had completed

its voting process and employees covered by five of the eight RWDSU CBAs voted to ratify

their respective agreements while employees covered by three of the eight RWDSU CBAs failed

to ratify their respective agreements and (b) the UFCW had completed its voting process and all

of the UFCW's applicable local unions voted to ratify their respective agreements. On

October 11, 2012, the Debtors sought an order from the Court granting the Other Unions 1113

Motion with respect to the three RWDSU bargaining units that failed to ratify their respective

agreements. On October 12, 2012, the Court entered that order (Docket No. 1610). After the

entry of this order, the three non-ratifying RWDSU locals re-voted on their respective

agreements and, this time, voted to ratify the agreements.

20. Accordingly, the Debtors have either obtained a consensual agreement or

an order of the Court regarding modifications to CBAs for each of their 12 unions. Beginning on

October 21, 2012, the Debtors began implementing the modifications to the CBAs.

On November 7, 2012, the Debtors began to receive strike notices from various local unions

affiliated with the BCT. On November 8, 2012, the Debtors received a strike notice from the


-9- CLI-2044442v1

IUOE. Between November 9 and November 13, 2012, various local unions affiliated with the

BCT commenced strikes at 12 of the Debtors' bakeries. At another 12 bakeries, picket lines

were set up by striking BCT workers, and certain BCT and other unionized workers at those

bakeries chose to honor the picket lines by not reporting for work. As a result, production was

significantly disrupted at the 24 bakeries impacted by the Strikes; however, many of the

impacted bakeries remained operational to varying degrees due to management filling in for

production workers and, in some plants, high numbers of employees crossing picket lines.2

21. Since the strikes (the "Strikes") were commenced, the Debtors have urged

striking employees to return to work. Unfortunately, at this time, thousands of the Debtors'

employees continue to participate in or honor the Strikes. As a result, a sufficient number of the

Debtors' baking facilities have become inoperable, and the Debtors are no longer able to fulfill

customer orders or sell product at their retail stores.

22. Because of the material impairment of the Debtors' business operations,

the Debtors will soon lose access to the funding necessary to operate their businesses, and the

Debtors will have triggered certain remedial provisions of the Final DIP Order. As a result, the

Debtors are beginning to take steps to wind down their business operations, including the relief

requested in the Motion.

23. While the IBT and BCT votes were in process, the Debtors and their

investment bankers undertook numerous efforts in the marketplace to gauge interest for certain

of their brands, which complemented the substantial prior efforts made by the Debtors earlier

this year and in prior years both to seek an outside investor and to market the Debtors' assets.

2 On November 12, 2012, the Debtors were forced to permanently close their baking facilities located in

Cincinnati, Ohio; Seattle, Washington; and St. Louis, Missouri because those facilities had insufficient manpower to continue to bake goods. The Debtors shifted production for customers in the geographic areas served by the closed facilities to other baking facilities.


-10- CLI-2044442v1

These activities resulted in the receipt in late September 2012 of a number of potentially-viable

proposals to purchase limited pools of the Debtors' assets.

24. Given the daunting obstacles to reorganization present from the outset of

these cases, the Debtors have, in recent months, and in consultation with their advisors and certain

of their secured lenders, refined a plan for the orderly wind down and sale of their assets. This

alternative is now embodied in the Winddown Plan. The Winddown Plan is, thus, the result of

significant contingency planning by the Debtors, in consultation with their advisors and certain of

their secured lenders.

25. In light of the foregoing, the Debtors, in their business judgment believe

that approval of, and authority to implement, the Winddown Plan from the Court on an

emergency basis is appropriate. Among other reasons, the Debtors believe that the

implementation of the Winddown Plan is justified because (a) the full administration of the

Debtors' chapter 11 estates requires, and will continue to require, intensive planning, staffing and

funding to ensure a proper, safe and orderly wind down thereof; (b) a freefall shutdown and fire

sale liquidation would, among other things, irreparably damage production equipment, result in

the failure to dispose, or improper disposal, of waste materials and could force the Debtors to

incur significant administrative expenses; and (c) these consequences would dissipate the value of

the Debtors' assets and harm creditor recoveries in these chapter 11 cases.

26. Further, the Debtors are beginning to implement a number of time-sensitive

aspects of the Winddown Plan immediately, prior to the hearing on the Motion, due to business

necessities and to preserve the assets of their estates. For example, the Debtors have begun to

implement the following aspects of the Winddown Plan (among others): (a) the removal of in

process material from the Debtors' production equipment to prevent any damage thereto; (b) the


-11- CLI-2044442v1

"dry packing" of certain production equipment (e.g., boilers) to preserve such equipment for sale;

and (c) the aggregation and securing of the Debtors' fleet and vehicle assets for return (if leased)

or sale (if owned).

27. The Debtors have consulted with the DIP Agent regarding, and have

developed and agreed upon, the initial Liquidation Budget, which is attached to the Motion as

Exhibit F. Among other things, the initial Liquidation Budget contemplates and reflects using

cash collateral and borrowings under the DIP Credit Agreement to provide funding for the

initiation of the Winddown Plan.

28. One component of the Winddown Plan sought to be approved in the

Winddown Motion is the Senior Management Incentive Plan and the Employee Retention Plan. I

believe that such plans are necessary, particularly in light of the substantial attrition experienced

by the Debtors since the commencement of these bankruptcy cases.

29. The Debtors have experienced significant attrition among senior

management employees in the past seven months. In March 2012, the Debtors' Chief Executive

Officer, Brian Driscoll, resigned from his position. In March 2012, Kent Magill, Executive Vice

President, General Counsel and Corporate Secretary, resigned from his position. In April 2012,

David Loeser, Executive Vice President of Human Resources, resigned from his position. In June

2012, Gary Wandschneider, Executive Vice President of Operations, took a leave of absence. In

September 2012, the following executives resigned: Steven Birgfeld, Senior Vice President and

Chief Information Officer; Martha Ross, Senior Vice President, Controller & Corporate Audit;

Leonard Singer, Senior Vice President and Assistant General Counsel; and Christopher Knipp,

Senior Vice President of Corporate Human Resources. The responsibilities of these individuals


-12- CLI-2044442v1

have been performed by existing Hostess employees or third-party consultants since their

respective resignations. Outside employees have not been hired to replace these individuals.

30. The Debtors have also experienced significant attrition among non-senior

management employees since the Petition Date. As of the Petition Date, the Debtors had

approximately 3,091 non-union employees. Since the Petition Date, approximately 592 such

employees have left the Debtors' employ, representing the loss of approximately 60 non-union

employees per month. That attrition rate is significantly higher than what was experienced by the

Debtors prior to the Petition Date. Of the approximately 592 employees to leave the Debtors'

employ, more than 3/4 were voluntary departures. Moreover, given the uncertainty surrounding

the Debtors' businesses and the wage reductions that have been implemented, the Debtors have

had significant difficulties in attracting replacement employees with skill sets equivalent to those

that have left.


-13- CLI-2044442v1


correct.

Dated: November 16, 2012

By: /s/ Gregory F. Rayburn Gregory F. Rayburn


CLI-2044408v2

EXHIBIT F

Liquidation Budget

12-22052-rdd Doc 1710-6 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit F Pg 1 of 2

Hostess Brands, Inc.Cash Flow Forecast($ in Millions)

1 2 3 4 5 6 7 8 9 10 11 12 13Fiscal Period Fiscal Period 7 Fiscal Period 8 Fiscal Period 9 FP 10

11/23/12 11/30/12 12/7/12 12/14/12 12/21/12 12/28/12 1/4/13 1/11/13 1/18/13 1/25/13 2/1/13 2/8/13 2/15/13Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13

Beginning Cash Balance (Book) 22.6$ 21.2$ 20.0$ 21.2$ 20.0$ 20.0$ 20.0$ 20.3$ 20.0$ 16.1$ 24.4$ 20.0$ 15.0$

Fixed Asset Sale Proceeds 0.2$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 8.3$ -$ Operating Receipts / Accounts Receivable 18.3 12.2 6.1 6.1 3.0 3.0 3.0 3.0 3.0 3.0 - - - Inventory 1.7 1.7 2.5 2.5 2.5 2.5 2.5 0.8 - - - - - Other Asset Sales - - - - - - - - - 11.0 - 48.0 -

Total Sale & Recovery Proceeds 20.1$ 13.8$ 8.6$ 8.6$ 5.5$ 5.5$ 5.5$ 3.9$ 3.0$ 14.0$ -$ 56.3$ -$

Operating DisbursementsPayroll / Payroll Taxes (7.2)$ (6.1)$ (1.8)$ (5.3)$ (1.1)$ (2.0)$ (0.2)$ (1.2)$ (0.4)$ (1.0)$ (0.1)$ (0.7)$ (0.1)$ Workers Compensation/GL/Auto-Claims (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.1) Benefits (2.3) (2.4) (2.1) (5.4) (3.2) (1.6) (1.6) (1.6) (1.5) (1.5) (1.5) (0.6) (0.1) Fuel (2.3) (0.0) (0.0) 0.5 - - - 0.3 - 0.5 - - - Utilities (0.8) (1.2) (0.9) (0.8) (1.3) (1.2) (0.5) (0.4) (0.3) (0.2) (0.2) (0.2) (0.2) Professional Services (1.6) (2.1) (0.7) (1.5) (0.6) (1.2) (0.6) (1.2) (0.7) (0.3) (0.3) (0.8) (0.1) Insurance (0.0) (0.0) (0.0) - - (2.5) - - - - - - (0.5) Freight (0.2) (0.2) - - - - - - - - - - - Maintenance Repair & Supplies (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.0) Rent - (2.7) - - - (0.1) - - - - (0.1) - - Other Disbursements (1.1) (1.2) (0.9) (1.3) (0.7) (0.6) (0.5) (1.6) (0.5) (0.7) (0.5) (0.6) (0.3) Other Pre-Liquidation Expenses (0.7) (0.7) (0.7) (0.6) (0.0) - - - - - - - -

Total Operating Disbursements (16.5)$ (17.1)$ (7.4)$ (14.8)$ (7.2)$ (9.4)$ (3.7)$ (6.0)$ (3.7)$ (3.4)$ (2.9)$ (3.0)$ (1.4)$

Total Cash Flow from Operations 3.6$ (3.2)$ 1.2$ (6.2)$ (1.7)$ (3.9)$ 1.8$ (2.1)$ (0.7)$ 10.6$ (2.9)$ 53.3$ (1.4)$

Non-Operating DisbursementsDIP Interest & Fees (including LC's) -$ (1.0)$ -$ -$ -$ -$ (1.0)$ -$ -$ (0.5)$ (1.0)$ -$ -$ Trust / Deposits (5.0) - - - - - - - - - - - - Adequate Protection - (0.6) - - - - (0.6) - - - (0.5) - - Retained Professionals - (0.1) - - - (2.8) - - (3.3) (1.6) - - (2.1) Priority Claim Disbursements - - - - - - - - - - - - - US Trustee Fees - - - - - - - - - (0.1) - - -

Total Cash Flow from Non-Operating Items (5.0)$ (1.7)$ -$ -$ -$ (2.8)$ (1.6)$ -$ (3.3)$ (2.3)$ (1.6)$ -$ (2.1)$

Net Cash Flow (Operating and Non-Operating) (1.4)$ (4.9)$ 1.2$ (6.2)$ (1.7)$ (6.7)$ 0.3$ (2.1)$ (3.9)$ 8.4$ (4.5)$ 53.3$ (3.4)$

Debt Repayment - - - - - - - (2.5) - - - (42.5) - Net Cash Flow After Debt Repayment (1.4)$ (4.9)$ 1.2$ (6.2)$ (1.7)$ (6.7)$ 0.3$ (4.6)$ (3.9)$ 8.4$ (4.5)$ 10.8$ (3.4)$

DIP Draw/(Replenishment) / Exit Need - 3.8 - 5.0 1.7 6.7 - 4.3 - - - (15.7) 3.4

Ending Cash Balance (Book) 21.2$ 20.0$ 21.2$ 20.0$ 20.0$ 20.0$ 20.3$ 20.0$ 16.1$ 24.4$ 20.0$ 15.0$ 15.0$

DIP Loan / Exit Facility Beginning Balance 53.0$ 53.0$ 56.8$ 56.3$ 61.3$ 63.0$ 69.7$ 69.7$ 74.0$ 74.0$ 74.0$ 74.0$ 58.2$ DIP Loan / Exit Facility Draw (Replenishment) - 3.8 - 5.0 1.7 6.7 - 4.3 - - - (15.7) 3.4 LOC Draw/(Repayment) / (DIP Replenishment) - - (0.5) - - - - - - - - - - DIP Loan / Exit Facility Ending Balance 53.0$ 56.8$ 56.3$ 61.3$ 63.0$ 69.7$ 69.7$ 74.0$ 74.0$ 74.0$ 74.0$ 58.2$ 61.7$

12-22052-rdd Doc 1710-6 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit F Pg 2 of 2

CLI-2044408v2

EXHIBIT G

Form of Notice of Payment Grace Period

12-22052-rdd Doc 1710-7 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit G Pg 1 of 3

CLI-2044408v2

FORM OF NOTICE OF PAYMENT GRACE PERIOD

[APPLICABLE DEBTOR'S LETTERHEAD]

[DATE]

VIA [FEDERAL EXPRESS/FACSIMILE/EMAIL]

[INTERESTED PARTY]

Re: Notice of Payment Grace Period (In re Hostess Brands, Inc., Jointly Administered Case No. 12-22052)

Dear [ADDRESSEE]:

Hostess Brands, Inc. and five of its affiliates (collectively, the "Debtors") commenced bankruptcy cases under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") on January 11, 2012 (the "Petition Date").

On [DATE], the Debtors filed the Emergency Motion of Debtors and Debtors in Possession For Interim and Final Orders, Pursuant to Sections 105, 363, 365 and 503(c) of the Bankruptcy Code: (A) Approving (I) A Plan to Wind Down the Debtors' Businesses, (II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales at the Debtors' Retail Stores, (IV) The Debtors' Non-Consensual Use of Cash Collateral and Modifications to Final DIP Order, (V) An Employee Retention Plan, (VI) A Management Incentive Plan, (VII) Protections for Certain Employees Implementing the Winddown of the Debtors' Businesses, (VIII) The Use of Certain Third Party Contractors and (IX) Procedures for the Expedited Rejection of Other Contracts and Leases; and (B) Authorizing the Debtors to Take Any and All Actions Necessary to Implement the Winddown (Docket No. [___]) (the "Motion"), which Motion was granted by the Bankruptcy Court by an order dated [DATE] (Docket No. [___]) (the "Winddown Order").

Among other things, the Winddown Order approved the form of a 13-week cash flow budget (the "Liquidation Budget") under which the Debtors will continue to operate while they work to orderly wind down and liquidate their businesses, and which will be updated on a rolling basis.

This letter is to inform you that amounts you may be owed that have accrued in the ordinary course of business since the Petition Date ("Ordinary Course Administrative Claims") have been included in the Liquidation Budget, and the Debtors currently anticipate having sufficient funds to pay such amounts. However, the Debtors may not have funds immediately available to pay your Ordinary Course Administrative Claim(s) and, therefore, the Bankruptcy Court has approved a 90-day grace period from the date of this letter (the "Payment Grace Period") for the Debtors.

During the Payment Grace Period, pursuant to the Winddown Order, you are not permitted to file any motions with the Bankruptcy Court to compel the immediate payment of


CLI-2044408v2 -2-

your Ordinary Course Administrative Claim(s) or otherwise take any action to disrupt the Debtors' business or operations because of non-payment. If, however, you remain unpaid at the end of the Payment Grace Period — or by [_______] [__], 2013 — you will be free to file a motion with the Bankruptcy Court with respect to the payment of your Ordinary Course Administrative Claim(s).

[If you have any questions regarding this letter, please feel free to contact the Debtors at [INSERT CONTACT].]

Sincerely,

[Name] [Title] cc: Heather Lennox, Esq. Ryan T. Routh, Esq.


CLI-2044408v2

EXHIBIT H

Seventh Amendment to the DIP Credit Agreement

12-22052-rdd Doc 1710-8 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit H Pg 1 of 9

Doc#: US1:8231166v9

SEVENTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT, GUARANTY AND SECURITY AGREEMENT

SEVENTH AMENDMENT (this “Amendment”), dated as of November _, 2012, to the Debtor-in-Possession Credit, Guaranty and Security Agreement, dated as of January 12, 2012 (as heretofore amended and as further amended, supplemented or otherwise modified, the “DIP Credit Agreement”), among HOSTESS BRANDS, INC. (formerly known as Interstate Bakeries Corporation), a Delaware corporation (“HBI”), INTERSTATE BRANDS CORPORATION, a Delaware corporation (“Brands” and, together with HBI, the “Borrowers”), certain subsidiaries of HBI, as Guarantors, the lending and other financial institutions from time to time parties thereto (collectively, the “DIP Lenders”), and SILVER POINT FINANCE, LLC, as administrative agent and collateral agent (in such capacities, the “DIP Agent”).

W I T N E S S E T H :

WHEREAS, the Borrowers, the DIP Lenders and the DIP Agent, among others, are parties to the DIP Credit Agreement; and

WHEREAS, the Borrowers have requested that the Requisite DIP Lenders and the DIP Agent agree to modify the DIP Credit Agreement in certain respects, and the Requisite DIP Lenders and the DIP Agent are prepared to do so upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein which are defined in the DIP Credit Agreement are used herein as therein defined.

2. Amendments to the DIP Credit Agreement. Subject to the Seventh Amendment Effective Date (as hereinafter defined):

(a) Section 1.1 of the DIP Credit Agreement is hereby amended by adding the following defined term in correct alphabetical order:

““Proposed Order” means a form of order in substantially the form attached to the Seventh Amendment.”

“Seventh Amendment” means that Seventh Amendment to the DIP Credit

Agreement dated as of November _, 2012.”

“Seventh Amendment Effective Date” means November _, 2012, subject to, and after giving effect to, the satisfaction of the conditions set forth in Section 5 of the Seventh Amendment.”

“Winddown Motion” means the Debtors’ motion dated November _, 2012,

entitled Emergency Motion of Debtors and Debtors in Possession for Interim and Final Orders, Pursuant to Sections 105, 363, 365 and 503(c) of the Bankruptcy Code: (A)


Doc#: US1:8231166v9 2

Approving (I) a Plan to Wind Down the Debtors’ Businesses, (II) the Sale of Certain Assets, (III) Going-Out-Of-Business Sales at the Debtors’ Retail Stores, (IV) the Debtors’ Non-Consensual Use of Cash Collateral and Modifications to the Final DIP Order, (V) an Employee Retention Plan, (VI) a Management Incentive Plan, (VII) Protections for Certain Employees Implementing the Winddown of the Debtors’ Businesses, (VIII) the Use of Certain Third Party Contractors and Leases and (IX) Procedures for the Expedited Rejection of Contracts and Leases and (B) Authorizing the Debtors to Take Any and All Actions Necessary to Implement the Winddown.

“Winddown Plan” has the meaning assigned to such term as set forth in the

Seventh Amendment.””

(b) Section 1.1 of the DIP Credit Agreement is hereby amended by inserting the following at the end of the definition of “Final DIP Order”:

“, as amended, supplemented or otherwise modified from time to time with the consent of the DIP Agent, including as amended and modified by the Proposed Order.”

(c) Section 1.1 of the DIP Credit Agreement is hereby amended by replacing the definition of “Material Adverse Effect” with the following:

““Material Adverse Effect” means a material adverse effect on (i) the business operations, properties, assets, condition (financial or otherwise) or prospects of HBI and its Subsidiaries (other than as may customarily result as a consequence of the commencement of the Bankruptcy Cases or which may result from the implementation of the Winddown Plan); (ii) the ability of any Credit Party to fully and timely perform its Obligations (other than as contemplated by the Liquidation Budget); (iii) the legality, validity, binding effect or enforceability against a Credit Party of a Credit Document to which it is a party; (iv) the DIP Agent’s Liens (on behalf of the Secured Parties) on the Collateral or the priority of the Liens (other than as contemplated by the Proposed Order); (v) the rights, remedies and benefits available to, or conferred upon, the DIP Agent, any DIP Lender or any other Secured Party under any Credit Document; or (vi) the Debtors’ ability to implement the Winddown Plan.”

(d) Section 2.1(c)(ii) of the DIP Credit Agreement is hereby amended by inserting the following at the end of the first sentence thereof:

“; provided that if the Bankruptcy Court approves the Winddown Plan, no reduction of the Loan Proceeds Account shall occur as a result thereof.”

(e) Section 5.5 of the DIP Credit Agreement is hereby amended by inserting the following at the beginning of said section: “ Unless otherwise agreed to by the DIP Agent,” (f) Section 6.7(a) of the DIP Credit Agreement is hereby amended by replacing it in its entirety with the words “Intentionally Deleted.” (g) Section 7.16 of the DIP Credit Agreement is hereby amended by replacing the words “Subject to the proviso below” with “Subject to the proviso below and the terms of the Final DIP Order.”


Doc#: US1:8231166v9 3

(h) Annex A to the DIP Credit Agreement is hereby amended by deleting all references to the thirteenth, fourteenth and fifteenth milestones.

3. Consent. Effective as of the Seventh Amendment Effective Date, the DIP Agent and the Requisite DIP Lenders party hereto hereby consent to (i) amendments to the Final DIP Order set forth in the proposed form of order attached hereto (the “Proposed Order”) and (ii) implementation of the Winddown Plan (as defined below) and (iii) the Liquidation Budget, which is attached as Exhibit E to the Winddown Motion (as defined in paragraph 2 above). Each of the Requisite DIP Lenders on behalf of the DIP Lenders hereby authorizes the DIP Agent to take all steps reasonably necessary to implement the Winddown Plan.

4. Confirmation and Reaffirmation of Credit Documents. Each Credit Party does hereby, after giving effect to the amendments contemplated by this Amendment, (i) ratify and confirm each Credit Document to which it is a party and (ii) confirm and agree that each such Credit Document is, and shall continue to be, in full force and effect; provided that each reference to the DIP Credit Agreement therein and in each of the other Credit Documents shall be deemed to be a reference to the DIP Credit Agreement after giving effect to this Amendment.

5. Condition to Effectiveness. This Amendment shall become effective as of the Seventh Amendment Effective Date if the following conditions are satisfied: (a) the DIP Agent shall have received counterparts of this Amendment executed by the Credit Parties, the DIP Agent and the DIP Lenders constituting Requisite DIP Lenders; (b) other than as a result of the implementation of the Winddown Plan, the representations and warranties set forth herein and in Section 4 of the DIP Credit Agreement and in each other Credit Document are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of such earlier date); (c) Borrowers shall have paid all outstanding invoices submitted by the DIP Agent or the Prepetition Agent prior to the date hereof in accordance with the DIP Order; and (d) the Bankruptcy Court shall have entered the Proposed Order on a final basis approving the Winddown Motion and authorizing, among other things, the Debtors implementation of a plan for the winddown of the Debtors’ various business operations that is acceptable to the DIP Agent in all material respects (the “Winddown Plan”); provided that upon entry of the Proposed Order on an interim basis the DIP Agent and the Required DIP Lenders hereby agree effective immediately that the reduction of the Loan Proceeds Account pursuant to Section 2.1(c)(ii) shall be suspended for ten (10) days pending entry of the Proposed Order on a final basis and the occurrence of the Seventh Amendment effective date. .

6. Reference to and Effect on the Credit Documents; Limited Effect. On and after the date hereof and the satisfaction of the conditions contained in Section 4 of this Amendment, each reference in the DIP Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the DIP Credit Agreement, and each reference in the other Credit Documents to the “DIP Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the DIP Credit Agreement shall mean and be a reference to the DIP Credit Agreement as modified hereby. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any DIP Lender or the DIP Agent under any of the Credit Documents, nor constitute a waiver of any provisions of any of the Credit Documents. This Amendment is limited as specified and shall not constitute a modification, acceptance, consent to deviation from or waiver of any other


Doc#: US1:8231166v9 4

provision of, or operate as a waiver of any other right, power or remedy of any DIP Agent or DIP Lender under, the DIP Credit Agreement or any other Credit Document. Except as expressly modified herein, all of the provisions and covenants of the DIP Credit Agreement and the other Credit Documents are and shall continue to remain in full force and effect in accordance with the terms thereof and are hereby in all respects ratified and confirmed. Each Credit Party acknowledges that this Amendment shall constitute a Credit Document.

7. Representations and Warranties. To induce the other parties hereto to enter into this Amendment, each Credit Party represents and warrants to the DIP Agent and each of the DIP Lenders that as of the date hereof, after giving effect to the provisions of this Amendment:

(a) The execution, delivery and performance by the Borrowers and the other Credit Parties of this Amendment: (i) are within their respective organizational powers; (ii) have been duly authorized by all necessary corporate or limited liability company action; (iii) are not in contravention of any provision of their respective certificates or articles of incorporation or by-laws or other equivalent organizational documents as applicable; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Borrower or any other Credit Party is a party or by which any Borrower or any other Credit Party or any of its property is bound; and (vi) do not require the consent or approval of any Governmental Authority or any other Person other than the Bankruptcy Court.

(b) This Amendment has been duly executed and delivered by or on behalf of the Borrowers and the other Credit Parties.

(c) This Amendment constitutes a legal, valid and binding obligation of each of the Borrowers and the other Credit Parties enforceable against each of them in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws affecting creditors’ rights generally or by general principles of equity regardless of whether considered in proceeding in equity or in law.

(d) No event shall have occurred and be continuing that would constitute an Event of Default or Default.

8. DIP Agent. Each of the DIP Lenders party hereto hereby authorizes and directs the DIP Agent to execute and deliver this Amendment.

9. Expenses. The Borrowers agree to pay all reasonable out-of-pocket expenses incurred by the DIP Agent in connection with this Amendment in accordance with the DIP Credit Agreement, including the reasonable fees, charges and disbursements of counsel for the DIP Agent.

10. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Any executed counterpart delivered by facsimile or electronic transmission shall be effective as an original for all purposes hereof. The execution and delivery of this Amendment by any DIP Lender shall be


Doc#: US1:8231166v9 5

binding upon each of its successors and assigns and binding in respect of all of its Commitments and Loans, including any acquired subsequent to its execution and delivery hereof and prior to the effectiveness hereof.

11. GOVERNING LAW. EXCEPT AS GOVERNED BY THE BANKRUPCTY CODE, THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first written above.

HOSTESS BRANDS, INC. (formerly known as Interstate Bakeries Corporation)

By: Name: John O. Stewart Title: Executive Vice President, Chief Financial Officer and Chief Administrative Officer

INTERSTATE BRANDS CORPORATION

By: Name: John O. Stewart Title: Executive Vice President and Chief Financial Officer

IBC SALES CORPORATION

By: Name: John O. Stewart Title: Executive Vice President and Chief Financial Officer

IBC SERVICES, LLC

By: Name: John O. Stewart Title: Vice President - Finance

IBC TRUCKING, LLC

By: Name: John O. Stewart Title: Vice President - Finance


SILVER POINT FINANCE, LLC, as DIP Agent under the Debtor-in-Possession

Credit, Guaranty and Security Agreement

By: Name: Title:


, as a DIP Lender

By: Name: Title:


CLI-2044408v2

EXHIBIT I


12-22052-rdd Doc 1710-9 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit I Pg 1 of 6

Hostess Brands, Inc.: Employee Retention Plan

November 16, 2012


2


The table below provides an overview of the Employee Retention Plan contemplated in the Winddown Plan.

Plan Description Eligibility Maximum Cost

Employee Retention Plan Upon the commencement of the Winddown, the Debtors' business operations will cease and nearly all of the Debtors' employees will be terminated shortly thereafter, with the exception of select employees necessary to assist with winding down the Debtors' estate

Despite the cessation of its business operations, the Debtor has a critical need for the retention of certain key employees, namely the Non-Senior Management Employees who would be entitled to participate in the Employee Retention Plan (collectively, the “Non-Senior Management Employees”)

The Employee Retention Plan provides for payments to these Non-Senior Management Employees as an incentive to remain with the Company to effectuate the tasks of the Winddown Plan

The Employee Retention Plan has been tailored to provide incentives to Non-Senior Management Employees to remain with the Debtors and achieve the tasks necessary to complete the successful Winddown of the Debtors' operations and estate

Non-Senior Management Employees are eligible for participation in the Employee Retention Plan

Approximately 3,200 Non-Senior Management Employees will participate in the Employee Retention Plan

A Non-Senior Management Employee will be required to deliver an effective release of claims prior to receiving the retention payment under the Employee Retention Plan

~$4.4 million


3

Employee Retention Plan | Participants and Cost

The Employee Retention Plan will be used to incentivize certain of the Debtors‘ Non-Senior Management Employees to remain with the Debtor to assist with the completion of the Winddown of the Debtors' business and assets

The Non-Senior Management Employees perform a variety of critical functions, including, but not limited to, management, inventory control,

accounting and tax services, human resource and payroll services, operations, marketing, vendor management, legal services, and technical services

The Non-Senior Management Employees’ skills and their knowledge and understanding of the Debtors' operations, customer and supplier

relationships, computer systems, and infrastructure are essential to effectuating a successful Winddown. Without Non-Senior Management

Employees’ continued commitment, the success of the Debtors' Winddown Plan would be severely compromised

Each employee will be notified at the commencement of the Winddown how long he/she will be required to remain an employee of the Debtors to

earn the retention payment (“Retention Period”)

This period will be determined based upon the contemplated employee reductions detailed in the Winddown Plan


4

Employee Retention Plan | Participants and Cost

The Employee Retention Plan will be used to incentivize certain of the Debtors‘ Non-Senior Management Employees to remain with the Debtor to assist with the completion of the Winddown of the Debtors' business and assets

Payments under the Employee Retention Plan will be equal to 25% of the Non-Senior Management Employees’ base compensation earned during the

Retention Period

For example, an employee who earned $10 thousand in base compensation during the Retention Period would earn an additional $2,500

under the Employee Retention Plan for total compensation of $12.5 thousand

Payments under the Employee Retention Plan are based on compensation after October/November wage reductions are implemented

Vesting of the retention award occurs if (1) the employee is employed through the last day of the Retention Period or (2) the employee is terminated

by the Debtors for any reason other than cause prior to the end of the Retention Period

Payment will be made as soon as practicable following vesting of the retention award (but no later than 53 days following vesting of the retention

award), subject to the delivery of an effective release of claims by the employee


No.

($000s) Participants Amount

Corporate 222 1,133.1$

Plant Oversight 24 259.7

Individual Plants 1,016 1,330.1

Retail Stores Oversight 22 26.4

Retail Stores 1,054 880.7

Depots 826 726.4

Total 3,164 4,356.4$

Average Cost per Participant 1.4$


5


CLI-2044408v2

EXHIBIT J


12-22052-rdd Doc 1710-10 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit J Pg 1 of 13

Hostess Brands, Inc.: Senior Management Incentive Plan

November 16, 2012


2

Plan Description Eligibility Cost


Baseline incentive awards under the Senior Management Incentive Plan (“Total Baseline Incentive”) are based on:

Achievement of all Winddown metrics (75-85% of Total Baseline Incentive, or the “Metrics Baseline Incentive”) and;

Managing the Winddown Plan such that the aggregate of actual costs in select categories (“Tested Disbursements”) are equal to or less than the aggregate of projected costs in those same categories (“Budgeted Tested Disbursements”) (15-25% of Total Baseline Incentive, or the “Budget Baseline Incentive”)

To the extent Tested Disbursements exceed Budgeted Tested Disbursements, no Budget Baseline Incentive will be awarded

Budgeted Tested Disbursements will be adjusted in the event there is unforeseen employee attrition resulting in the need for more expensive third party labor

Total Baseline Incentive awards for Tier 1 participants are equal to 40-75% of annual base compensation

Executive Vice Presidents (“EVPs”)(2) Senior Vice Presidents (8)

Total Baseline Incentive awards for Tier 2 participants are equal to 25-40% of annual base compensation

Vice Presidents (8) Director (1)

Tier 1 and Tier 2 participants will be assigned to 1 of 8 groups based upon area of responsibility. Payment of Metrics Baseline Incentive will be contingent upon group participants achieving all metrics assigned to their respective group

Payment of Budget Baseline Incentive will be contingent upon Tested Disbursements being equal to or less than Budgeted Tested Disbursements

Senior Management Incentive Plan will be implemented for select Senior Management Employees responsible for the strategy and effectuation of the Winddown Plan

Timing of payment of Metrics Baseline Incentive will occur after a 30 day assessment period to provide time to determine if metrics were achieved during the applicable measurement period

Earned Metrics Baseline Incentive payments will be paid as soon as practicable after the applicable measurement period, but no later than 53 days following the end of the applicable measurement period

Earned Budget Baseline Incentive and any Budget Outperformance Award payments (as defined below) will be paid as soon as practicable after the Tested Disbursements measurement period (assumed to be 13 Periods), but no later than 53 days following the end of the Tested Disbursements measurement period

$0 to $1.8 million for Total Baseline Incentive


Overviews of the Total Baseline Incentive and Budget Outperformance Award (collectively, the “Senior Management Incentive Plan”) are presented below. Awards granted under the Senior Management Incentive Plan are at the determination of the Compensation Committee of the Debtors’ Board of Directors.


3

Senior Management Incentive Plan (cont.)


Plan Description (cont.) Eligibility (cont.) Cost (cont.)


Metrics Baseline Incentive awards under the Senior Management Incentive Plan are not guaranteed and are awarded on an all or nothing basis (i.e. to the extent all metrics are not achieved, no award payments will be made)

Awards for performing better than budget under the Senior Management Incentive Plan (“Budget Outperformance Award”) are based on Tested Disbursements being less than Budgeted Tested Disbursements and are incremental to the Total Baseline Incentive

For EVP Senior Management Employees, Budget Outperformance Award will be equal to 3% of Total Baseline Incentive for that employee for each 1% outperformance of Budgeted Tested Disbursements

Non EVP Senior Management Employees are not eligible for Budget Outperformance Awards

Achievement of metrics and measurement of Tested Disbursements are subject to review and approval by the Compensation Committee of the Debtors' Board of Directors

The Senior Management Incentive Plan assumes that selected members of the Debtors' employee base (both union and non-union) will agree to serve as part of the Winddown team. Winddown metrics and Budgeted Tested Disbursements are subject to further change based upon continued employment of these aforementioned employees

A Senior Management Employee will be required to deliver an effective release of claims within the required payment period prior to receiving any award payment under the Senior Management Incentive Plan

Individuals who voluntarily terminate their employment with the Debtor or are involuntarily terminated with cause prior to any Metrics Baseline Incentive awards being earned will not be eligible for any award payment

Only the two EVP Senior Management Employees are eligible for the Budget Outperformance Award

3% of Total Baseline Incentive for each 1% outperformance of Budgeted Tested Disbursements (i.e. ~$16.0 thousand for each 1%) for Budget Outperformance Award


4

Senior Management Incentive Plan | Participants


Senior Management Incentive Plan participants are comprised of Senior Management Employees

with areas of responsibility in (i) Corporate, (ii) Plant, (iii) Depot or (iv) Retail Stores, as shown in

the Winddown Plan

Awards under the Metrics Baseline Incentive are based on the achievement of certain metrics and

completion of certain tasks

Awards under the Budget Baseline Incentive and Budget Outperformance Award are based on

whether Tested Disbursements are less than or equal to Budgeted Tested Disbursements

For the two EVPs, 75% of Total Baseline Incentive is based on achievement of all metrics

for their respective group, 25% of Total Baseline Incentive is based on whether Tested

Disbursements are less than or equal to Budgeted Tested Disbursements

For the 17 non-EVPs, 85% of Total Baseline Incentive is based on achievement of all

metrics for their respective group, 15% of Total Baseline Incentive is based on whether

Tested Disbursements are less than or equal to Budgeted Tested Disbursements

Determination as to achievement of awards under the Senior Management Incentive Plan is subject

to approval by the Compensation Committee of the Debtors' Board of Directors

Average payment to the Tier 1 participants is $130.5 thousand

Average Metrics Baseline Incentive is $105.6 thousand

Average Budget Baseline Incentive is $24.9 thousand

Average payment to the Tier 2 participants is $49.6 thousand

Average Metrics Baseline Incentive is $42.2 thousand

Average Budget Baseline Incentive is $7,400


Baseline Incentive

($000s) Metrics Budget Total

Tier 1 Partcipants -- 10

Tier 1 EVPs, Note 1

EVP Finance/CFO 207.0$ 69.0$ 276.0$

EVP Marketing/CMO & COO 194.1 64.7 258.8

Tier 1 Non-EVPs, Note 2

SVP Acting General Counsel 101.7 17.9 119.6

SVP BU General Manager 93.8 16.6 110.4


SVP Finance 88.0 15.5 103.5

SVP Plant Operations 76.0 13.4 89.5


SVP Purchasing 71.2 12.6 83.7


Tier 1 Total 1,056.2$ 249.3$ 1,305.5$

Average Tier 1 Payment 105.6 24.9 130.5

Tier 2 Participants -- 9


VP - Labor Relations and HR 56.6$ 10.0$ 66.6

VP Taxes 53.2 9.4 62.6

VP Shared Services 55.5 9.8 65.3

VP Real Estate 59.0 10.4 69.4

VP Plant Operations 34.0 6.0 40.0

VP Engineering 32.3 5.7 38.0



VP Information Technology 26.6 4.7 31.3

Tier 2 Total 379.4$ 67.0$ 446.4$


Total Tier 1 and Tier 2 1,435.6$ 316.3$ 1,751.9$

Average Tier 1 and Tier 2 75.6 16.6 92.2

Note 1, 75% achievement based on metrics, 25% achievement based on

Tested Disbursements




5

Senior Management Incentive Plan | Participants (cont.)


Tier 1 EVP Senior Management Employees will be entitled to a Budget Outperformance Award

For each 1% that Tested Disbursements are less than Budgeted Tested Disbursements,

Tier 1 EVPs will receive an additional 3% of their respective Total Baseline Incentives

(which in aggregate for both participants equals $16.0 thousand for each 1%

outperformance of Budgeted Tested Disbursements)

Non-EVP Senior Management Employees will not be eligible for any Budget

Outperformance Award

Participants will be required to sign a release of claims prior to receiving any award payment

under the Senior Management Incentive Plan

Payments under the Senior Management Incentive Plan are based on compensation levels in

place after October/November wage reductions are implemented


Baseline Incentive

($000s) Metrics Budget Total

Tier 1 Partcipants -- 10

Tier 1 EVPs, Note 1

EVP Finance/CFO 207.0$ 69.0$ 276.0$

EVP Marketing/CMO & COO 194.1 64.7 258.8


SVP Acting General Counsel 101.7 17.9 119.6



SVP Finance 88.0 15.5 103.5

SVP Plant Operations 76.0 13.4 89.5


SVP Purchasing 71.2 12.6 83.7


Tier 1 Total 1,056.2$ 249.3$ 1,305.5$


Tier 2 Participants -- 9


VP - Labor Relations and HR 56.6$ 10.0$ 66.6

VP Taxes 53.2 9.4 62.6

VP Shared Services 55.5 9.8 65.3

VP Real Estate 59.0 10.4 69.4


VP Engineering 32.3 5.7 38.0



VP Information Technology 26.6 4.7 31.3

Tier 2 Total 379.4$ 67.0$ 446.4$


Total Tier 1 and Tier 2 1,435.6$ 316.3$ 1,751.9$

Average Tier 1 and Tier 2 75.6 16.6 92.2






6

Senior Management Incentive Plan | Metrics and Payment

Awards under the Metrics Baseline Incentive are based on successful achievement of metrics associated with the Winddown process. Payment of awards is contingent on full achievement of all metrics within the allotted timeframe.

The Winddown Plan does not contemplate any restructuring/reorganization or the sales of business units that will continue to operate through the time

of the asset sales; therefore, the focus of the Senior Management Incentive Plan participants will be on managing and completing the following Winddown

activities (“Award Determination Events”) within the prescribed timeframes:

Group 1 (9 participants): SVP Plant Operations, SVP BU General Manager (4), VP Plant Operations (3), VP Engineering (1)

Metric 1: Complete Winddown of all 527 Retail Store locations by the end of Week 4

Metric 2: Complete Winddown of all 431 leased Depot and leased garage, storage, warehouse, parking and office locations by the end of Week 4

Metric 3: Complete Winddown of all 180 owned Depot and owned garage, storage, warehouse, parking and office locations by the end of Week 7

Metric 4: Complete Winddown of all 36 Plants by the end of Period 2

See Page 11 for description of Proposed Winddown Activities

Group 2 (4 Participants): EVP Finance/CFO, EVP Marketing/CMO & COO, SVP Finance, SVP Purchasing

Metric 1: Achieve collection of 75% of the Debtor’s net accounts receivable, that were outstanding as of the commencement of the Winddown, by the end of Week 6

Metric 2: Achieve a net recovery of 30% of ingredients (at cost) and finished goods inventory (at standard cost) by the end of Period 2

Metric 3: Within 4 weeks after commencement of the Winddown, negotiate acceptable market retention terms for sales agents and auctioneers to dispose of personal and real property

Metric 4: Complete reconciliation of vendor claims and customer offset claims by the end of Period 6

Group 3 (1 Participant): VP - Labor Relations and HR

Metric 1: Complete effects bargaining negotiation for the appropriate revision or rejection of the benefits provided in the Debtors’ collective bargaining agreements by the end of Period 3

Metric 2: Create and distribute Employee Information Pamphlet (exit packages) for both union and non-union personnel that explain employee rights, calculation of final pay,

unemployment claims process, benefits and other services as required, for 15,000+ terminated employees by the end of Week 2

Metric 3: Work with HBI Shared Services group to ensure effects bargaining and/or court imposed treatment/modifications are determined and communicated to affected employees by

the end of Period 10


7

Senior Management Incentive Plan | Metrics and Payment (cont.)





Group 4 (1 Participant): VP Taxes

Metric 1: Ensure any annual and stub period tax filings (federal income, state income, sales/use, property, et al) for current and prior year and pending and future audits associated with

the Winddown and asset monetization activities are filed/completed within the earlier of (i) 1 extension period beyond the current statutory period or (ii) the end of Period 13

Group 5 (1 Participant): VP Information Technology

Metric 1: Successfully execute on rationalization strategy for information technology (“IT”) and telecommunications infrastructure, applications and data for Winddown purposes (in

accordance with reduction of employee base) by the end of Period 2

Metric 2: Successfully aggregate field IT equipment by the end of Period 3

Metric 3: Transition Accenture related infrastructure and application outsourcing computer support services in-house by the end of Period 1

Metric 4: Achieve successful archival of records complying with document retention policy through Period 12

Group 6 (1 Participant): SVP Acting General Counsel

Metric 1: Coordinate completion of personal property lease rejection motions with HBI Purchasing department and field Winddown team members by the end of Week 5

Metric 2: Formalize document/record retention policy, communicate terms of policy to Winddown team employees and achieve successful archival of records through Period 12

Metric 3: Prepare and document exit strategy for key contracts to allow the Debtor to minimize associated expenses by the end of Period 2

Metric 4: Resolve or develop strategy for resolution of outstanding non-insured litigation, mediation, arbitration and related non-insured claims by the end of Period 12

Metric 5: Resolve or develop strategy for resolution of outstanding environmental claims by the end of Period 12


8






Group 7 (1 Participant): VP Shared Services

Metric 1: Establish Employee Hotline (i.e. AskHR) to address Winddown Plan related HR issues and manage/maintain hotline through Period 12

Metric 2: Successfully address and complete all audits related to benefit plan administration (including 401k plans), pension plans, and worker’s compensation through Period 12

Metric 3: Transition Accenture back office accounts payable services in-house by the end of Period 3

Metric 4: Achieve a successful archival complying with the document retention policy though Period 12

Metric 5: Ensure any prior year-end as well as quarterly federal, state and local payroll tax and unemployment filings (including adjusted returns and W2C’s for prior years) are filed

timely through Period 12

Group 8 (1 Participant): VP Real Estate

Metric 1: File motion to reject (and file notices of rejection of) all real property leases related to Depot, Depot/Store, Retail Store and other operations by the end of Week 6

Metric 2: Manage landlord interaction/communication and claims for all rejected leased properties through Period 12

Metric 3: Manage due diligence and sales efforts related to the marketing and sale process for the Debtors’ real property through Period 12


9



Metrics Baseline Incentive awards will be earned upon completion of all Award Determination Events. No partial awards will be earned or paid

Timing of payment of Metrics Baseline Incentive will occur after a 30 day assessment period to provide time to determine if metrics were achieved

during the applicable measurement period

Earned Metrics Baseline Incentive payments will be paid as soon as practicable after the applicable measurement period, but no later than 53 days

following the end of the applicable measurement period

Earned Budget Baseline Incentive and any Budget Outperformance Award payments will be paid as soon as practicable after the Tested Disbursements

measurement period (assumed to be 13 Periods), but no later than 53 days following the end of the Tested Disbursements measurement period

All payments under the Senior Management Incentive Plan will be made only after receipt of an effective release of claims from the employee

No award payments under the Senior Management Incentive Plan will be made if a participant is involuntarily terminated with cause or voluntarily

terminates employment with the Debtors prior to end of the measurement period for all Award Determination Events for the applicable group


10

Senior Management Incentive Plan | Budgeted Tested Disbursements

Awards under the Budget Baseline Incentive and Budget Outperformance Award are based on Tested Disbursements being less than or equal to Budgeted Tested Disbursements. Detail on Budgeted Tested Disbursements is provided below.

Budgeted Tested Disbursements are based upon certain estimated 13 Period costs for the

Tested Disbursement categories

Budgeted Tested Disbursements will be adjusted in the event there is unforeseen

employee attrition resulting in the need for more expensive third party labor

Maintenance, Repair and Operations (“MRO”) include Plant Oversight Operational and

Supplies & Storage

To illustrate potential amounts under the Budget Outperformance Award, the table opposite this

discussion presents total Budget Outperformance Awards at varying levels of outperformance

For example, for EVPs, if Tested Disbursements are 3% less than Budgeted Tested

Disbursements, $48.1 thousand would be awarded to EVPs in Budget Outperformance

Awards

If Tested Disbursements are greater than Budgeted Tested Disbursements, no Budget

Outperformance Awards will be granted

Budget Outperformance

Award

%

Outperformance $000s

1% 16.0$

2% 32.1

3% 48.1

4% 64.2

5% 80.2

6% 96.3

7% 112.3

8% 128.3

9% 144.4

10% 160.4

11% 176.5

12% 192.5$

($000s)

Budgeted Tested Disbursements Amount

Payroll / Payroll Taxes 21,213$

Benefits 5,912

Retention 4,632

MRO 2,373

Professional Fees (Ordinary Course) 18,653

Other 14,201

Retained Professionals (Post-Liquid.) 39,161

Total Budgeted Tested Disbursements 106,145$


11

Proposed Winddown Activities | Overview

Detail on certain metrics applicable to Group 1, as set forth in the Winddown Plan are provided below.

Winddown activities at the Debtors' 527 Retail Stores include but are not limited to:

Administer going-out-of-business sales (“GOB Sales”) for a period of two to three days, with remaining Finished Good inventory either donated or

disposed of as waste

Facilitate the transfer of the Debtors’ personal property assets (e.g. material handling equipment, cash registers, etc.) from leased locations to

owned locations for eventual sale

Disassemble any shelving and clean all locations such that they are ready for sale or surrender

Coordination with Legal Group on return/surrender of all leased equipment

Winddown activities at the Debtors' 553 Depots and 58 other locations (e.g. garage, storage, warehouse, parking and offices) include but are not limited

to:

Aggregate fleet vehicles at either owned Depots or Plants

Facilitate the transfer of the Debtors' assets (e.g. material handling equipment, garage inventory (e.g. spare parts), display fixtures, etc.) from

leased locations to owned locations for eventual sale

As appropriate, dispose of unsalvageable assets (e.g. furniture, signage, etc.)

Ensure removal of any hazardous materials (e.g. oil and fuel) is compliant with all applicable environmental regulations

Ensure all locations are cleaned such that they are ready for sale or surrender

Coordination with Legal Group on return/surrender of all leased equipment

Winddown activities at the Debtors' 36 Plants include but are not limited to:

Appropriately idle, shut down, clean/sanitize, and generally prepare the Debtors' production equipment for sale

Facilitate the transfer of finished goods to 3rd party retailers (as applicable), donate remaining finished goods to food banks, and/or dispose of

finished goods as waste

Ensure compliance with all applicable health, safety and environmental regulations with respect to hazardous materials


12


CLI-2044408v2

EXHIBIT K

Nonexclusive List of Third Party Contractors

Accenture Chris Meyer Consulting Inc. Hilco Asset Protection LLC IKON Office Solutions JKM (Millwright Labor) Knox County Sheriff Lockton Companies LLC St. Louis Metrolpolitan Police Department Trinity Security Services Whelan Security

12-22052-rdd Doc 1710-11 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit K Pg 1 of 1

CLI-2044408v2

EXHIBIT L

Protected Persons

Gregory Rayburn (CEO & Board Member) John Stewart (EVP, CFO & CAO) David Rush (Interim Treasurer) Richard Seban (EVP, CMO & COO) Jolyn Sebree (SVP Acting General Counsel) Tom Peterson (Interim Controller) Daniel Angst (SVP BU General Manager) Lawrence Bilello, Jr. (SVP BU General Manager) Steven Cooper (SVP BU General Manager) Mark Walsh (SVP BU General Manager) Jeffrey Altizer (SVP Financial Planning & Analysis) Richard Hobbs (SVP Bakery Operations) Robert Kissick, Jr. (SVP Purchasing) Thomas Apel (VP Tax) Jeffrey Parlato (VP of Human Resources and Labor Relations) John Grauel (VP Engineering & Bakery Reliability) Ken Barker (VP Real Estate) Robert Pinto (VP Bakery Operations) Floyd Snell (VP Quality Operations) Mary West (VP Operation Projects) Laurette Reed (VP Shared Services) Carrie Viser (VP Enterprise Performance Management) Anthony J. Dowd (Board member) Matthew Gephardt (Board member)

12-22052-rdd Doc 1710-12 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit L Pg 1 of 1

CLI-2044408v2

EXHIBIT M

Form of Rejection Notice

12-22052-rdd Doc 1710-13 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit M Pg 1 of 3

CLI-2044408v2

FORM OF NOTICE OF REJECTION

[APPLICABLE DEBTOR'S LETTERHEAD]

[DATE]

VIA [FEDERAL EXPRESS/FACSIMILE/EMAIL]

[INTERESTED PARTY]

Re: Notice of Rejection of Executory Contract or Unexpired Lease (In re Hostess Brands, Inc., Jointly Administered Case No. 12-22052)

Dear [ADDRESSEE]:

Hostess Brands, Inc. and five of its affiliates (collectively, the "Debtors") have commenced bankruptcy cases under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").

Debtor [Name of Debtor] (the "Rejection Debtor") hereby gives notice that it is rejecting, pursuant to section 365 of the Bankruptcy Code and effective as of [________], that certain [Agreement] (the "Agreement") to which you are a party as outlined herein and in accordance with the Final Order, Pursuant to Sections 105, 363, 365 and 503(c) of the Bankruptcy Code: (A) Approving (I) A Plan to Wind Down the Debtors' Businesses, (II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales at the Debtors' Retail Stores, (IV) The Debtors' Non-Consensual Use of Cash Collateral and Modifications to Final DIP Order, (V) An Employee Retention Plan, (VI) A Management Incentive Plan, (VII) Protections for Certain Employees Implementing the Winddown of the Debtors' Businesses, (VIII) The Use of Certain Third Party Contractors and (IX) Procedures for the Expedited Rejection of Other Contracts and Leases; and (B) Authorizing the Debtors to Take Any and All Actions Necessary to Implement the Winddown (Docket No. [___]), entered by the Bankruptcy Court on [_____] [__], 2012 (the "Winddown Order").

In accordance with the Winddown Order, any objections to the rejection of the Agreement (an "Objection") must (a) be in writing; (b) state with specificity the grounds for objecting to the rejection of the Agreement; (c) be filed with the Bankruptcy Court and served on:

Hostess Brands, Inc., 6031 Connection Drive, Suite 600, Irving, Texas 75039 (Attn: Jolyn Sebree, Esq.);

counsel to the Debtors, Jones Day, 222 East 41st Street, New York, New York 10017 (Attn: Corinne Ball, Esq. and Veerle Roovers, Esq.);

counsel to the Creditors' Committee, Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036 (Attn: Thomas Moers Mayer, Esq. and Joshua K. Brody, Esq.);


CLI-2044408v2 -2-

counsel to the DIP Agent, the First Lien Term Loan Agent and the Third Lien Agent, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019 (Attn: Alan Kornberg, Esq. and Brian Hermann, Esq.);

counsel to the Pre-Petition Revolving Agent, Paul Hastings LLP, 600 Peachtree Street, N.E., Twenty-Fourth Floor, Atlanta, Georgia 30308 (Attn: Jesse Austin, III, Esq.) and Park Avenue Tower, 75 East 55th Street, New York, New York 10022 (Attn: Leslie Plaskon, Esq.); and

the Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New York 10004 (Attn: Paul Schwartzberg, Esq.)

(collectively, the "Contract Notice Parties") so as to be received by them no later than 4:00 p.m., Eastern Time, on [Date that is five business days from date of service] (the "Response Date").

If no Objections are properly asserted on or before the Response Date, the Rejection Debtor will reject the Agreement, effective as of [________], as authorized in the Winddown Order.

If any properly filed and served Objection is not resolved on a consensual basis, the Rejection Debtor or you may schedule the rejection of the Agreement and the Objection for hearing at the next available regular hearing date in the Debtors' chapter 11 cases by giving the other party and the Contract Notice Parties at least seven days' written notice of the hearing.

Sincerely,

[Name] [Title] cc: Corinne Ball, Esq. Veerle Roovers, Esq.


CLI-2044408v2

EXHIBIT N

Proposed Form of Interim Order

12-22052-rdd Doc 1710-14 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit N Pg 1 of 11

CLI-2044408v2


x : : : : : : x


INTERIM ORDER, PURSUANT TO SECTIONS 105, 363, 365 AND 503(c) OF THE BANKRUPTCY CODE: (A) APPROVING



RETENTION PLAN, (VI) A MANAGEMENT INCENTIVE PLAN, (VII) PROTECTIONS FOR CERTAIN EMPLOYEES IMPLEMENTING THE WINDDOWN OF

THE DEBTORS' BUSINESSES, (VIII) THE USE OF CERTAIN THIRD PARTY CONTRACTORS AND (IX) PROCEDURES FOR THE EXPEDITED REJECTION OF CONTRACTS AND LEASES; AND (B) AUTHORIZING THE DEBTORS TO


This matter coming before the Court on the Emergency Motion of Debtors and

Debtors in Possession For Interim and Final Orders, Pursuant to Sections 105, 363, 365 and 503(c)

of the Bankruptcy Code: (A) Approving (I) A Plan to Wind Down the Debtors' Businesses,

(II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales at the Debtors' Retail Stores,

(IV) The Debtors' Non-Consensual Use of Cash Collateral and Modifications to Final DIP Order,

(V) An Employee Retention Plan, (VI) A Management Incentive Plan, (VII) Protections for

Certain Employees Implementing the Winddown of the Debtors' Businesses, (VIII) The Use of

Certain Third Party Contractors and (IX) Procedures for the Expedited Rejection of Other

Contracts and Leases; and (B) Authorizing the Debtors to Take Any and All Actions Necessary to




-2- CLI-2044408v2

Implement the Winddown (the "Motion");2 the Court having reviewed the Motion and its

accompanying exhibits, including the Carroll Declaration, the Imhoff Declaration, the Rush

Declaration and the Rayburn Declaration, and having heard the statements of counsel and the

evidence adduced regarding the relief requested in the Motion at an interim hearing before the

Court (the "Interim Hearing"); and it appearing that approving the relief requested in the Motion

on an interim basis is in the best interests of the Debtors, their estates and creditors and all parties

in interest in these bankruptcy cases; and after due deliberation thereon and good cause appearing

therefor, it is hereby FOUND AND DETERMINED THAT:

A. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157

and 1334, and this is a core proceeding pursuant to 28 U.S.C. § 157(b).

B. Notice of the Motion and the Interim Hearing was sufficient under the

circumstances.

C. The Debtors have (1) established sound business justifications for the relief

requested in the Motion, including the use and sale of assets approved hereunder and

(2) appropriately exercised their business judgment by determining to implement the Winddown

Plan, including the sale of various assets in connection therewith. Business justifications for

implementing the Winddown Plan include that (i) the full administration of the Debtors'

chapter 11 estates requires, and will continue to require, intensive planning, staffing and funding

to ensure a proper, safe and orderly wind down thereof, (ii) a freefall shutdown and fire sale

liquidation would, among other things, irreparably damage production equipment, result in the

failure to dispose, or improper disposal, of waste materials and could force the Debtors to incur

2 Capitalized terms used herein but not otherwise defined have the meanings given to them in the Motion.


-3- CLI-2044408v2

significant administrative expenses and (iii) these consequences would dissipate the value of the

Debtors' assets and harm creditor recoveries in these chapter 11 cases.

D. Approval of the Winddown Plan and the consummation of the Winddown

at this time are in the best interests of the Debtors, their creditor bodies and their estates.

E. The Debtors' implementation of the Employee Retention Plan is justified

by the facts and circumstances here in that it is only applicable to non-senior management

employees of the Debtors and is narrowly designed to retain non-senior management employees

who are vital to the successful implementation of the Winddown Plan and the maximization of

value for the benefit of all parties in interest.

F. The Debtors' implementation of the Senior Management Incentive Plan is

(1) not designed primarily for retentive effect and (2) is justified by the facts and circumstances

here in that it is narrowly tailored to incentivize remaining insider, senior management employees



G. There is good cause to waive the 14-day stay imposed by Bankruptcy

Rule 6004(h).

H. Entry of this Interim Order is necessary and appropriate to prevent

immediate and irreparable harm to the Debtors and their estates pending a final hearing on the

Motion (the "Final Hearing").

NOW THEREFORE, IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on an interim basis.

2. The Winddown Plan is hereby approved, pursuant to sections 105(a)

and 363(b) of the Bankruptcy Code, and may be implemented pending the Final Hearing.


-4- CLI-2044408v2

3. The Debtors are authorized, pursuant to sections 105(a) and 363(b) of the

Bankruptcy Code and without further relief from the Court, to take any and all actions that are

necessary or appropriate in the exercise of their business judgment to implement the Winddown

Plan pending the Final Hearing.

4. The Debtors are hereby authorized to operate in accordance with the

Liquidation Budget pending the Final Hearing, pursuant to sections 105(a), 363(b) and 506(c) of

the Bankruptcy Code. The Debtors are authorized to utilize cash collateral of their DIP Lenders

and prepetition secured lenders to make the payments set forth in the initial Liquidation Budget,

and shall be permitted to vary from the Liquidation Budget only to the extent that variance from

the budget is permissible under the terms of the Final DIP Order and/or the DIP Credit

Agreement. With respect to the category "Other Pre-Liquidation Expenses" within the

Liquidation Budget, the Debtors shall be authorized to pay a claim within this category only after

obtaining the consent of the DIP Agent, which consent shall not be unreasonably withheld.

Approval of the Liquidation Budget on an interim basis is vital to avoid immediate and

irreparable loss or harm to the Debtors' estates, which will otherwise occur if immediate access to

funding and the use of cash collateral is not obtained.

5. The Seventh Amendment is hereby authorized and approved in all respects.

6. Notwithstanding anything in the Final DIP Order to the contrary, by

agreement among the DIP Agent, on behalf of the DIP Lenders, the Pre-Petition First Lien Agent,

on behalf of the First Lien Term Loan Lenders, the Pre-Petition Third Lien Agent, on behalf of

the Third Lien Term Loan Lenders, and the Pre-Petition Fourth Lien Trustee on behalf of the

Pre-Petition Fourth Lien Parties, ABL Adequate Protection Liens on the First Lien Term Loan

Priority Collateral granted to the Pre-Petition Revolving Agent pursuant to paragraph 15(a) of the

Final DIP Order shall be senior to the DIP Liens, the First Lien Term Loan Liens, the First Lien


-5- CLI-2044408v2

Adequate Protection Liens, the Third Lien Second Priority Liens, the Third Lien Adequate

Protection Liens, the Fourth Lien Secured Liens and the Fourth Lien Adequate Protection Liens,

in each case, on the First Lien Term Loan Priority Collateral (collectively, the "Subject Liens") to

the extent and only to the extent the Pre-Petition Revolving Agent on behalf of ABL Lenders has

a Diminution Claim resulting from the Debtors' use of Cash Collateral (other than to make

payments on account of the ABL Pre-Prepetition Indebtedness or any interest or fees related

thereto) constituting Revolver Priority Collateral to fund the Winddown Plan in accordance with

the Liquidation Budget pursuant to this Interim Order, but subject to entry of the Final Order

(the "Subject Diminution Claim"); provided that in no event shall such Subject Diminution Claim

cover amounts in excess of the unpaid principal amount of the ABL Pre-Prepetition Indebtedness,

plus any unpaid interest and fees due thereon.

7. The Revolver Paydown contemplated under paragraph 26 of the Final DIP

Order shall be superseded and replaced by the payments and protections afforded to the

Pre-Petition Revolving Agent on behalf of ABL Lenders under paragraphs 4 and 6 of this Interim

Order.

8. The Final DIP Order shall be hereby amended to delete in its entirety the

provisions of clause (a) of paragraph 23 thereof and to insert in lieu thereof the word "Reserved."

9. After the payments on the ABL Pre-Petition Indebtedness and payments of

interest to the DIP Agent, in each case, contemplated by the Liquidation Budget are made, net

proceeds from sales of the Debtors' assets available under the Liquidation Budget may be used to

pay amounts outstanding under the DIP Credit Agreement, the First Lien Term Loan Pre-Petition

Indebtedness, the ABL Pre-Petition Indebtedness, the Third Lien Pre-Petition Indebtedness and

the Fourth Lien Pre Petition Indebtedness in accordance with the priorities established pursuant to

the Final DIP Order and the Intercreditor Agreement.


-6- CLI-2044408v2

10. The Debtors are authorized, pursuant to section 363(b) of the Bankruptcy

Code, to sell Excess Ingredients and Excess Packaging as contemplated by the Motion and the

Winddown Plan. The Debtors shall comply with their obligations under the DIP Credit

Agreement with respect to sales of Excess Ingredients and Excess Packaging. For sales of Excess

Ingredients and Excess Packaging for more than $750,000, the Debtors shall consult with the

Creditors' Committee with respect to such sales, but need not comply with the advance notice

procedures set forth in the De Minimis Asset Sale Order. Any sales of Excess Ingredients or

Excess Packaging consummated under the authority granted by this Motion shall be reported

pursuant to the filings required under paragraph 4(h) of the De Minimis Asset Sale Order.


Code, to conduct the GOB Sales at their Retail Stores on the terms and conditions set forth in the

Motion.

12. Pursuant to section 363(f) of the Bankruptcy Code, Excess Ingredients and

Excess Packaging sold under the Winddown Plan and all Perishable Inventory sold at the GOB

Sales shall be sold free and clear of any and all liens, claims, interests and encumbrances of any

kind or nature, whether arising by agreement, statute or otherwise and whether arising before, on

or after the date on which these cases were commenced, if any, with any such liens, claims,

interests and encumbrances to attach to the net proceeds of the GOB Sales.

13. Pursuant to section 105(a) of the Bankruptcy Code, the GOB Sales shall be

conducted without the necessity of complying with any federal, state or local statute, rule or

ordinance, or any licensing or other requirement affecting GOB sales or other liquidation or

auction sales, and notwithstanding any contrary provisions in store leases or reciprocal easement

agreements purporting to restrict or affect GOB sales or other liquidation or auction sales.


-7- CLI-2044408v2

14. Pursuant to sections 105(a) and 363 of the Bankruptcy Code and the

Court's equitable powers, the Debtors' shutdown of their facilities may be conducted without the

necessity of complying with any state or local statute, rule, ordinance or regulation requiring

advance notice of the closure of facilities, and any such state or local statute, rule, ordinance or

regulations is hereby preempted and waived.

15. Pursuant to section 554(a) of the Bankruptcy Code, the Debtors are

authorized to abandon and properly dispose of any Perishable Inventory that has not been sold at

the conclusion of the GOB Sales.

16. The Debtors shall, in their sole discretion, be permitted to delay the

payment of any administrative claim for which payment is provided for within the Liquidation

Budget for the 90-day Payment Grace Period by providing notice to the affected administrative

claimant in the form attached to the Motion as Exhibit G. No such affected administrative

claimant shall be permitted to seek relief for the immediate payment of their administrative

claim(s) until the expiration of the Payment Grace Period.

17. The Debtors are authorized to modify the Winddown Plan and/or the

Liquidation Budget in non-material ways and as may be necessary or appropriate after consulting

with, and obtaining the consent of, the DIP Agent and the Pre-Petition Revolving Agent (until the

ABL Pre-Petition Indebtedness is paid in full) or, if such consent is not forthcoming, after

obtaining a further order of this Court.

18. The Employee Retention Plan is hereby approved in its entirety on an

interim basis, pursuant to sections 105(a), 363(b) and 503(c)(3) of the Bankruptcy Code. The

Debtors shall be authorized to pay any awards under the Employee Retention Plan that relate to

hours worked through and including the date of the Final Hearing when such amounts become

payable under the Employee Retention Plan. The Debtors are authorized to take any and all


-8- CLI-2044408v2

actions that are necessary or appropriate in the exercise of their business judgment to implement

the Employee Retention Plan through the date of the Final Hearing.

19. The Debtors are authorized to employ third party contractors as they deem

necessary or appropriate in accordance with the Winddown Plan and the Liquidation Budget.

20. The Protected Persons are hereby released and exculpated from any and all

Third Party Actions that are based upon any actions the Protected Persons have taken (or will take

pending the Final Hearing) in good faith, and any and all actions that they have refrained, or will

refrain, from taking in good faith, to develop, approve, implement and/or oversee the Winddown,

this Interim Order and any other orders of this Court. Any Third Party Actions related to the

foregoing are hereby permanently enjoined pursuant to section 105(a) of the Bankruptcy Code.

21. The creation and funding of the Trust is hereby approved, pursuant to

sections 105(a) and 363(b) of the Bankruptcy Code. The Debtors are authorized to enter into a

Trust agreement and perform thereunder.

22. The following Expedited Contract Rejection Procedures are hereby

approved in their entirety, pursuant to sections 105(a) and 365 of the Bankruptcy Code:

After one of the Debtors determines to reject a Future Rejected Contract (the "Proposed Rejection"), the applicable Debtor shall send a notice describing the proposed rejection and the proposed effective date thereof (which proposed effective date shall be no earlier than the date of the Rejection Notice (as defined below)), substantially in the form attached to the Motion as Exhibit M, via overnight delivery service, facsimile or email (if available), to the nondebtor party to the Future Rejected Contract (the "Rejection Notice"), with a copy to the following parties (collectively with the non-Debtor party to the Future Rejected Contract, the "Contract Notice Parties"): (a) counsel to the Creditors' Committee; (b) counsel to the DIP Agent; (c) counsel to the Pre-Petition Revolving Agent; and (d) the U.S. Trustee.

Contract Notice Parties (other than the U.S. Trustee) shall have five business days from the date of service (the "Notice Period") to object to the Proposed Rejection.


-9- CLI-2044408v2

Any objections to a Proposed Rejection (an "Objection") must be in writing, filed with the Court and served on the other Contract Notice Parties and counsel to the Debtors so as to be received prior to the expiration of the Notice Period. Each Objection must state with specificity the grounds for objecting to the Proposed Rejection.

If no Objections are properly asserted prior to the expiration of the Notice Period, the Debtors shall be authorized, without further notice and without further Court order, to reject the Future Rejected Contract, effective as of the date identified in the Rejection Notice.





23. The Debtors are authorized to take any and all actions that are necessary or

appropriate in the exercise of their business judgment to implement the Expedited Contract

Rejection Procedures.

24. Notwithstanding the provisions of Bankruptcy Rule 6004(h), this Interim

Order shall be immediately effective and enforceable upon its entry.

25. This Court shall retain exclusive jurisdiction to interpret, enforce and

implement the terms and provisions of this Interim Order, to adjudicate disputes related to this


-10- CLI-2044408v2

Interim Order, the Winddown Plan, the Winddown or the Trust, and to enforce the Exculpation of

Protected Persons and related Injunction as set forth herein.

26. The Final Hearing on the Motion is scheduled for ___________, 2012 at

_______ before this Court. The Debtors shall promptly service copies of this Interim Order

(which shall constitute adequate notice of the Final Hearing) to the parties having been given

notice of the Interim Hearing in accordance with the terms of the Case Management Order.

Objections, if any, to the relief sought at the Final Hearing must be made in writing, with a hard

copy to Chambers, conform to the Bankruptcy Rules and the Local Bankruptcy Rules and be filed

with the Bankruptcy Court and must be served in accordance with the Case Management Order,

so as to be actually received by the parties on the Special Service List (as defined in the Case

Management Order), not later than 4:00 p.m. (Eastern Time) on ____________, 2012.

Dated: [_____] [__], 2012 White Plains, New York

HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE


CLI-2044408v2

EXHIBIT O

Proposed Form of Final Order

12-22052-rdd Doc 1710-15 Filed 11/16/12 Entered 11/16/12 07:01:55 Exhibit O Pg 1 of 11

CLI-2044408v2


x : : : : : : x


FINAL ORDER, PURSUANT TO SECTIONS 105, 363, 365 AND 503(c) OF THE BANKRUPTCY CODE: (A) APPROVING



RETENTION PLAN, (VI) A MANAGEMENT INCENTIVE PLAN, (VII) PROTECTIONS FOR CERTAIN EMPLOYEES IMPLEMENTING THE WINDDOWN OF

THE DEBTORS' BUSINESSES, (VIII) THE USE OF CERTAIN THIRD PARTY CONTRACTORS AND (IX) PROCEDURES FOR THE EXPEDITED REJECTION OF CONTRACTS AND LEASES; AND (B) AUTHORIZING THE DEBTORS TO


This matter coming before the Court on the Emergency Motion of Debtors and

Debtors in Possession For Interim and Final Orders, Pursuant to Sections 105, 363, 365 and 503(c)

of the Bankruptcy Code: (A) Approving (I) A Plan to Wind Down the Debtors' Businesses,

(II) the Sale of Certain Assets, (III) Going-Out-of-Business Sales at the Debtors' Retail Stores,

(IV) The Debtors' Non-Consensual Use of Cash Collateral and Modifications to Final DIP Order,

(V) An Employee Retention Plan, (VI) A Management Incentive Plan, (VII) Protections for

Certain Employees Implementing the Winddown of the Debtors' Businesses, (VIII) The Use of

Certain Third Party Contractors and (IX) Procedures for the Expedited Rejection of Other

Contracts and Leases; and (B) Authorizing the Debtors to Take Any and All Actions Necessary to




CLI-2044408v2 -2-

Implement the Winddown (the "Motion");2 the Court having reviewed the Motion and its

accompanying exhibits, including the Carroll Declaration, the Imhoff Declaration, the Rush

Declaration and the Rayburn Declaration; an interim hearing having been held with respect to the

Motion on November 19, 2012, and an interim order having been entered approving the Motion

(Docket No. [___]); and having heard the statements of counsel and the evidence adduced

regarding the relief requested in the Motion at a final hearing before the Court (the "Final

Hearing") at which time all interested parties were offered an opportunity to be heard with respect

to the Motion; and it appearing that the relief requested in the Motion is in the best interests of the

Debtors, their estates and creditors and all parties in interest in these bankruptcy cases; and after

due deliberation thereon and good cause appearing therefor, it is hereby FOUND AND

DETERMINED THAT:

A. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157

and 1334, and this is a core proceeding pursuant to 28 U.S.C. § 157(b).

B. Notice of the Motion and the Final Hearing was sufficient under the

circumstances.

C. The Debtors have (1) established sound business justifications for the relief

requested in the Motion, including the use and sale of assets approved hereunder and

(2) appropriately exercised their business judgment by determining to implement the Winddown

Plan, including the sale of various assets in connection therewith. Business justifications for

implementing the Winddown Plan include that (i) the full administration of the Debtors'

chapter 11 estates requires, and will continue to require, intensive planning, staffing and funding

to ensure a proper, safe and orderly wind down thereof, (ii) a freefall shutdown and fire sale

2 Capitalized terms used herein but not otherwise defined have the meanings given to them in the Motion.


CLI-2044408v2 -3-

liquidation would, among other things, irreparably damage production equipment, result in the

failure to dispose, or improper disposal, of waste materials and could force the Debtors to incur

significant administrative expenses and (iii) these consequences would dissipate the value of the

Debtors' assets and harm creditor recoveries in these chapter 11 cases.

D. Approval of the Winddown Plan and the consummation of the Winddown

at this time are in the best interests of the Debtors, their creditor bodies and their estates.

E. The Debtors' implementation of the Employee Retention Plan is justified

by the facts and circumstances here in that it is only applicable to non-senior management

employees of the Debtors and is narrowly designed to retain non-senior management employees



F. The Debtors' implementation of the Senior Management Incentive Plan is

(1) not designed primarily for retentive effect and (2) is justified by the facts and circumstances

here in that it is narrowly tailored to incentivize remaining insider, senior management employees



G. There is good cause to waive the 14-day stay imposed by Bankruptcy

Rule 6004(h).

H. This Final Order is necessary and appropriate to prevent immediate and

irreparable harm to the Debtors and their estates.

NOW THEREFORE, IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on final basis.

2. The Winddown Plan is hereby approved in its entirety, pursuant to

sections 105(a) and 363(b) of the Bankruptcy Code.


CLI-2044408v2 -4-

3. The Debtors are authorized, pursuant to sections 105(a) and 363(b) of the

Bankruptcy Code and without further relief from the Court, to take any and all actions that are

necessary or appropriate in the exercise of their business judgment to implement the Winddown

Plan.

4. The initial Liquidation Budget is hereby approved in its entirety, pursuant

to sections 105(a), 363(b) and 506(c) of the Bankruptcy Code. The Debtors are authorized to

utilize cash collateral of their DIP Lenders and prepetition secured lenders to make the payments

set forth in the initial Liquidation Budget, and shall be permitted to vary from the Liquidation

Budget only to the extent that variance from the budget is permissible under the terms of the Final

DIP Order and/or the DIP Credit Agreement. The Liquidation Budget shall be updated

periodically as contemplated by the Final DIP Order. With respect to the category "Other Pre-

Liquidation Expenses" within the Liquidation Budget, the Debtors shall be authorized to pay a

claim within this category only after obtaining the consent of the DIP Agent, which consent shall

not be unreasonably withheld.

5. The Seventh Amendment is hereby authorized and approved in all respects.

6. Notwithstanding anything in the Final DIP Order to the contrary, by

agreement among the DIP Agent, on behalf of the DIP Lenders, the Pre-Petition First Lien Agent,

on behalf of the First Lien Term Loan Lenders, the Pre-Petition Third Lien Agent, on behalf of

the Third Lien Term Loan Lenders, and the Pre-Petition Fourth Lien Trustee on behalf of the Pre-

Petition Fourth Lien Parties, ABL Adequate Protection Liens on the First Lien Term Loan

Priority Collateral granted to the Pre-Petition Revolving Agent pursuant to paragraph 15(a) of the

Final DIP Order shall be senior to the DIP Liens, the First Lien Term Loan Liens, the First Lien

Adequate Protection Liens, the Third Lien Second Priority Liens, the Third Lien Adequate

Protection Liens, the Fourth Lien Secured Liens and the Fourth Lien Adequate Protection Liens,


CLI-2044408v2 -5-

in each case, on the First Lien Term Loan Priority Collateral (collectively, the "Subject Liens") to

the extent and only to the extent the Pre-Petition Revolving Agent on behalf of ABL Lenders has

a Diminution Claim resulting from the Debtors' use of Cash Collateral (other than to make

payments on account of the ABL Pre-Prepetition Indebtedness or any interest or fees related

thereto) constituting Revolver Priority Collateral to fund the Winddown Plan in accordance with

the Liquidation Budget (the "Subject Diminution Claim"); provided that in no event shall such

Subject Diminution Claim cover amounts in excess of the unpaid principal amount of the ABL

Pre-Prepetition Indebtedness, plus any unpaid interest and fees due thereon.

7. The Revolver Paydown contemplated under paragraph 26 of the Final DIP

Order shall be superseded and replaced by the payments and protections afforded to the

Pre-Petition Revolving Agent on behalf of ABL Lenders under paragraphs 4 and 6 of this Final

Order.

8. The Final DIP Order shall be hereby amended to delete in its entirety the

provisions of clause (a) of paragraph 23 thereof and to insert in lieu thereof the word "Reserved."

9. After the payments on the ABL Pre-Petition Indebtedness and payments of

interest to the DIP Agent, in each case, contemplated by the Liquidation Budget are made, net

proceeds from sales of the Debtors' assets available under the Liquidation Budget may be used to

pay amounts outstanding under the DIP Credit Agreement, the First Lien Term Loan Pre-Petition

Indebtedness, the ABL Pre-Petition Indebtedness, the Third Lien Pre-Petition Indebtedness and

the Fourth Lien Pre Petition Indebtedness in accordance with the priorities established pursuant to

the Final DIP Order and the Intercreditor Agreement.


Code, to sell Excess Ingredients and Excess Packaging as contemplated by the Motion and the

Winddown Plan. The Debtors shall comply with their obligations under the DIP Credit


CLI-2044408v2 -6-

Agreement with respect to sales of Excess Ingredients and Excess Packaging. For sales of Excess

Ingredients and Excess Packaging for more than $750,000, the Debtors shall consult with the

Creditors' Committee with respect to such sales, but need not comply with the advance notice

procedures set forth in the De Minimis Asset Sale Order. Any sales of Excess Ingredients or

Excess Packaging consummated under the authority granted by this Motion shall be reported

pursuant to the filings required under paragraph 4(h) of the De Minimis Asset Sale Order.


Code, to conduct the GOB Sales at their Retail Stores on the terms and conditions set forth in the

Motion.

12. Pursuant to section 363(f) of the Bankruptcy Code, Excess Ingredients and

Excess Packaging sold under the Winddown Plan and all Perishable Inventory sold at the GOB

Sales shall be sold free and clear of any and all liens, claims, interests and encumbrances of any

kind or nature, whether arising by agreement, statute or otherwise and whether arising before, on

or after the date on which these cases were commenced, if any, with any such liens, claims,

interests and encumbrances to attach to the net proceeds of the GOB Sales.

13. Pursuant to section 105(a) of the Bankruptcy Code, the GOB Sales shall be

conducted without the necessity of complying with any federal, state or local statute, rule or

ordinance, or any licensing or other requirement affecting GOB sales or other liquidation or

auction sales, and notwithstanding any contrary provisions in store leases or reciprocal easement

agreements purporting to restrict or affect GOB sales or other liquidation or auction sales.

14. Pursuant to sections 105(a) and 363 of the Bankruptcy Code and the

Court's equitable powers, the Debtors' shutdown of their facilities may be conducted without the

necessity of complying with any state or local statute, rule, ordinance or regulation requiring


CLI-2044408v2 -7-

advance notice of the closure of facilities, and any such state or local statute, rule, ordinance or

regulations is hereby preempted and waived.

15. Pursuant to section 554(a) of the Bankruptcy Code, the Debtors are

authorized to abandon and properly dispose of any Perishable Inventory that has not been sold at

the conclusion of the GOB Sales.

16. The Debtors shall, in their sole discretion, be permitted to delay the

payment of any administrative claim for which payment is provided for within the Liquidation

Budget for the 90-day Payment Grace Period by providing notice to the affected administrative

claimant in the form attached to the Motion as Exhibit G. No such affected administrative

claimant shall be permitted to seek relief for the immediate payment of their administrative

claim(s) until the expiration of the Payment Grace Period.

17. The Debtors are authorized to modify the Winddown Plan and/or the

Liquidation Budget in non-material ways and as may be necessary or appropriate after consulting

with, and obtaining the consent of, the DIP Agent and the Pre-Petition Revolving Agent (until the

ABL Pre-Petition Indebtedness is paid in full) or, if such consent is not forthcoming, after

obtaining a further order of this Court.

18. The Employee Retention Plan is hereby approved in its entirety, pursuant

to sections 105(a), 363(b) and 503(c)(3) of the Bankruptcy Code. The Debtors are authorized to

take any and all actions that are necessary or appropriate in the exercise of their business

judgment to implement the Employee Retention Plan.

19. The Senior Management Incentive Plan is hereby approved in its entirety,

pursuant to sections 105(a), 363(b) and 503(c)(3) of the Bankruptcy Code. The Debtors are

authorized to take any and all actions that are necessary or appropriate in the exercise of their

business judgment to implement the Senior Management Incentive Plan.


CLI-2044408v2 -8-

20. The Debtors are authorized to employ third party contractors as they deem

necessary or appropriate in accordance with the Winddown Plan and the Liquidation Budget.

21. The Protected Persons are hereby released and exculpated from any and all

Third Party Actions that are based upon any actions the Protected Persons have taken (or will take)

in good faith, and any and all actions that they have refrained, or will refrain, from taking in good

faith, to develop, approve, implement and/or oversee the Winddown, this Final Order and any

other orders of this Court. Any Third Party Actions related to the foregoing are hereby

permanently enjoined pursuant to section 105(a) of the Bankruptcy Code.

22. The creation and funding of the Trust is hereby approved, pursuant to

sections 105(a) and 363(b) of the Bankruptcy Code. The Debtors are authorized to enter into a

Trust agreement and perform thereunder.

23. The following Expedited Contract Rejection Procedures are hereby

approved in their entirety, pursuant to sections 105(a) and 365 of the Bankruptcy Code:

After one of the Debtors determines to reject a Future Rejected Contract (the "Proposed Rejection"), the applicable Debtor shall send a notice describing the proposed rejection and the proposed effective date thereof (which proposed effective date shall be no earlier than the date of the Rejection Notice (as defined below)), substantially in the form attached to the Motion as Exhibit M, via overnight delivery service, facsimile or email (if available), to the nondebtor party to the Future Rejected Contract (the "Rejection Notice"), with a copy to the following parties (collectively with the non-Debtor party to the Future Rejected Contract, the "Contract Notice Parties"): (a) counsel to the Creditors' Committee; (b) counsel to the DIP Agent; (c) counsel to the Pre-Petition Revolving Agent; and (d) the U.S. Trustee.

Contract Notice Parties (other than the U.S. Trustee) shall have five business days from the date of service (the "Notice Period") to object to the Proposed Rejection.

Any objections to a Proposed Rejection (an "Objection") must be in writing, filed with the Court and served on the other Contract Notice Parties and counsel to the Debtors so as to be received prior to the expiration of the


CLI-2044408v2 -9-

Notice Period. Each Objection must state with specificity the grounds for objecting to the Proposed Rejection.

If no Objections are properly asserted prior to the expiration of the Notice Period, the Debtors shall be authorized, without further notice and without further Court order, to reject the Future Rejected Contract, effective as of the date identified in the Rejection Notice.





24. The Debtors are authorized to take any and all actions that are necessary or

appropriate in the exercise of their business judgment to implement the Expedited Contract

Rejection Procedures.

25. Notwithstanding the provisions of Bankruptcy Rule 6004(h), this Final

Order shall be immediately effective and enforceable upon its entry.


CLI-2044408v2 -10-

26. This Court shall retain exclusive jurisdiction to interpret, enforce and

implement the terms and provisions of this Final Order, to adjudicate disputes related to this Final

Order, the Winddown Plan, the Winddown or the Trust, and to enforce the Exculpation of

Protected Persons and related Injunction as set forth herein.

Dated: [_____] [__], 2012 White Plains, New York

HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE
