Exhibit 10.27
Interstate Bakeries Corporation Key Employee Retention Plan

•   Introduction. Interstate Bakeries Corporation, along with seven of its
subsidiaries and affiliates1 (collectively, “Interstate Bakeries”), currently is
pursuing a restructuring of its financial obligations and operations through
chapter 11 proceedings (the “Restructuring”) that Interstate Bakeries
anticipates will result in the confirmation of a plan of reorganization whereby
Interstate Bakeries would emerge as a reorganized entity on a stand alone basis
(a “Plan of Reorganization”). However, notwithstanding Interstate Bakeries’
current expectations, the Restructuring conceivably could involve the sale of
all or substantially all of Interstate Bakeries’ assets and operations as a
going concern (a “Sale”) followed by a plan of reorganization that distributes
the proceeds from the Sale, instead of a Plan of Reorganization. In connection
with the Restructuring, Interstate Bakeries has developed a key employee
retention plan (the “Retention Plan”), which will compensate certain critical
employees in order to assure their retention and availability to Interstate
Bakeries during the Restructuring, whether the ultimate result is a Plan of
Reorganization or a Sale. Interstate Bakeries anticipates that the Retention
Plan will have two components: (1) retention bonuses that would reward critical
employees who remain with Interstate Bakeries during and through the completion
of the Restructuring (“Retention Bonuses”); and (2) in lieu of Interstate
Bakeries existing annual incentive plan, incentive bonuses that would reward key
management employees upon completion of the Restructuring if Interstate
Bakeries’ fiscal 2005 EBITDAR2 meets or exceeds a predetermined target range
(“Restructuring Performance Bonuses”).

 

1   The subsidiaries and affiliates are: Armour and Main Redevelopment
Corporation; Baker’s Inn Quality Baked Goods, LLC; IBC Sales Corporation; IBC
Services, LLC; IBC Trucking LLC; Interstate Brands Corporation; and New England
Bakery Distributors, L.L.C.   2   Earnings Before Interest, Taxes, Depreciation,
Amortization and Restructuring.

 

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•   Key Employees. Interstate Bakeries expects approximately four hundred ninety
four (494) critical employees (the “Participants”) to participate in the
Retention Plan. Such employees are divided into seven (7) tiers. The first tier
(“Tier One”) consists of up to five (5) executive vice presidents and senior
vice presidents and one (1) vice president (collectively, the “Tier One
Participants”). The second tier (“Tier Two”) consists of up to twenty
(26) executive vice presidents, senior vice presidents, directors,3 and also
includes other key employees (the “Tier Two Participants”). The third tier
(“Tier Three”) consists of up to thirteen (13) vice presidents, directors and
managers (the “Tier Three Participants”). The fourth tier (“Tier Four”) consists
of up to eighty eight (88) vice presidents, directors and managers (the “Tier
Four Participants”). The fifth tier (“Tier Five”) consists of up to twenty one
(21) vice presidents, directors and managers (the “Tier Five Participants”). The
sixth tier (“Tier Six”) consists of up to forty eight (48) plant managers (the
“Tier Six Participants,” and collectively with the Tier One Participants through
Tier Five Participants, the “Senior Participants”). The seventh tier (“Tier
Seven”) consists of up to two hundred ninety two (292) other managers (the “Tier
Seven Participants”). Attached hereto as Exhibit A is a chart setting forth the
composition of each Tier of Participants. The Participants are considered by
Interstate Bakeries to be absolutely essential to its Restructuring efforts.
Specifically, these employees possess unique or critical knowledge of Interstate
Bakeries’ businesses and the fresh baked goods industry. Such institutional
knowledge, which could not readily be replaced on the open market, is necessary
not only to secure Interstate Bakeries’ ongoing business enterprise, but also to
assure the successful completion of the Restructuring.   •   Retention Bonuses.
Retention Bonuses are designed to encourage Senior Participants to remain with
Interstate Bakeries by providing cash bonuses to Senior Participants who remain
in Interstate Bakeries’ employ during and throughout the Restructuring. The
Retention Bonuses for Senior Participants would range from twenty percent
(20.0%) to sixty percent (60.0%) of a Senior Participant’s base salary as
follows: (a) twenty percent (20.0%) of base salary for Tier Six Participants;
(b) twenty five percent (25.0%) of base salary for Tier Five Participants;
(c) thirty five percent (35.0%) of base salary for Tier Four Participants; (d)
forty percent (40.0%) of base salary for Tier Three Participants; (e) fifty
percent (50.0%) of base salary for Tier Two Participants; and (f) sixty percent
(60.0%) of base salary for Tier One Participants. A Retention Bonus shall be in
addition to any other compensation that a Senior Participant may otherwise be
entitled to receive. Retention Bonuses will be paid in three (3) installments in
the following amounts and on

 

3   The term “directors” refers to Interstate Bakeries’ employees having the job
title of “director,” not to members of Interstate Bakeries’ Board of Directors.

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    the following dates, if such Senior Participants are employed by Interstate
Bakeries on such dates. Senior Participants shall be paid twenty five percent
(25.0%) of their Retention Bonus (the “First and Second Retention Installments”)
on each of May 1, 2005 and November 1, 2005 (together, the “Initial Retention
Installment Dates”); provided, however, that Tier One Participants shall receive
their First Retention Installment on the later of (a) May 1, 2005 and (b) the
date on which (i) Interstate Bakeries delivers a budget, in a form consistent
with the first updated Budget required pursuant Section 5.1(i) of the Revolving
Credit Agreement, dated September 23, 2004 (the “DIP Credit Agreement”)), or
(ii) the requirement in Section 5.1(i) of the DIP Credit Agreement with respect
to the first updated Budget is satisfied or waived; provided further that
(a) Tier One Participant’s Second Retention Installment shall not be subject to
any limitation with respect to Section 5.1(i) of the DIP Credit Agreement, and
(b) in any event Tier One Participants shall receive their First Retention
Installment no later than the Final Retention Installment Date (defined below).
The remaining fifty percent (50.0%) of a Senior Participants’ Retention Bonus
(the “Final Retention Installment”) will be payable on the date (the “Final
Retention Installment Date”) that is thirty (30) days after the occurrence (the
“Effective Date”) of either (a) the substantial consummation of a confirmed Plan
of Reorganization, or (b) the closing of a Sale; provided, however, that in no
event shall the Final Retention Installment be paid prior to November 1, 2005.
The maximum possible aggregate amount of Retention Bonuses is approximately
$7.7 million. Attached as Exhibit B is a chart setting forth the calculations
regarding the Retention Bonuses.   •   Restructuring Performance Bonuses.
Restructuring Performance Bonuses are designed to encourage all Participants to
increase Interstate Bakeries’ enterprise value, and thus increase value and
returns for all stakeholders, during the Restructuring, by paying cash bonuses
to Participants if Interstate Bakeries achieves certain predetermined financial
objectives. Restructuring Performance Bonuses are intended to replace Interstate
Bakeries’ prepetition incentive plans which will be terminated. Restructuring
Performance Bonuses will be based upon Interstate Bakeries achieving a target
EBITDAR of $53 million for fiscal 2005 (the “Target EBITDAR”). If Interstate
Bakeries achieves the Target EBITDAR (i.e., Interstate Bakeries’ actual EBITDAR
for fiscal 2005 (“Actual EBITDAR”) equals the Target EBITDAR), Participants
would be eligible to receive a Restructuring Performance Bonus (the “Baseline
Restructuring Performance Bonus”) ranging from five percent (5.0%) to thirty
percent (30.0%) of his or her base salary as follows: (a) five percent (5.0%) of
base salary for Tier Seven Participants; (b) ten percent (10.0%) of base salary
for Tier Six Participants; (c) twelve and one half percent (12.5%) of base
salary for Tier Five Participants; (d) seventeen and one half percent (17.5%) of
base salary for Tier Four Participants; (e) twenty percent (20.0%) of base
salary for Tier Three Participants; (f) twenty five percent (25.0%) of base
salary for Tier Two Participants; and (g) thirty percent (30.0%) of base salary
for Tier One Participants. A Restructuring

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    Performance Bonus shall be in addition to any other compensation that a
Participant may otherwise be entitled to receive, but shall be reduced by the
amount of any guaranteed bonus a Participant receives pursuant to an employment
contract. The aggregate amount of Baseline Restructuring Performance Bonuses is
approximately $5.0 million. The aggregate amount of the Baseline Restructuring
Performance Bonuses is equal to approximately 11% of the aggregate amount of the
Participants’s base salaries. Attached hereto as Exhibit C is a chart setting
forth the calculation of the aggregate amount of the Baseline Restructuring
Performance Bonuses. Restructuring Performance Bonuses will decrease or increase
proportionally if the Actual EBITDAR is less than or exceeds the Target EBITDAR;
provided that (a) no Restructuring Performance Bonuses shall be payable if the
Actual EBITDAR is less than eighty percent (80%) of the Target EBITDAR, and
(b) the aggregate amount of the Restructuring Performance Bonuses shall be
capped at approximately $6.2 million, which would be payable if the Actual
EBITDAR is 125% of the Target EBITDAR. Attached hereto as Exhibit D is a chart
setting forth the range of the aggregate amounts of potential Restructuring
Performance Bonuses.   •   The amount of Restructuring Performance Bonuses
payable to a Participant (the “Actual Restructuring Performance Bonuses”) shall
consist of (a) a fixed component equal to sixty percent (60.0%) of the
Participant’s earned Restructuring Performance Bonus (the “Fixed Amount”) and
(b) a discretionary component (the “Discretionary Amount”) determined by the
Compensation Committee of Interstate Bakeries’ Board of Directors upon
recommendations by Interstate Bakeries’ senior management (who are Tier One
Participants) within thirty (30) days after the Effective Date based upon their
evaluation of each Participant’s performance during the entire Restructuring;
provided, however, that Interstate Bakeries’ Chief Executive Officer, who is not
a Participant, shall be responsible for the evaluations of, and recommendations
regarding Discretionary Amounts for, the Tier One Participants and the
Compensation Committee shall independently review such evaluations and
recommendations. Accordingly, forty percent (40.0%) of the aggregate amount of
the earned Restructuring Performance Bonuses shall be placed in a discretionary
pool by Tiers (the “Discretionary Pool”). Payments of Discretionary Amounts from
the Discretionary Pool shall be in amounts determined by the Compensation
Committee; provided that the total of all Discretionary Amounts paid to
Participants in a particular Tier shall not exceed the amount contributed to the
Discretionary Pool by such Tier. Actual Restructuring Performance Bonuses will
be paid in two (2) installments in the following amounts and on the following
dates to Participants who remain employed by Interstate Bakeries on such dates:
(a) fifty percent (50.0%) of a Participant’s Actual Restructuring Performance
Bonus (the “Initia l Performance Installment”) shall be payable on the date (the
“Initial Performance Installment Date”) that is the earlier of (a) the date on
which Interstate Bakeries’ fiscal 2005 financial statements are complete (the
“Statements Completion Date”) or (b) August 15, 2005; and (b) the remaining
fifty percent (50.0%) of a Participant’s Actual

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    Restructuring Performance Bonus (the “Final Performance Installment”) shall
be payable on the date (the “Final Performance Installment Date,” and
collectively with the Initial Retention Installment Dates, the Final Retention
Installment Date and the Initial Performance Installment Date, the “Installment
Dates”) that is the later of (a) thirty (30) days after the Effective Date or
(b) the Statements Completion Date; provided, however, that in the event that
the Initial Performance Installment is paid prior to the Statements Completion
Date, the Final Performance Installment shall reflect the amount of the
difference, if any, between the Actual Restructuring Performance Bonus
calculated on each of the Performance Installment Date and the Statements
Completion Date.   •   Termination, Resignation, Retirement, Death or
Disability. Any Participant who is terminated for Cause or voluntarily leaves
Interstate Bakeries’ employment without Good Reason prior to an Installment Date
automatically will forfeit such Participant’s right to any and all payments
under the Retention Plan that may have accrued prior to, or be due subsequent
to, the Participant’s termination date (in the event of termination) or last day
as employee of Interstate Bakeries (in the event of voluntary resignation). In
the event a Participant is terminated prior to an Installment Date without Cause
or resigns for Good Reason, Interstate Bakeries shall pay such Participant
(1) if the Participant is a Senior Participant, within thirty (30) days after
such termination, a pro-rated amount (as determined by the date of termination
pursuant to the formula set forth below) of such Participant’s Retention Bonus,
and (2) on the Initial Performance Installment Date and/or the Final Performance
Installment Date, a pro-rated amount (as determined by the date of termination
pursuant to the formula set forth below) of the portion of such Participant’s
Actual Restructuring Performance Bonus, if any, payable on such Installment
Date. Upon the confirmation of a Participant’s death, total disability or
Retirement (as defined below) prior to an Installment Date, Interstate Bakeries
will pay such Participant or such Participant’s estate, as the case may be,
(1) if the Participant is a Senior Participant, within thirty (30) days after
such confirmation, a pro-rated amount (as determined by the date of death, total
disability or Retirement pursuant to the formula set forth below) of such
Participant’s Retention Bonus, and (2) as soon as reasonably practicable after
the Initial Performance Installment Date and/or the Final Performance
Installment Date, a pro-rated share (as determined by the date of death, total
disability or Retirement pursuant to the formula set forth below) of the portion
of such Participant’s Actual Restructuring Performance Bonus, if any, payable on
such Installment Date. A pro-rated Retention Bonus shall be in proportion to the
ratio determined by dividing (1) the number of days from and after either
(a) September 22, 2004 (the “Petition Date”) or, (b) if either Initial Retention
Installment Date has occurred, the last Initial Retention Installment Date, up
to and including either (x) the Participant’s last day as an employee of
Interstate Bakeries or (y) the date of a Participants’s death, total disability
or Retirement, as the case may be, by (2) the lesser of five hundred forty
(540) days or the actual number of days between the Petition Date and the
Effective Date, if the Effective Date is known or reasonably

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    anticipated as of the Participant’s last day as an employee of Interstate
Bakeries. A pro-rated Actual Restructuring Performance Bonus, if any, shall be
in proportion to the ratio determined by dividing (1) the number of days from
and after the Petition Date up to and including either (a) the Participant’s
last day as an employee of Interstate Bakeries or (b) the date of a
Participants’s death, total disability or Retirement, as the case may be, by
(2) the number of days from and after the Petition Date up to and including
either (A) with respect to the Initial Performance Installment, the Initial
Performance Installment Date, or (B) with respect to the Final Performance
Installment, the Final Performance Installment Date.       For purposes of the
Retention Plan, “Cause” means the Participant’s (1) continuing failure to
substantially perform his/her duties; (2) failure to observe material Interstate
Bakeries’ policies applicable to Interstate Bakeries’ employees generally;
(3) reckless or willful misconduct in the performance of his/her duties to
Interstate Bakeries; (4) commission of any act of fraud, embezzlement,
misappropriation, or dishonesty against Interstate Bakeries, its creditors, or
shareholders; (5) indictment with respect to any felony or criminal offense
involving dishonesty or moral turpitude; or (6) material breach of the terms of
any written agreement between the Participant and Interstate Bakeries (in cases
(1), (2) and (6) above, after written notice from Interstate Bakeries and
fifteen (15) days thereafter for such Participant to cure) (in cases (3),
(4) and (5) above, prior notice is not required and cure is not possible). “Good
Reason” means (1) a material reduction in salary, unless such reduction occurs
with respect to all or substantially all of Interstate Bakeries’ similarly
situated employees; (2) a material reduction in duties or responsibilities; or
(3) relocation of the Participant’s principal place of employment to a location
that is more than seventy five (75) miles away, except for employees in
Interstate Bakeries’ field organization who are requested to relocate in the
ordinary course of business (in each case, after written notice to Interstate
Bakeries and fifteen (15) days thereafter for Interstate Bakeries to cure);
provided, however, that Good Reason shall in no event apply upon the appointment
of a chapter 11 trustee or examiner in Interstate Bakeries’ chapter 11 cases,
the dismissal of such cases, or the conversion of such cases to cases under
chapter 7 of the Bankruptcy Code. “Retirement” for purposes of the Retention
Plan shall mean retirement as defined by Interstate Bakeries in accordance with
its existing retirement plans and policies, and in each case shall be determined
by Interstate Bakeries and not the Participant. Notwithstanding anything herein
to the contrary, the Retention Plan will not prohibit or interfere with
Interstate Bakeries’ right to assign projects, tasks and responsibilities to any
Participant or to alter the nature of Interstate Bakeries’ rights with respect
to the Participant’s employment relationship, including the right to terminate
the employment of any Participant at any time, with or without prior notice, and
for any reason.

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•   Vacancies in Critical Positions. If the position held by a Participant
becomes vacant prior to the successful completion of the Restructuring and
Interstate Bakeries promotes a current employee or hires a new employee into
that position, Interstate Bakeries will offer the promoted employee a pro-rated
amount of the bonuses available hereunder for the Participant previously holding
that position.   •   Calculation of Other Benefits. The payments made pursuant
to the Retention Plan are special payments for a limited time period and,
therefore, shall not be considered part of Interstate Bakeries ongoing
compensation structure and shall not be included as “compensation” for purposes
of other employee plans or benefits provided by Interstate Bakeries.   •  
Administration. Interstate Bakeries has full power and authority, in its sole
discretion, to construe, interpret and administer the Retention Plan and its
decisions with respect to a Participant’s rights under the Retention Plan shall
be final, conclusive and binding on all parties.

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•   Assurances of Payment, Court Approval. Interstate Bakeries will take such
action as may be reasonably required to assure payment of the bonuses under the
Retention Plan. Interstate Bakeries shall seek Court authority to implement the
Retention Plan as soon as is practicable and will seek to have all unpaid
bonuses thereunder treated as administrative claims in the Restructuring. No
amounts will be payable under the Retention Plan until it is approved by the
Bankruptcy Court.   •   Amendment. Interstate Bakeries will amend the Retention
Plan only upon further order of the Bankruptcy Court.

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EXHIBIT A
Restructuring Plan Participants

              Tier   Employee Position   Maximum Participants
I
  Executive Vice Presidents,
Senior Vice Presidents
and a Vice President     6  
 
           
II
  Executive Vice Presidents,
Senior Vice Presidents,
Vice Presidents, Directors and
other key employees     26  
 
           
III
  Vice Presidents, Managers
and Directors     13  
 
           
IV
  Vice Presidents, Managers
and Directors     88  
 
           
V
  Vice Presidents, Managers
and Directors     21  
 
           
VI
  Plant Managers     48  
 
           
VII
  Other Managers     292  
 
           
 
           
 
  Total:     494  

 

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EXHIBIT B
Retention Bonuses

                                              Maximum   Annual   Retention    
Tier   Employee Position   Participants   Salaries   Bonus   % of Salary
I
  Executive Vice Presidents,
Senior Vice Presidents
and a Vice President     6     $ 1,641,932     $ 985,159       60.0 %
 
                                   
II
  Executive Vice Presidents,
Senior Vice Presidents,
Vice Presidents, Directors
and other key employees     26     $ 3,719,052     $ 1,859,526       50.0 %
 
                                   
III
  Vice Presidents, Managers
and Directors     13     $ 1,576,340     $ 630,536       40.0 %
 
                                   
IV
  Vice Presidents,
Managers
and
Directors     88     $ 8,411,050     $ 2,924,617       35.0 %
 
                                   
V
  Vice Presidents,
Managers
and
Directors     21     $ 2,022,356     $ 505,589       25.0 %
 
                                   
VI
  Plant Managers     48     $ 4,211,218     $ 842,244       20.0 %
 
   
 
                                   
 
  Total:     202     $ 21,581,948     $ 7,747,671       36.0 %

 

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EXHIBIT C
Baseline Restructuring Performance Bonus

                                                              Restructuring    
        Maximum   Annual   Performance   % of Tier   Employee Position  
Participants   Salaries   Bonus   Salary
I
  Executive Vice Presidents,
Senior Vice Presidents
and a Vice President     6     $ 1,641,932     $ 492,580       30.0 %
 
                                   
II
  Executive Vice Presidents,
Senior Vice Presidents,
Vice Presidents, Directors
and other key employees     26     $ 3,719,052     $ 929,763       25.0 %
 
                                   
III
  Vice Presidents, Managers
and Directors     13     $ 1,576,340     $ 315,268       20.0 %
 
                                   
IV
  Vice Presidents, Managers
and Directors     88     $ 8,411,050     $ 1,471,934       17.5 %
 
                                   
V
  Vice Presidents,
Managers
and
Directors     21     $ 2,022,356     $ 252,795       12.5 %
 
                                   
VI
  Plant Managers     48     $ 4,211,218     $ 421,122       10.0 %
 
                                   
VII
  Other Managers     292     $ 22,673,552     $ 1,133,678       5.0 %
 
   
 
                                   
 
  Total:     494     $ 44,255,500     $ 5,017,138       11 %

 

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EXHIBIT D
Range of Potential Restructuring Performance Bonuses

                  Actual EBITDAR   % of Target     ($Thousands)   EBITDAR  
Restructuring Performance Bonus
$
    80 %   $ 4,013,711  
 
               
$
    85 %   $ 4,264,567  
 
               
$
    90 %   $ 4,515,424  
 
               
$
    93 %   $ 4,689,138  
 
               
$
    96 %   $ 4,812,138  
 
               
$
    100 %   $ 5,017,138  
 
               
$
    104 %   $ 5,222,138  
 
               
$
    108 %   $ 5,427,138  
 
               
$
    112 %   $ 5,632,138  
 
               
$
    117 %   $ 5,837,138  
 
               
$
    121 %   $ 6,042,138  
 
               
$
    125 %   $ 6,247,138