Exhibit
10.6


 


MANAGEMENT CONTINUITY AGREEMENT


 


This MANAGEMENT CONTINUITY AGREEMENT (this “Agreement”), is entered
into by and between Interstate Bakeries Corporation (“IBC”), a Delaware
corporation, and James R. Elsesser, an individual (the “Executive”).


 


WITNESSETH:


 


WHEREAS, the Compensation Committee, as
defined herein, in action taken at a meeting held on February 3, 2003, and
subsequently approved by the Board of Directors in action taken at a meeting on
February 4, 2003, has authorized IBC and its wholly owned subsidiaries,
Interstate Brands Corporation (“Brands”) and Interstate Brands West Corporation
(“Brands West”) to enter into a Management Continuity Agreement (the
“Agreement”) with certain key executives of IBC; and


 


WHEREAS, the Board of Directors believes it is
imperative, in the event of an attempted Change in Control, as defined herein,
that certain key executives continue employment with IBC or one of its
Affiliates, and that IBC be able to receive and rely upon the advice of such
executives on the best interests of IBC and its shareholders, without concern
that the executives may be distracted by uncertainties as to their own position
or security; and


 


WHEREAS, the Executive is a key executive of
IBC or one of its Affiliates and has been selected by the Board of Directors to
be offered this Agreement; and


 


WHEREAS,
the Board of Directors believes that the payments, which may be made under this
Agreement, constitute additional reasonable compensation for services to be
rendered by the Executive in connection with a Change in Control;


 


NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, IBC and the Executive agree as follows:


 


Article
1.  Definitions:  For
purposes of this Agreement, the following terms shall have the meanings set
forth below:


 


a.             Affiliate:  An
Affiliate shall mean any Person who, directly or indirectly or through one or
more intermediaries, Controls another Person, is Controlled by another Person,
or is under common Control with another Person.


 


b.             Base Compensation: 
The Base Compensation shall mean the sum of:


 


(i)   the Executive’s monthly gross
salary paid by IBC or one of its Affiliates, whether paid or deferred, for the
last full month preceding the Executive’s Qualifying Termination or for the
last full month preceding the Change in Control, whichever is greater; and


 


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(ii)  a one (1) month portion (as if earned
ratably over the relevant period) of the greater of (x) the Executive’s most
recent annual (or, if applicable, pro rata portion of the annual) bonus
received from IBC or one of its Affiliates, whether paid or deferred, preceding
the Executive’s Qualifying Termination or the Change in Control, whichever is
greater and (y) the target incentive award for the Executive under the
Incentive Plan;


 


c.             Beneficial Ownership:  Beneficial
Ownership shall mean “beneficial ownership” as defined in Rule 13d-3
promulgated under Section 13(d) of the Exchange Act.


 


d.             Board of Directors:  The Board of Directors
shall mean the Board of Directors of IBC.


 


e.             Buyer:  A Person which, alone or
with its Affiliates, purchases the business or businesses of IBC and/or one of
IBC’s Affiliates in a transaction or transactions described in Article 2(c).


 


f.              Change in Control:  A Change in Control shall mean an occurrence
set forth in Article 2.


 


g.             Code: 
The Code shall mean the Internal Revenue Code of 1986, as amended or
replaced from time to time and including any rulings and Treasury regulations issued
thereunder.


 


h.             Common Stock:  Common Stock shall mean the $.01 par value common stock of IBC,
and such other IBC voting stock that may be issued, prior to a Change in
Control, in lieu of, or in addition to, the Common Stock, as a result of (i) a
merger or consolidation of IBC, (ii) the creation of a class or classes of
tracking stock, or (iii) the reclassification of any of the foregoing.


 


i.              Compensation Committee:  The Compensation Committee shall mean the
Compensation Committee of IBC.


 


j.              Continuing Director:  A Continuing Director shall mean a member of
the Board of Directors as of the date hereof, and any other director who was
appointed or nominated for election to the Board of Directors by a majority of
the Continuing Directors then in office.


 


k.             Control: 
Control (including the terms “controlling”, “Controlled by” and “under
common control with”) shall mean the possession of a power, directly or
indirectly, whether through ownership of securities, by contract or otherwise:


 


(i)            to elect a majority of the Board of
Directors of a Person; or


 


(ii)           to direct the business, management
and policies of a Person or direct the sale of a substantial portion of its
assets.


 


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l.              Disability:  A Disability shall mean a condition where the Executive suffers a
complete inability to perform the Executive’s work assignments because of
injury or sickness, and such inability is expected to continue
indefinitely.  To determine Disability,
IBC shall rely on a determination with respect to disability of the Executive
made under the Interstate Brands Corporation Long Term Disability Plan or any
successor disability plan.  If no such
determination has been made within seven (7) months after the Executive’s last
day worked, or if the Executive is not enrolled in any such Long Term
Disability Plan, the determination shall be made by a licensed physician
jointly selected by IBC and the Executive. 
Fees and expenses of any physician, and all costs of examinations of the
Executive, shall be paid by IBC or one of its Affiliates.


 


m.            Discount Rate:  The Discount Rate shall mean the “applicable interest rate” (and
the mortality tables, if applicable) prescribed under Section 417(e)(3) of the
Code at the time of the Executive’s Qualifying Termination.


 


n.             Exchange Act:  The Exchange Act shall mean the Securities Exchange Act of 1934,
as amended.


 


o.             Group: 
A Group shall mean “group” as defined in Section 13(d)(3) of the
Exchange Act.


 


p.             Incentive Plan:  The Incentive Plan shall mean the Interstate Brands Corporation
Incentive Compensation Plan for Corporate and Division Management as the same
may be amended from time to time and all similar plans adopted during the term
of this Agreement.


 


q.             Payment Period:  The Payment Period shall mean the period commencing with the
first day of the month following the month in which a Qualifying Termination
occurs and continuing for twenty-four (24) months thereafter.


 


r.              Person: 
Person shall mean any natural person, firm, individual, company,
corporation, partnership, joint venture, joint stock company, limited liability
company, business trust, trust, association or any other business organization
or entity, whether incorporated or unincorporated, or any division thereof.


 


s.             Qualifying Termination:  A Qualifying Termination shall mean the
Executive’s termination of employment, within two (2) years after a Change in
Control, from IBC, a Buyer or an Affiliate or a Successor of the foregoing;
provided that, a Qualifying Termination shall not be deemed to occur on account
of:


 


(i)            the Executive’s transfer of
employment at any time during the term of this Agreement between any two
Persons comprised of IBC or its Successor, and any of their Affiliates,
provided that, upon such a transfer after a Change in Control, the Executive
has


 


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Substantially the Same Employment after such transfer
as immediately prior to the Change in Control; or


 


(ii)           the Executive’s being employed by a
Buyer or any Affiliate or Successor of such Buyer, in connection with a Change
in Control described in Article 2(c), provided that, during the term of this
Agreement, the Executive has Substantially the Same Employment as immediately
prior to the Change in Control; or


 


(iii)          the Executive’s death; or


 


(iv)          the Executive’s voluntary termination
of employment with IBC, a Buyer or an Affiliate or Successor of the foregoing
within two (2) years after such Change in Control, if the Executive has, at all
times, Substantially the Same Employment as immediately prior to the Change in
Control.


 


It is expressly understood that Executive shall in no
event be deemed to have waived his or her right to Severance Benefits under
Article 4 of this Agreement if Executive remains employed during or after a
time during which he or she ceased to have Substantially the Same Employment
after a Change in Control, as long as the Executive incurs a termination of
employment within two (2) years after such Change in Control and such
termination of employment is not a termination as described in Article 1 s.
(i), (ii) or (iii).


 


t.              Retirement Plan:  The Retirement Plan shall mean the Interstate Brands Corporation
Retirement Income Plan, as amended, or any successor retirement plan adopted by
IBC.


 


u.             Spin-off: 
A Spin-off shall mean a spin-off, reverse spin-off or similar type of
transaction, including a management-led leveraged buyout, resulting in the
disposition to IBC’s shareholders, or to a management-led leveraged buyout
group, of all or substantially all of the stock and/or assets of any business
conducted by IBC and/or its Affiliates.


 


v.             Substantially the Same Employment:  Substantially the Same Employment shall mean
employment where there is, at all times during the period of up to two (2)
years after a Change in Control compared to immediately prior to a Change in
Control:


 


(i)            no reduction in the Executive’s base
salary and no less than such annual increases in the Executive’s base salary as
were customary with respect to the Executive prior to the Change in Control;
and


 


(ii)           no reduction in the annual bonus
award opportunity below the performance target applicable to the Executive, for
both personal


 


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and company or business unit performance, unless a
substantially equivalent arrangement (embodied in an ongoing substitute or
alternative annual bonus award plan) has been made with respect to such annual
bonus award, and such arrangement provides benefits not materially less
favorable to the Executive (both in terms of the amount of benefits provided
and the level of the Executive’s participation relative to other participants);
and


 


(iii)          no substantial reduction in
Executive’s participation in any executive incentive compensation plans in
which Executive participated immediately before the Change in Control, unless a
substantially equivalent arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such executive incentive
compensation plans, and such arrangement provides benefits not materially less
favorable to the Executive (both in terms of the amount of benefits provided
and the level of the Executive’s participation relative to other participants);
and


 


(iv)          no substantial reduction in employee
pension benefits (including plans qualified under Section 401(a) of the Code
and non-qualified plans) and welfare and fringe benefits applicable to the
Executive, so that the benefit programs for which the Executive is eligible
are, in the aggregate, substantially equivalent; and


 


(v)           no reduction of a substantial nature
in the Executive’s duties or responsibilities, or assignment of new duties
inconsistent with the Executive’s skills, education and experience; and


 


(vi)          no substantial reduction in the
Executive’s access to administrative support services.


 


w.            Successor: 
A Successor shall mean (i) the continuing, surviving or successor Person
which is created, or remains in existence, upon the merger or consolidation of
two Persons; or (ii) a Person which otherwise succeeds (by operation of law,
contract or otherwise) to the rights, duties or interests of another Person.


 


x.             Supplemental Plan:  The Supplemental Plan shall mean the IBC
Supplemental Executive Retirement Plan, as amended, or any successor
supplemental retirement plan adopted by IBC.


 


Article 2.  Change in Control:  A Change in Control will occur if there is:


 


a.             Such a change in the membership of the Board of
Directors that Continuing Directors shall have ceased (for any reason) to
constitute at least a majority of the Board of Directors; or


 


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b.             An acquisition by any Person or Group, or by a Person
and its Affiliates or by a Group and Affiliates of members of such Group, of
the Beneficial Ownership of fifty percent (50%) or more of the then-outstanding
Common Stock of IBC (other than acquisitions by IBC, an IBC Affiliate, or any
trustee or other fiduciary holding IBC Common Stock pursuant to the terms of
any IBC benefit plan); or


 


c.             Either of the following: (i) a sale of all or
substantially all of the assets of IBC in a transaction subject to the
provisions of Section 271 of the Delaware General Corporation Law; or (ii) a
sale or other disposition to a Person or a Group, or to a Person and its
Affiliates or to a Group and Affiliates of members of such Group, (excluding a
sale or disposition to an Affiliate or Affiliates of IBC), of all or
substantially all of the assets of those businesses of IBC and its Affiliates
which, in the aggregate, accounted for (as of the end of the fiscal quarter
ending coincident with or immediately preceding such sale) all or substantially
all of IBC’s operating profit; or


 


d.             A merger, share exchange, reorganization or
consolidation of IBC with any other Person other than an Affiliate of IBC (a
“Business Combination”), unless the voting power of the Common Stock
outstanding immediately before such Business Combination continues to
represent, immediately following such Business Combination (either by remaining
outstanding or by being converted into voting securities of the Person
surviving after such Business Combination or its Affiliate), more than 50% of
the combined voting power of the then-outstanding voting securities of such
surviving Person (or its Affiliate) including (if applicable) IBC; or


 


e.             A finding by a majority of the Continuing Directors that
a sale, disposition, merger or other transaction or event designated by such
Continuing Directors in their sole discretion shall, under this Agreement,
constitute a Change in Control with respect to the Executive.


 


Notwithstanding the foregoing, in no event shall a Spin-off be deemed
to constitute a Change in Control.


 


Article
3.  Operation of Agreement:  This Agreement shall not create any
obligation on the part of IBC or its Affiliates, or the Executive, to continue
the Executive’s employment relationship. 
Anything in this Agreement to the contrary notwithstanding, the
Executive shall not be entitled to Severance Benefits, as defined below, under
this Agreement unless and until there has been a Change in Control and the
Executive has had a Qualifying Termination. 
Except as hereinafter provided, this Agreement shall not affect any
other benefit program (as such programs may be amended) applicable to the
Executive; provided, that, by execution of this Agreement, the Executive hereby
waives any and all claims to benefits under any termination or severance plan
or similar severance arrangement offered by IBC or its Affiliates to all or
some of their employees during the term of this Agreement, that would otherwise
by payable to the Executive on account of, or coincident with, a Change in
Control and termination of employment.


 


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Article
4.  Severance Benefits:  If the Executive remains in the employ of
IBC or one of its Affiliates until a Change in Control has occurred, then upon
the Executive’s Qualifying Termination within two (2) years after a Change in
Control, the Executive shall be entitled to the following benefits (“Severance
Benefits”), subject to withholding of any federal, state or local taxes which,
in the opinion of counsel for the payor of the Severance Benefits, are required
to be withheld, and further subject to Article 5 of this Agreement:


 


a.             Payment in a lump sum in cash, within sixty (60) days of
the Executive’s Qualifying Termination, of an amount equal to the Executive’s
Base Compensation multiplied by twenty-four (24); and


 


b.             Continuation, from the date of the Executive’s
Qualifying Termination and continuing during the Payment Period, of life,
health, accident and disability benefits no less favorable than those provided
to the Executive under life, health, accident and disability benefit plans and
programs in effect immediately prior to the Change in Control (including, but
not limited to, the Interstate Brands Corporation Welfare Benefit Plan),
subject to all terms and conditions of such plans immediately prior to such
Change in Control including, but not limited to, provisions regarding the
extent and duration of spouse and dependent coverage, and subject to payment of
premiums, if any, charged at rates no greater than those paid by active
employees under the rate structure in effect immediately prior to the Change in
Control; and further provided, that such health benefits shall not terminate at
the end of the Payment Period but shall continue through the Executive’s
sixty-fifth (65th) birthday and, with respect to the Executive’s spouse and
dependents, for such period provided under the aforesaid provisions regarding
the extent and duration of spouse and dependent coverage, and subject to
payment of premiums charged at rates no greater than those paid by active
employees under the rate structure in effect immediately prior to the Change in
Control; and


 


c.             Immediate and full vesting under the Supplemental Plan,
subject only to forfeiture as provided in Section 3.2 (c)(ii) of the
Supplemental Plan, and an additional two (2) Years of Credited Service (as
defined in the Supplemental Plan), provided that in no event shall the
Executive’s resulting Years of Credited Service, after adjustment as provided
in this Article 4(c), exceed twenty (20).


 


d.             During the Payment Period, the Executive may request in
writing, and IBC or one of its Affiliates shall at its expense engage within a
reasonable time following such written request, an outplacement counseling
service of national reputation to assist the Executive in obtaining
employment.  The Executive shall be
entitled to outplacement services which are customary for someone in the
Executive’s position at a cost not to exceed $15,000.


 


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Article 5.  Excise Taxes and Gross-Up Payment:


 


a.             Anything in this Agreement to the contrary
notwithstanding, and except as set forth below, in the event it shall be
determined under the provisions of Article 5(b) that any payment or
distribution by IBC, a Buyer, or any Successor or Affiliate of the foregoing
(“Payor”), to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, including without limitation any other plan, arrangement or
agreement with such Payor, and including a determination (i) with regard to the
value of any accelerated vesting of stock awards or other forms of
compensation, if such vesting occurs as a result of a Change in Control; but
(ii) without regard to any additional payments required under this Article 5)
(a “Payment”) would be subject to the excise tax imposed by Section 4999 of the
Code, or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), then
the Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”).  This Gross-Up Payment shall
be equal to an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, (i) any income and FICA taxes (and any interest
and penalties imposed with respect thereto) and (ii) Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the payments.  The obligation of IBC or one of its Affiliates to make Gross-Up
Payments under this Article 5(a) shall not be conditioned upon the Executive’s
Qualifying Termination of Employment. 
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in either the state and locality of the Executive’s place of
employment at the time of the Change in Control or in the state and locality of
residence at the time or times of payment, as applicable, net of the maximum
reduction in federal income taxes that could be obtained from the deduction of
the state and local taxes.


 


Notwithstanding the foregoing provisions of this
Article 5(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110 percent of the
greatest amount (the “Reduced Amount”) that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive, and the Payments, in the aggregate,
shall be reduced to the Reduced Amount. 
The reduction of the amounts payable hereunder, if applicable, shall be
made by first reducing the payments under Article 4(a) hereof, and in any event
shall be made in such a manner as to maximize the value of all Payments
actually made to the Executive.  For
purposes of reducing the payments to the Reduced Amount, only amounts payable
under this Agreement (and no other


 


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Payments) shall be reduced.  If the reduction of amounts payable under this Agreement would
not result in the payment of the Reduced Amount, no amounts payable under this
Agreement shall be reduced.


 


b.             IBC shall provide written notice to the Executive with
respect to each Payment promptly after it occurs, setting forth the nature of
such Payment.  Subject to the provisions
of Article 5(c), all determinations required to be made under this Article 5,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized certified public
accounting firm as may be designated by the Executive (the “Accounting
Firm”).  Within 15 days after the
Accounting Firm has been notified by the Executive or IBC that a Payment has
occurred, the Accounting Firm shall provide detailed supporting calculations
with respect to such Payment both to IBC and the Executive.  All fees and expenses of the Accounting Firm
shall be borne solely by IBC.  Any
Gross-Up Payment, as determined pursuant to this Article 5, shall be paid by
IBC or one of its Affiliates to the Executive within five days of the receipt
of the Accounting Firm’s determination. 
Any determination by the Accounting Firm shall be binding upon IBC or
its Affiliate and the Executive.  As a
result of any uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by IBC or one of
its Affiliates should have been made (“Underpayment”), consistent with the
calculations required to be made hereunder. 
In the event that IBC exhausts its remedies pursuant to Article 5(c) and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by IBC or one of its
Affiliates to or for the benefit of the Executive.


 


c.             The Executive shall notify IBC in writing of any written
communication from the Internal Revenue Service or other taxing authority
concerning the Gross-Up Payment or other matters arising under this
Agreement.  Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive receives such written communication and shall apprise IBC of the
content of such communication.  Failure
to give timely notice shall not be deemed to prejudice the Executive’s rights
to Gross-Up Payment and rights of indemnity hereunder.  The Executive shall not pay any claim
pursuant to such written communication prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to IBC (or
such shorter period ending on the date that any payment of taxes with respect
to such claim is due).  If IBC notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall (i) give IBC any information
reasonably requested by IBC relating to such claim, (ii) take such action in
connection with contesting such claim as IBC shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
IBC, (iii) cooperate with IBC in good


 


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faith in order to effectively contest such claim, and
(iv) permit IBC to participate in any proceedings relating to such claim;
provided, however, IBC or one of its Affiliates shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive harmless,
such that after payment by the Executive of any and all income taxes, Excise
Taxes and FICA taxes (including any interest and penalties imposed with respect
thereto) (“Taxes”) that may be imposed as a result of such representation and
payment of costs and expenses by IBC or one of its Affiliates, the Executive
retains an amount equal to such Taxes. 
Without limitation on the foregoing provisions of this Article 5(c), IBC
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay
Taxes claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as IBC shall determine; provided, however, that
if IBC directs the Executive to pay such claim and sue for a refund, IBC or one
of its Affiliates shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive harmless such
that, after payment by the Executive of Taxes imposed with respect to such
advance or with respect to any imputed income with respect to such advance, the
Executive retains an amount equal to such Taxes.  Furthermore, IBC’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority unrelated to the subject matter of this Agreement.


 


d.             If, after the receipt by the Executive of an amount
advanced by IBC or one of its Affiliates pursuant to Article 5(c), the
Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to IBC’s complying with the requirements of
Article 5(c)) promptly pay to IBC or its Affiliate the amount of such refund
(together with any interest paid or credited thereon after Taxes applicable
thereto).  If, after the receipt by the
Executive of an amount advanced by IBC or one of its Affiliates pursuant to
Article 5(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and IBC does not notify the Executive
in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
deemed to be a part of the Gross-Up Payment and shall not be required to be
repaid.


 


Article
6.  Designated Beneficiary:  The Executive, by notice in accordance with
Article 12 hereof, may designate a beneficiary or contingent beneficiaries to
receive the Severance Benefits described in Article 4 and the Gross-Up Payment
described in Article 5 in the event of the Executive’s death following the
Executive’s Qualifying Termination


 


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but prior to payment in full of said Severance Benefits and/or Gross-up
Payments by IBC, one of its Affiliates, or their Successor or assigns.  The Executive may, from time to time, revoke
or change any such designation of beneficiary. 
Any designation of beneficiary made pursuant to this Agreement shall be
controlling over any other designation made by the Executive, testamentary or
otherwise; provided, that if IBC or one of its Affiliates shall be in doubt as
to the right of a beneficiary to receive payments, it may determine in its sole
discretion to pay such amounts to the legal representative of the Executive’s
estate.


 


Article
7.  Early Separation:  In the event that, prior to a Change in
Control, the Executive executes a separation agreement with IBC or any of its
Affiliates during the term of this Agreement which, by its terms, specifically
addresses issues related to the Executive’s termination of employment and
benefits to be paid upon such termination, all of the Executive’s rights,
claims and entitlements under this Agreement shall terminate even if, under the
terms of such separation agreement, the Executive remains employed by IBC or
one of its Affiliates for a period of time after execution of such separation
agreement.


 


Article
8.  Restrictions:  The Executive agrees, as a condition of
receiving the Severance Benefits described under Article 4 or the Gross-Up
Payment described under Article 5, that during the Payment Period the Executive
will not, as an individual or as a partner, employee, agent, advisor,
consultant or in any other capacity of or to any person, firm, corporation or
other entity (excluding IBC, a Buyer, or a Successor or Affiliate of the
foregoing), directly or indirectly, other than as a 2% or less shareholder of a
publicly traded corporation, do any of the following:


 


a.             carry on any business, or become involved in any
business activity, which is competitive with the business conducted by IBC or
an Affiliate immediately prior to a Change in Control; or


 


b.             induce or attempt to induce, or assist anyone else to
induce or attempt to induce, any customer of IBC or any Affiliate to
discontinue its business with IBC or any Affiliate or disclose to anyone else
any confidential information relating to the identities, preferences, and/or
requirements of any such customer.


 


The Executive agrees (i) that the restraints contained
in this Article 8, both separately and in total, are reasonable in view of the
legitimate interests of IBC in protecting its, and its Affiliates’, trade
secret information and business relationships; and (ii) to disclose to any
potential future employer during the Payment Period, the terms of the
restrictions against competition contained in this Article 8.  The requirement of this Article 8 will be
waived by IBC in the event the Executive (i) does not receive any of the
Severance Benefits described under Article 4 or the Gross-Up Payment described
under Article 5 and (ii) voluntarily disclaims, in writing, all of his or her
rights to receive any such Severance Benefits or Gross-Up Payment pursuant to
the terms of this Agreement and any other severance payments and benefits in
connection with the Executive’s Qualifying Termination.


 


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If any provision or subpart of this Article 8 is
adjudicated to be invalid or unenforceable under applicable law, the validity
or enforceability of the remaining provisions and subparts shall be
unaffected.  If any provision or subpart
of this Article 8 is adjudicated to be invalid or unenforceable because it is
overbroad or unreasonable, that provision or subpart shall not be void but
rather shall be limited to the extent required to make it reasonable and shall
be enforced as so limited.


 


In the event of a breach of this Article 8, IBC (i)
shall have no further liability for any of the Severance Benefits described in
Article 4 and the Gross-Up Payment described in Article 5 that have not been
paid as of the date of the breach, or (ii) shall be entitled, in addition to
any other legal or equitable remedies it may have, to temporary, preliminary
and permanent injunctive relief restraining such breach.


 


Article
9.  Successors and Assigns:  This Agreement shall inure to the benefit
of, and be binding upon, IBC, its Affiliates and their Successors.  IBC and its Affiliates may not assign this
Agreement without the Executive’s prior written consent.  IBC and its Affiliates will require any
Person to which it assigns this Agreement to assume expressly the Agreement and
agree to perform this Agreement in the same manner and to the same extent that
IBC and its Affiliates would be required to perform it if no such assignment
had taken place.  No assignment of this
Agreement shall relieve IBC or its Affiliates from liability for any of its
obligations hereunder, and in the event of any such assignment, IBC, its
Affiliates or their Successor shall continue to remain primarily liable for
payment of the Severance Benefits described in Article 4 and the Gross-Up
Payment in Article 5 and for the performance and observance of the agreements
provided herein to be performed and observed by IBC and its Affiliates.  The Executive shall have no right to
transfer or assign the right to receive any Severance Benefits under Article 4
and the Gross-Up Payment under Article 5 of this Agreement, except as permitted
under Article 6.


 


Article
10.  Costs:  Irrespective of the success of the
Executive’s claim, IBC or one of its Affiliates will reimburse the Executive,
or the legal representative of the Executive’s estate, for reasonable
attorney’s fees and costs in the event that the Executive brings legal action
to enforce payment by IBC, its Affiliates or assigns, or any Successors to any
of the foregoing, of the Severance Benefits described in Article 4 and the
Gross-Up Payment under Article 5 (plus interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code on payments of such Severance
Benefits and the Gross-Up Payment due but not timely made).


 


Article
11.  Term of Agreement:  This Agreement shall expire upon the
earliest of the following to occur:


 


a.             five (5) years from its effective date, unless extended
by the Board of Directors on or before such expiration date;


 


12

















 


b.             if a determination of the Executive’s Disability is made
before a Change in Control while this Agreement is in effect, the day following
such determination; or


 


c.             if the Executive ceases to be employed with IBC and any
of its Affiliates prior to a Change in Control, the last day of such
employment; provided that, if the Executive and IBC or one of its Affiliates
enters into a separation agreement as described in Article 7 while this
Agreement is in effect, the effective date of such separation agreement.


 


After the expiration of this Agreement, the Executive shall have no
rights to any Severance Benefits described in Article 4 and the Gross-Up
Payment described in Article 5; provided, however, if a Change in Control
occurs prior to the expiration of this Agreement, then the Executive shall be
entitled to the Gross-Up Payment described in Article 5 and, upon a subsequent
Qualifying Termination, Severance Benefits described in Article 4, and the term
of this Agreement shall be extended until the latest to occur of the following:
(a) the expiration of the Payment Period; (b) the date of the final Gross-Up
Payment due under Article 5; or (c) the expiration of the period for which
health benefits are to be provided under Article 4(b).


 


Article
12.  Notice:  Any notice or other communication required
or permitted hereunder is deemed delivered when delivered in person; on the
next business day when sent by an overnight delivery service; or on the third
business day when sent by U.S. mail service, as follows:


 


	
  To
  IBC:

  	
   

  	
  Corporate Secretary

  Interstate Bakeries Corporation

  12 East Armour Boulevard

  Kansas City, MO  64111

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To the
  Executive:

  	
   

  	
  James R. Elsesser

  Interstate Bakeries Corporation

  12 East Armour Boulevard

  Kansas City, MO  64111

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  



 


Article
13.  Venue:  ANY ACTION OR LEGAL PROCEEDING TO ENFORCE
PAYMENT OF SEVERANCE BENEFITS DESCRIBED IN ARTICLE 4 OR COMPLIANCE WITH THE
COVENANTS CONTAINED IN ARTICLES 5 OR 8 OF THIS AGREEMENT SHALL BE BROUGHT IN A
FEDERAL OR STATE COURT LOCATED WITHIN THE WESTERN DISTRICT OF MISSOURI, AND THE
PARTIES TO THIS AGREEMENT CONSENT TO THE JURISDICTION AND VENUE OF SUCH COURT.


 


13

















 


Article
14.  Missouri Law to Govern:  This Agreement shall be governed by the laws
of the State of Missouri without regard to its conflict of laws provisions.


 


Article
15.  Entire Agreement:
This Agreement, constitutes the entire understanding between the parties hereto
with respect to the subject matter hereof, and supersedes and replaces any
previous management continuity agreement or any employment contract (oral or
written) between IBC or any of its Affiliates and the Executive relating to (i)
a Qualifying Termination and (ii) Gross-Up Payments. Upon the execution of this
Agreement, all parties agree that any prior agreement (other than stock option
or equity award agreements) or employment contract covering severance payments
(or other severance-type payments) shall be considered null and void and of no
further effect in the event of a Qualifying Termination or with respect to
IBC’s or an Affiliates’ obligation to make Gross-Up Payments.


 


IN
WITNESS WHEREOF, IBC and the Executive have executed this
Agreement effective as of the 3rd day of February, 2003.


 


 


	
  ATTEST:

  	
   

  	
  INTERSTATE
  BAKERIES

  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/  Linda L.
  Thompson

  	
   

  	
   

  	
  /s/  Kent. B.
  Magill

  	
   

  
	
  Linda L. Thompson

  	
   

  	
  Kent B. Magill

  
	
  Assistant Secretary

  	
   

  	
  Vice President and General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WITNESS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/  Jolyn J.
  Sebree

  	
   

  	
   

  	
  /s/  James R.
  Elsesser

  	
   

  
	
   

  	
   

  	
  James R. Elsesser

  



 


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