**Exhibit10.6**

 

**MANAGEMENT CONTINUITY AGREEMENT**

 

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

 

**WITNESSETH:**

 

**WHEREAS,** the Compensation Committee, asdefined herein, in action taken at a meeting held on February 3, 2003, andsubsequently approved by the Board of Directors in action taken at a meeting onFebruary 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 isimperative, in the event of an attempted Change in Control, as defined herein,that certain key executives continue employment with IBC or one of itsAffiliates, and that IBC be able to receive and rely upon the advice of suchexecutives on the best interests of IBC and its shareholders, without concernthat the executives may be distracted by uncertainties as to their own positionor security; and

 

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

 

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

 

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

 

**Article1.  Definitions:**  Forpurposes of this Agreement, the following terms shall have the meanings setforth below:

 

a.             **Affiliate: **AnAffiliate shall mean any Person who, directly or indirectly or through one ormore 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 grosssalary paid by IBC or one of its Affiliates, whether paid or deferred, for thelast full month preceding the Executive’s Qualifying Termination or for thelast full month preceding the Change in Control, whichever is greater; and

 

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(ii)  a one (1) month portion (as if earnedratably over the relevant period) of the greater of (x) the Executive’s mostrecent annual (or, if applicable, pro rata portion of the annual) bonusreceived from IBC or one of its Affiliates, whether paid or deferred, precedingthe Executive’s Qualifying Termination or the Change in Control, whichever isgreater and (y) the target incentive award for the Executive under theIncentive Plan;

 

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

 

d.             **Board of Directors:**  The Board of Directorsshall mean the Board of Directors of IBC.

 

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

 

f.              **Change in Control:**  A Change in Control shall mean an occurrenceset forth in Article 2.

 

g.             **Code:** The Code shall mean the Internal Revenue Code of 1986, as amended orreplaced from time to time and including any rulings and Treasury regulations issuedthereunder.

 

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 inControl, in lieu of, or in addition to, the Common Stock, as a result of (i) amerger or consolidation of IBC, (ii) the creation of a class or classes oftracking stock, or (iii) the reclassification of any of the foregoing.

 

i.              **Compensation Committee:**  The Compensation Committee shall mean theCompensation Committee of IBC.

 

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

 

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

 

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

 

(ii)           to direct the business, managementand policies of a Person or direct the sale of a substantial portion of itsassets.

 

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

 

m.            **Discount Rate:**  The Discount Rate shall mean the “applicable interest rate” (andthe mortality tables, if applicable) prescribed under Section 417(e)(3) of theCode 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 theExchange Act.

 

p.             **Incentive Plan:**  The Incentive Plan shall mean the Interstate Brands CorporationIncentive Compensation Plan for Corporate and Division Management as the samemay be amended from time to time and all similar plans adopted during the termof this Agreement.

 

q.             **Payment Period:**  The Payment Period shall mean the period commencing with thefirst day of the month following the month in which a Qualifying Terminationoccurs 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 liabilitycompany, business trust, trust, association or any other business organizationor entity, whether incorporated or unincorporated, or any division thereof.

 

s.             **Qualifying Termination:**  A Qualifying Termination shall mean theExecutive’s termination of employment, within two (2) years after a Change inControl, 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 accountof:

 

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

 

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

 

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

 

(iii)          the Executive’s death; or

 

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

 

It is expressly understood that Executive shall in noevent be deemed to have waived his or her right to Severance Benefits underArticle 4 of this Agreement if Executive remains employed during or after atime during which he or she ceased to have Substantially the Same Employmentafter a Change in Control, as long as the Executive incurs a termination ofemployment within two (2) years after such Change in Control and suchtermination 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 CorporationRetirement Income Plan, as amended, or any successor retirement plan adopted byIBC.

 

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

 

v.             **Substantially the Same Employment:**  Substantially the Same Employment shall meanemployment 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 inControl:

 

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

 

(ii)           no reduction in the annual bonusaward opportunity below the performance target applicable to the Executive, forboth personal

 

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

 

(iii)          no substantial reduction inExecutive’s participation in any executive incentive compensation plans inwhich Executive participated immediately before the Change in Control, unless asubstantially equivalent arrangement (embodied in an ongoing substitute oralternative plan) has been made with respect to such executive incentivecompensation plans, and such arrangement provides benefits not materially lessfavorable to the Executive (both in terms of the amount of benefits providedand the level of the Executive’s participation relative to other participants);and

 

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

 

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

 

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

 

w.            **Successor:** A Successor shall mean (i) the continuing, surviving or successor Personwhich is created, or remains in existence, upon the merger or consolidation oftwo 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 IBCSupplemental Executive Retirement Plan, as amended, or any successorsupplemental 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 ofDirectors that Continuing Directors shall have ceased (for any reason) toconstitute 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 Personand its Affiliates or by a Group and Affiliates of members of such Group, ofthe Beneficial Ownership of fifty percent (50%) or more of the then-outstandingCommon Stock of IBC (other than acquisitions by IBC, an IBC Affiliate, or anytrustee or other fiduciary holding IBC Common Stock pursuant to the terms ofany IBC benefit plan); or

 

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

 

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

 

e.             A finding by a majority of the Continuing Directors thata sale, disposition, merger or other transaction or event designated by suchContinuing 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 deemedto constitute a Change in Control.

 

**Article3.  Operation of Agreement:**  This Agreement shall not create anyobligation on the part of IBC or its Affiliates, or the Executive, to continuethe Executive’s employment relationship. Anything in this Agreement to the contrary notwithstanding, theExecutive shall not be entitled to Severance Benefits, as defined below, underthis Agreement unless and until there has been a Change in Control and theExecutive has had a Qualifying Termination. Except as hereinafter provided, this Agreement shall not affect anyother benefit program (as such programs may be amended) applicable to theExecutive; provided, that, by execution of this Agreement, the Executive herebywaives any and all claims to benefits under any termination or severance planor similar severance arrangement offered by IBC or its Affiliates to all orsome of their employees during the term of this Agreement, that would otherwiseby payable to the Executive on account of, or coincident with, a Change inControl and termination of employment.

 

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**Article4.  Severance Benefits:**  If the Executive remains in the employ ofIBC or one of its Affiliates until a Change in Control has occurred, then uponthe Executive’s Qualifying Termination within two (2) years after a Change inControl, the Executive shall be entitled to the following benefits (“SeveranceBenefits”), subject to withholding of any federal, state or local taxes which,in the opinion of counsel for the payor of the Severance Benefits, are requiredto be withheld, and further subject to Article 5 of this Agreement:

 

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

 

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

 

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

 

d.             During the Payment Period, the Executive may request inwriting, and IBC or one of its Affiliates shall at its expense engage within areasonable time following such written request, an outplacement counselingservice of national reputation to assist the Executive in obtainingemployment.  The Executive shall beentitled to outplacement services which are customary for someone in theExecutive’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 contrarynotwithstanding, and except as set forth below, in the event it shall bedetermined under the provisions of Article 5(b) that any payment ordistribution 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 ordistributed or distributable pursuant to the terms of this Agreement orotherwise, including without limitation any other plan, arrangement oragreement with such Payor, and including a determination (i) with regard to thevalue of any accelerated vesting of stock awards or other forms ofcompensation, 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 theCode, or any interest or penalties are incurred by the Executive with respectto such excise tax (such excise tax, together with any such interest andpenalties, are hereinafter collectively referred to as the “Excise Tax”), thenthe Executive shall be entitled to receive an additional payment (a “Gross-UpPayment”).  This Gross-Up Payment shallbe 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 interestand penalties imposed with respect thereto) and (ii) Excise Tax imposed uponthe Gross-Up Payment, the Executive retains an amount of the Gross-Up Paymentequal to the Excise Tax imposed upon the payments.  The obligation of IBC or one of its Affiliates to make Gross-UpPayments under this Article 5(a) shall not be conditioned upon the Executive’sQualifying Termination of Employment. For purposes of determining the amount of the Gross-Up Payment, theExecutive shall be deemed to pay federal income taxes at the highest marginalrate of federal income taxation in the calendar year in which the Gross-UpPayment is to be made, and state and local income taxes at the highest marginalrate of taxation in either the state and locality of the Executive’s place ofemployment at the time of the Change in Control or in the state and locality ofresidence at the time or times of payment, as applicable, net of the maximumreduction in federal income taxes that could be obtained from the deduction ofthe state and local taxes.

 

Notwithstanding the foregoing provisions of thisArticle 5(a), if it shall be determined that the Executive is entitled to aGross-Up Payment, but that the Payments do not exceed 110 percent of thegreatest amount (the “Reduced Amount”) that could be paid to the Executive suchthat the receipt of Payments would not give rise to any Excise Tax, then noGross-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 bemade by first reducing the payments under Article 4(a) hereof, and in any eventshall be made in such a manner as to maximize the value of all Paymentsactually made to the Executive.  Forpurposes of reducing the payments to the Reduced Amount, only amounts payableunder this Agreement (and no other

 

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Payments) shall be reduced.  If the reduction of amounts payable under this Agreement wouldnot result in the payment of the Reduced Amount, no amounts payable under thisAgreement shall be reduced.

 

b.             IBC shall provide written notice to the Executive withrespect to each Payment promptly after it occurs, setting forth the nature ofsuch Payment.  Subject to the provisionsof 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 ofsuch Gross-Up Payment and the assumptions to be utilized in arriving at suchdetermination, shall be made by a nationally recognized certified publicaccounting firm as may be designated by the Executive (the “AccountingFirm”).  Within 15 days after theAccounting Firm has been notified by the Executive or IBC that a Payment hasoccurred, the Accounting Firm shall provide detailed supporting calculationswith respect to such Payment both to IBC and the Executive.  All fees and expenses of the Accounting Firmshall be borne solely by IBC.  AnyGross-Up Payment, as determined pursuant to this Article 5, shall be paid byIBC or one of its Affiliates to the Executive within five days of the receiptof the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon IBC orits Affiliate and the Executive.  As aresult of any uncertainty in the application of Section 4999 of the Code at thetime of the initial determination by the Accounting Firm hereunder, it ispossible that Gross-Up Payments which will not have been made by IBC or one ofits Affiliates should have been made (“Underpayment”), consistent with thecalculations required to be made hereunder. In the event that IBC exhausts its remedies pursuant to Article 5(c) andthe Executive thereafter is required to make a payment of any Excise Tax, theAccounting Firm shall determine the amount of the Underpayment that hasoccurred and any such Underpayment shall be promptly paid by IBC or one of itsAffiliates to or for the benefit of the Executive.

 

c.             The Executive shall notify IBC in writing of any writtencommunication from the Internal Revenue Service or other taxing authorityconcerning the Gross-Up Payment or other matters arising under thisAgreement.  Such notification shall begiven as soon as practicable but no later than ten business days after theExecutive receives such written communication and shall apprise IBC of thecontent of such communication.  Failureto give timely notice shall not be deemed to prejudice the Executive’s rightsto Gross-Up Payment and rights of indemnity hereunder.  The Executive shall not pay any claimpursuant to such written communication prior to the expiration of the 30-dayperiod following the date on which the Executive gives such notice to IBC (orsuch shorter period ending on the date that any payment of taxes with respectto such claim is due).  If IBC notifiesthe Executive in writing prior to the expiration of such period that it desiresto contest such claim, the Executive shall (i) give IBC any informationreasonably requested by IBC relating to such claim, (ii) take such action inconnection with contesting such claim as IBC shall reasonably request inwriting from time to time, including, without limitation, accepting legalrepresentation with respect to such claim by an attorney reasonably selected byIBC, (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 allcosts and expenses (including additional interest and penalties) incurred inconnection with such contest and shall indemnify and hold the Executive harmless,such that after payment by the Executive of any and all income taxes, ExciseTaxes and FICA taxes (including any interest and penalties imposed with respectthereto) (“Taxes”) that may be imposed as a result of such representation andpayment of costs and expenses by IBC or one of its Affiliates, the Executiveretains an amount equal to such Taxes. Without limitation on the foregoing provisions of this Article 5(c), IBCshall control all proceedings taken in connection with such contest and, at itssole option, may pursue or forgo any and all administrative appeals,proceedings, hearings and conferences with the taxing authority in respect ofsuch claim and may, at its sole option, either direct the Executive to payTaxes claimed and sue for a refund or contest the claim in any permissiblemanner, and the Executive agrees to prosecute such contest to a determinationbefore any administrative tribunal, in a court of initial jurisdiction and inone or more appellate courts, as IBC shall determine; provided, however, thatif IBC directs the Executive to pay such claim and sue for a refund, IBC or oneof its Affiliates shall advance the amount of such payment to the Executive, onan interest-free basis, and shall indemnify and hold the Executive harmless suchthat, after payment by the Executive of Taxes imposed with respect to suchadvance or with respect to any imputed income with respect to such advance, theExecutive retains an amount equal to such Taxes.  Furthermore, IBC’s control of the contest shall be limited toissues with respect to which a Gross-Up Payment would be payable hereunder andthe Executive shall be entitled to settle or contest, as the case may be, anyother issue raised by the Internal Revenue Service or any other taxingauthority unrelated to the subject matter of this Agreement.

 

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

 

**Article6.  Designated Beneficiary:** The Executive, by notice in accordance withArticle 12 hereof, may designate a beneficiary or contingent beneficiaries toreceive the Severance Benefits described in Article 4 and the Gross-Up Paymentdescribed in Article 5 in the event of the Executive’s death following theExecutive’s Qualifying Termination

 

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but prior to payment in full of said Severance Benefits and/or Gross-upPayments by IBC, one of its Affiliates, or their Successor or assigns.  The Executive may, from time to time, revokeor change any such designation of beneficiary. Any designation of beneficiary made pursuant to this Agreement shall becontrolling over any other designation made by the Executive, testamentary orotherwise; provided, that if IBC or one of its Affiliates shall be in doubt asto the right of a beneficiary to receive payments, it may determine in its solediscretion to pay such amounts to the legal representative of the Executive’sestate.

 

**Article7.  Early Separation:**  In the event that, prior to a Change inControl, the Executive executes a separation agreement with IBC or any of itsAffiliates during the term of this Agreement which, by its terms, specificallyaddresses issues related to the Executive’s termination of employment andbenefits to be paid upon such termination, all of the Executive’s rights,claims and entitlements under this Agreement shall terminate even if, under theterms of such separation agreement, the Executive remains employed by IBC orone of its Affiliates for a period of time after execution of such separationagreement.

 

**Article8.  Restrictions:**  The Executive agrees, as a condition ofreceiving the Severance Benefits described under Article 4 or the Gross-UpPayment described under Article 5, that during the Payment Period the Executivewill not, as an individual or as a partner, employee, agent, advisor,consultant or in any other capacity of or to any person, firm, corporation orother entity (excluding IBC, a Buyer, or a Successor or Affiliate of theforegoing), directly or indirectly, other than as a 2% or less shareholder of apublicly traded corporation, do any of the following:

 

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

 

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

 

The Executive agrees (i) that the restraints containedin this Article 8, both separately and in total, are reasonable in view of thelegitimate interests of IBC in protecting its, and its Affiliates’, tradesecret information and business relationships; and (ii) to disclose to anypotential future employer during the Payment Period, the terms of therestrictions against competition contained in this Article 8.  The requirement of this Article 8 will bewaived by IBC in the event the Executive (i) does not receive any of theSeverance Benefits described under Article 4 or the Gross-Up Payment describedunder Article 5 and (ii) voluntarily disclaims, in writing, all of his or herrights to receive any such Severance Benefits or Gross-Up Payment pursuant tothe terms of this Agreement and any other severance payments and benefits inconnection with the Executive’s Qualifying Termination.

 

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If any provision or subpart of this Article 8 isadjudicated to be invalid or unenforceable under applicable law, the validityor enforceability of the remaining provisions and subparts shall beunaffected.  If any provision or subpartof this Article 8 is adjudicated to be invalid or unenforceable because it isoverbroad or unreasonable, that provision or subpart shall not be void butrather shall be limited to the extent required to make it reasonable and shallbe 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 inArticle 4 and the Gross-Up Payment described in Article 5 that have not beenpaid as of the date of the breach, or (ii) shall be entitled, in addition toany other legal or equitable remedies it may have, to temporary, preliminaryand permanent injunctive relief restraining such breach.

 

**Article9.  Successors and Assigns:**  This Agreement shall inure to the benefitof, and be binding upon, IBC, its Affiliates and their Successors.  IBC and its Affiliates may not assign thisAgreement without the Executive’s prior written consent.  IBC and its Affiliates will require anyPerson to which it assigns this Agreement to assume expressly the Agreement andagree to perform this Agreement in the same manner and to the same extent thatIBC and its Affiliates would be required to perform it if no such assignmenthad taken place.  No assignment of thisAgreement shall relieve IBC or its Affiliates from liability for any of itsobligations hereunder, and in the event of any such assignment, IBC, itsAffiliates or their Successor shall continue to remain primarily liable forpayment of the Severance Benefits described in Article 4 and the Gross-UpPayment in Article 5 and for the performance and observance of the agreementsprovided herein to be performed and observed by IBC and its Affiliates.  The Executive shall have no right totransfer or assign the right to receive any Severance Benefits under Article 4and the Gross-Up Payment under Article 5 of this Agreement, except as permittedunder Article 6.

 

**Article10.  Costs:**  Irrespective of the success of theExecutive’s claim, IBC or one of its Affiliates will reimburse the Executive,or the legal representative of the Executive’s estate, for reasonableattorney’s fees and costs in the event that the Executive brings legal actionto enforce payment by IBC, its Affiliates or assigns, or any Successors to anyof the foregoing, of the Severance Benefits described in Article 4 and theGross-Up Payment under Article 5 (plus interest at the applicable federal rateprovided for in Section 7872(f)(2) of the Code on payments of such SeveranceBenefits and the Gross-Up Payment due but not timely made).

 

**Article11.  Term of Agreement:**  This Agreement shall expire upon theearliest of the following to occur:

 

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

 

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b.             if a determination of the Executive’s Disability is madebefore a Change in Control while this Agreement is in effect, the day followingsuch determination; or

 

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

 

After the expiration of this Agreement, the Executive shall have norights to any Severance Benefits described in Article 4 and the Gross-UpPayment described in Article 5; provided, however, if a Change in Controloccurs prior to the expiration of this Agreement, then the Executive shall beentitled to the Gross-Up Payment described in Article 5 and, upon a subsequentQualifying Termination, Severance Benefits described in Article 4, and the termof 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-UpPayment due under Article 5; or (c) the expiration of the period for whichhealth benefits are to be provided under Article 4(b).

 

**Article12.  Notice:**  Any notice or other communication requiredor permitted hereunder is deemed delivered when delivered in person; on thenext business day when sent by an overnight delivery service; or on the thirdbusiness 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   |
|                   |   |
|                   |   |
|                   |   |

 

**Article13.  Venue:  ANY ACTION OR LEGAL PROCEEDING TO ENFORCEPAYMENT OF SEVERANCE BENEFITS DESCRIBED IN ARTICLE 4 OR COMPLIANCE WITH THECOVENANTS CONTAINED IN ARTICLES 5 OR 8 OF THIS AGREEMENT SHALL BE BROUGHT IN AFEDERAL OR STATE COURT LOCATED WITHIN THE WESTERN DISTRICT OF MISSOURI, AND THEPARTIES TO THIS AGREEMENT CONSENT TO THE JURISDICTION AND VENUE OF SUCH COURT.**

 

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**Article14.  Missouri Law to Govern:**  This Agreement shall be governed by the lawsof the State of Missouri without regard to its conflict of laws provisions.

 

**Article15.  Entire Agreement:**This Agreement, constitutes the entire understanding between the parties heretowith respect to the subject matter hereof, and supersedes and replaces anyprevious management continuity agreement or any employment contract (oral orwritten) 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 thisAgreement, all parties agree that any prior agreement (other than stock optionor equity award agreements) or employment contract covering severance payments(or other severance-type payments) shall be considered null and void and of nofurther effect in the event of a Qualifying Termination or with respect toIBC’s or an Affiliates’ obligation to make Gross-Up Payments.

 

**INWITNESS WHEREOF**, IBC and the Executive have executed thisAgreement 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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