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Feb 21, 2012 - The Debtors operate 36 bakeries, 565 distribution centers, ... The business plan, of which Mr. Driscoll w
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Hearing Date and Time: February 21, 2012 at 10:00 a.m. (ET) Objection Deadline: February 14, 2012 at 4:00 p.m. (ET)

JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers - and JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 Ryan T. Routh Attorneys for Debtors and Debtors in Possession

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

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

NOTICE OF HEARING ON MOTION OF DEBTORS AND DEBTORS IN POSSESSION, PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 6006 AND LOCAL BANKRUPTCY RULE 6006-1(a), FOR AN ORDER AUTHORIZING THE ASSUMPTION OF EMPLOYMENT AGREEMENT OF BRIAN J. DRISCOLL, AS AMENDED

1

The Debtors are the following six entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Hostess Brands, Inc. (0322), IBC Sales Corporation (3634), IBC Services, LLC (3639), IBC Trucking, LLC (8328), Interstate Brands Corporation (6705) and MCF Legacy, Inc. (0599).

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PLEASE TAKE NOTICE OF THE FOLLOWING: 1.

A hearing to consider the Motion of Debtors and Debtors in Possession,

Pursuant to Section 365 of the Bankruptcy Code, Bankruptcy Rule 6006 and Local Bankruptcy Rule 6006-1(a), for an Order Authorizing the Assumption of Employment Agreement of Brian J. Driscoll, as Amended (the "Motion"), filed by the above-captioned debtors and debtors in possession (the "Debtors"), shall be held before the Honorable Robert D. Drain, United States Bankruptcy Judge, in the United States Bankruptcy Court, in a courtroom to be determined, 300 Quarropas Street, White Plains, New York 10601, on February 21, 2012, at 10:00 a.m. (ET). 2.

Objections, if any, to the relief sought in the Motion must be made in

writing, with a hard copy to Chambers, conform to the Federal Rules of Bankruptcy Procedure and the Local Bankruptcy Rules for the United States Bankruptcy Court for the Southern District of New York and be filed with this Court and must be served on: (a) the Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, NY 10004 (Attn: Paul K. Schwartzberg, Esq.); (b) the Debtors, c/o Hostess Brands, Inc., 12 East Armour Blvd., Kansas City, Missouri 64111 (Attn: Kent Magill, Esq. and Jolyn Sebree, Esq.); (c) counsel to the Debtors, Jones Day, 222 East 41st Street, New York, New York 10017 (Attn: Corinne Ball, Esq., Heather Lennox, Esq. and Veerle Roovers, Esq.); (d) counsel to the lenders under the Debtors' postpetition financing facility, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064 (Attn: Alan W. Kornberg, Esq. and Brian S. Hermann, Esq.); (e) counsel to the official committee of unsecured creditors appointed in these chapter 11 cases, Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, NY 10036 (Attn: Thomas Moers Mayer, Esq. and

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Joshua Brody, Esq.); and (f) counsel to Brian J. Driscoll, Seyfarth Shaw LLP, 131 South Dearborn Street, Suite 2400, Chicago, IL 60603-5577 (Attn: Jason J. DeJonker, Esq.), not later than 4:00 p.m. (ET) on February 14, 2012 (the "Objection Deadline"). 3.

If no objections are timely filed and served with respect to the Motion, the

Debtors may, on or after the Objection Deadline, submit to the Court an order substantially in the form attached to the Motion, which order shall be submitted and may be entered with no further notice or opportunity to be heard offered to any party. 4.

Copies of the Motion may be obtained from the Court's website at

http://ecf.nysb.uscourts.gov or, free of charge, at www.kccllc.net/hostess. Respectfully submitted, Dated: February 7, 2012 New York, New York /s/ Corinne Ball Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 - and Ryan T. Routh JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION

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Hearing Date and Time: February 21, 2012 at 10:00 a.m. (ET) Objection Deadline: February 14, 2012 at 4:00 p.m. (ET)

JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers - and JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 Ryan T. Routh Attorneys for Debtors and Debtors in Possession

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

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

MOTION OF DEBTORS AND DEBTORS IN POSSESSION, PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 6006 AND LOCAL BANKRUPTCY RULE 6006-1(a), FOR AN ORDER AUTHORIZING THE ASSUMPTION OF EMPLOYMENT AGREEMENT OF BRIAN J. DRISCOLL, AS AMENDED

1

The Debtors are the following six entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Hostess Brands, Inc. (0322), IBC Sales Corporation (3634), IBC Services, LLC (3639), IBC Trucking, LLC (8328), Interstate Brands Corporation (6705) and MCF Legacy, Inc. (0599).

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TO THE HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE: Hostess Brands, Inc. ("Hostess Brands") and its five domestic direct and indirect subsidiaries, as debtors and debtors in possession (collectively with Hostess Brands, "Hostess" or the "Debtors"), respectfully represent as follows: Background 1.

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

reorganization cases by filing voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). The Debtors' chapter 11 cases have been consolidated and are being administered jointly for procedural purposes only. 2.

The Debtors are authorized to continue to operate their business and

manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 3.

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

New York (the "U.S. Trustee") appointed an official committee of unsecured creditors (the "Creditors Committee") pursuant to section 1102 of the Bankruptcy Code. On January 30, 2012, the U.S. Trustee amended the membership of the Creditors Committee. 4.

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

distributors of bread and snack cakes in the United States. Today, Hostess sells an array of popular products under new and iconic brands such as Butternut®, Ding Dongs®, Dolly Madison®, Drake's®, Home Pride®, Ho Hos®, Hostess®, Merita®, Nature's Pride®, Twinkies® and Wonder®. The Debtors operate 36 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States.

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Jurisdiction 5.

This Court has subject matter jurisdiction to consider this matter pursuant

to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Relief Requested 6.

Pursuant to section 365 of the Bankruptcy Code, Rule 6006 of the Federal

Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Rule 6006-1(a) of the Local Bankruptcy Rules of the United States Bankruptcy Court for the Southern District of New York (the "Local Bankruptcy Rules"), the Debtors hereby seek the entry of an order authorizing them to assume the employment agreement of Brian J. Driscoll, the Chief Executive Officer of Debtors Hostess Brands, Interstate Brands Corporation ("Interstate Brands") and IBC Sales Corporation ("IBC Sales") (as amended, the "Employment Agreement"), a copy of which is attached hereto as Exhibit A, and to pay all amounts set forth therein as and when they become due and owing. Facts Relevant to This Motion 7.

Debtors Hostess Brands, Interstate Brands and IBC Sales hired Brian J. Driscoll,

who has 30 years of food and beverage industry experience, as their Chief Executive Officer in June 2010.2 Prior to joining the Debtors, Mr. Driscoll was President of Sales, Customer Service and Logistics for Kraft Foods, Inc. ("Kraft"), where he managed a business generating more than $20 billion in annual revenues and fortified relationships with some of the largest domestic food

2

In addition, Mr. Driscoll is a member of the board of directors of Hostess Brands. He also is President and a member of the board of Interstate Brands and IBC Sales. He is the President and a member of the boards of managers of IBC Trucking, LLC and IBC Services, LLC. Finally, he is the Chairman of the board of directors of MCF Legacy, Inc.

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retailers, including Wal-Mart, Kroger, Safeway and Albertson's. Prior to his employment with Kraft, from 1995 to 2000, Mr. Driscoll held various posts at Nabisco, including Senior Vice President of Biscuit Direct-Store Delivery Sales and Customer Service, and before that, he held a variety of key executive roles in sales and general management at Nestlé Foods. Mr. Driscoll began his career in 1980 as a metro New York sales representative for Procter & Gamble. 8.

Since joining the Debtors less than two years ago, Mr. Driscoll has played

a key role in the Debtors' restructuring efforts. As set forth in more detail in the Affidavit of Brian J. Driscoll in Support of First Day Motions and in Accordance with Local Bankruptcy Rule 1007-2 (Docket No. 3), since he joined the Debtors, he caused the management team to take a fresh look at, and to spend considerable time and energy analyzing, the Debtors' operations, cost structure and capital structure. As a result of that review, management, under Mr. Driscoll's leadership, has developed a business plan that it believes will allow the Debtors to regain long-term viability. The business plan, of which Mr. Driscoll was the architect, is premised upon achieving a competitive cost structure, including relief from uncompetitive pension and medical benefit legacy costs, re-emphasizing and funding the marketing of the Debtors' brands, streamlining and modernizing the distribution of product and obtaining relief from other restrictive work rules that limit the company's flexibility and competitiveness. While the Debtors began negotiations with their lenders, unions and the trustees of the multiemployer pension plans months before the Petition Date to effect the transformational changes required for their businesses and Mr. Driscoll's revitalization approach, liquidity pressures necessitated the filing of these chapter 11 cases. 9.

Mr. Driscoll's industry and key customer contacts have facilitated the

Debtors' revitalized approach to raise revenues. As such, Mr. Driscoll is key to reestablishing

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the Debtors' competitive position going forward. His contacts are extremely useful to the Debtors. Obviously, they are equally useful to the Debtors' competitors and therefore it is of great value to the Debtors to assure that the company reaps the benefits of Mr. Driscoll's contacts, knowledge and experience. Absent an enforceable employment agreement with Mr. Driscoll, the Debtors are at great risk, especially since Mr. Driscoll is an executive who is in demand and who has received employment inquiries from third parties. 10.

The Debtors have undertaken the process to raise new capital by soliciting

interest and responding to inquiries from potential investors who are looking to Mr. Driscoll as key to their diligence and the future well-being of the Debtors' business. These investors will see value in having the assurance that the Debtors' competitors should not benefit from Mr. Driscoll's work, experience and contacts. Of course, in the event the Debtors will be unable to reach a resolution with labor and obtain the commitment of a new investor, the Debtors will proceed to sell their business or assets and must do so in a value maximizing way. These value maximization efforts are significantly enhanced by the non-competition clause in the Employment Agreement and the commitment of Mr. Driscoll to assist in an ensuing sale process. 11.

The terms of Mr. Driscoll's Employment Agreement are as follows:3

Position

Chief Executive Officer

Term

February 7, 2012 through June 25, 2014. Automatic renewals of additional one year periods apply thereafter, subject to certain conditions.

Termination

The Company may terminate the Employment Agreement with or without Cause. Mr. Driscoll may terminate the agreement following written notice of his intention to resign with or without Good Reason. "Good Reason" includes the occurrence of a Liquidation Event, which is defined as: (a) the board's authorization, or the Debtors' seeking this Court's approval, or the entry of an order authorizing the Debtors, to (i) engage in an orderly wind down or (ii) pursue a sale of all or a

3

All capitalized terms used but not defined in this paragraph have the meaning given to such terms in the attached Employment Agreement.

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substantial portion of all of the Debtors' assets or (b) the Debtors having sought this Court's approval to commence one or more sales under section 363 of the Bankruptcy Code of a portion of their business or assets which accounts for more than 20% of the Debtors' consolidated net sales (unless such sale has been approved by the DIP Agent and the Company is otherwise continuing to pursue the Restructuring). Compensation

Mr. Driscoll's annual base salary is $1,500,000. He will also be eligible, among other things, to: (a) receive an annual performance-based cash incentive award subject to achievement of applicable performance goals determined by the Board (subject to 4 appropriate approval by the Bankruptcy Court); (b) receive a long-term incentive compensation award of up to $2,000,000 based on the achievement of performance goals previously determined by the Board (subject to appropriate approval by the Bankruptcy Court) for the three fiscal years beginning with the fiscal year ending in May 2011 (awarded under Mr. Driscoll's existing employment agreement dated June 4, 2010 (the "Original Agreement")); (c) participate in Hostess Brands' employee benefit plans; (d) receive reimbursement for reasonable business expenses; (e) prior to his relocation to Dallas-Fort Worth, receive an annual housing allowance of $36,000 (which is in addition to the annual base salary) and reasonable commuting costs on a tax grossed-up basis. Upon his relocation, he will no longer be entitled to a housing allowance but will be entitled to reimbursement for all reasonable relocation costs on a tax grossed-up basis; and (f) receive four weeks of paid vacation per year.

Severance Payment

In the event his employment is terminated by the Company without Cause or he resigns for Good Reason, Mr. Driscoll will receive a severance payment equal to the maximum amount permissible under section 503(c)(2) of the Bankruptcy 5 Code, such amount to be calculated by Hostess' auditors and to be approved by the Board.

NonCompetition Payment

If (a) his employment is terminated by the Company without Cause, (b) he resigns for Good Reason other than the occurrence of a Liquidation Event or (c) he resigns for Good Reason upon the occurrence of a Liquidation Event, provided that (i) he has given the Company 30 days prior written notice and (ii) if applicable, he assists

4 5

The Employment Agreement does not contain a guaranteed minimum cash incentive award. Section 503(c)(2) of the Bankruptcy Code provides that: (c) [T]here shall neither be allowed, nor paid – (2) a severance payment to an insider of the debtor, unless –

(A) the payment is part of a program that is generally applicable to all full-time employees; and (B) the amount of the payment is not greater than 10 times the amount of the mean severance pay given to nonmanagement employees during the calendar year in which the payment is made[.] See 11 U.S.C. § 503(c)(2).

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the Company with the sale of substantially all of the assets of the Company and/or the liquidation of the Company during the 120 days following such notice (which can be reduced by up to 30 days if both parties agree), Mr. Driscoll will receive, subject to certain conditions, and as compensation for his agreement not to compete with the Company (as further described below), an amount equal to $1,950,000 (the "Non-Competition Payment") in 12 equal monthly installments less any severance payments. NonCompetition

During, and for a period of 18 months after the termination of employment for any reason, Mr. Driscoll may not, (a) directly or indirectly, within North America, own, manage, operate or participate in the ownership, management, operation or control of, be employed by, serve as a director for, or provide consulting services to (i) a Competitor, (ii) certain entities named in the Employment Agreement or (iii) any entity seeking to finance or acquire any assets of the Company or Hostess through a bankruptcy proceeding or otherwise (collectively, the "Competing Entities") or (b) solicit for employment or hire any employee of the Debtors. A "Competitor" generally means any person, corporation, partnership or other entity that engages in the development, preparation, manufacture, marketing and/or sale of breads and/or snack cakes.

Assignment

Each of Hostess and the Company may assign its rights and remedies in connection with section 5 (Non-Competition and Confidential Information) to any purchaser(s) of some or all of the assets of Hostess or the Company and the Assignees will have the right to enforce such rights and remedies, subject to Mr. Driscoll having been paid the Noncompetition Payments.

Bankruptcy Court Approval

The Debtors and Mr. Driscoll will cooperate in filing a motion to assume the Employment Agreement no later than February 7, 2012. In the event that the Bankruptcy Court or a higher court of competent jurisdiction denies such motion, the Original Agreement will remain in full force and effect.

12.

It is critical to the Debtors that they will be assured of Mr. Driscoll's

continued services during their reorganization. Given the uncertainty surrounding the Debtors' reorganization, more specifically the possibility that the Debtors will liquidate their assets in case the process pursuant to sections 1113 and 1114 of the Bankruptcy Code (the "1113/1114 Process") commenced by the Debtors is unsuccessful, and as stated in the motion for approval of the Debtors' postpetition financing facility (Docket No. 36) (the "DIP Financing Motion"), Mr. Driscoll requested assurances from a credit-worthy third party that he will receive certain amounts to which he is entitled under his employment arrangement with the Debtors. Indeed,

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given other potential opportunities, Mr. Driscoll was considering resigning from the Debtors in the absence of such third party assurances. 13.

Because of the critically important role that Mr. Driscoll plays in the

Debtors' reorganization efforts, the Debtors requested backstop support from the lenders that committed to backstop the Debtors' postpetition financing. Although those lenders were initially reluctant to undertake additional financial commitments that are related to the Debtors, they acknowledged that the loss of Mr. Driscoll's services at this critical juncture for the Debtors could be a significant setback for the Debtors, their estates and various constituents. Accordingly, immediately prior to the Petition Date, such backstop lenders agreed to negotiate in good faith with Mr. Driscoll to arrange and implement an acceptable agreement whereby, in exchange for the non-competition and assignment provisions that are now included in the Employment Agreement, as well as other important consideration contained therein, Mr. Driscoll would receive the financial assurances he requires. The backstop lenders have since concluded those negotiations with Mr. Driscoll and, together with other lenders that are party to the Debtors' postpetition financing agreement (collectively, the "DIP Lenders"), have agreed to backstop certain payments otherwise payable to Mr. Driscoll under his Employment Agreement in the event the company is unable to make such payments, on the terms and conditions set forth in the backstop letter agreement (the "Backstop Letter"), a copy of which is attached hereto as Exhibit B. 14.

The DIP Lenders' agreement to backstop certain payment obligations set

forth in the Employment Agreement allowed the Debtors to negotiate certain important modifications to the Original Agreement. Specifically, the non-competition clause in the Employment Agreement is critical to the Debtors. The Debtors believe that the value to their

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estates of having an enforceable non-competition clause, like the one contained in the Employment Agreement, exceeds the Non-Competition Payment set forth in the Employment Agreement. 15.

The Debtors' view has been confirmed by BDO Valuation Advisors, LLC

("BDO"), which the Debtors retained to estimate the fair market value of the non-competition provision in the Employment Agreement. Specifically, BDO has confirmed the Debtors' determination that the value of the non-competition clause to the Debtors, their estates and creditors exceeds the obligation the Debtors will undertake if their assumption of the Employment Agreement is approved. BDO's report will be available and will be filed with the Court shortly, but in any event before the objection deadline with respect to this Motion. Argument 16.

Section 365(a) of the Bankruptcy Code provides that a debtor, "subject to

the court's approval, may assume or reject any executory contract or unexpired lease." 11 U.S.C. § 365(a). Courts routinely approve motions to assume, assume and assign or reject executory contracts or unexpired leases upon a showing that the debtor's decision to take such action will benefit the debtor's estate and is an exercise of sound business judgment. See Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993), cert. dismissed sub nom., 511 U.S. 1026 (1994) (stating that section 365 of the Bankruptcy Code "permits the trustee or debtor-in-possession, subject to the approval of the bankruptcy court, to go through the inventory of executory contracts of the debtor and decide which ones it would be beneficial to adhere to and which ones it would be beneficial to reject."); see also NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984) (stating that the traditional standard applied by courts to authorize the rejection of an executory contract is that of "business judgment"); In re

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Gucci, 193 B.R. 411, 414 (S.D.N.Y. 1996) ("A bankruptcy court reviewing a trustee's . . . decision to assume or reject an executory contract should apply its 'business judgment' to determine if it would be beneficial or burdensome to the estate to assume it" (quoting In re Orion Pictures Corp., at 1099)); In re Old Carco LLC (f/k/a Chrysler LLC), 406 B.R. 180, 188 (Bankr. S.D.N.Y. 2009) ("The business judgment standard is employed by courts in determining whether to permit a debtor to assume or reject a contract."). 17.

Courts generally will not second-guess a debtor's business judgment

concerning the assumption or rejection of an executory contract or unexpired lease. See In re Balco Equities Ltd., 323 B.R. 85, 98 (Bankr. S.D.N.Y. 2005) ("A court 'should defer to a debtor's decision that rejection of a contract would be advantageous . . .'") (citation omitted); In re Riodizio, Inc., 204 B.R. 417, 424 (Bankr. S.D.N.Y. 1997) ("[A] court will ordinarily defer to the business judgment of the debtor's management"); accord Phar-Mor, Inc. v. Strouss Bldg. Assocs., 204 B.R. 948, 951-52 (Bankr. N.D. Ohio 1997) ("Whether an executory contract is 'favorable' or 'unfavorable' is left to the sound business judgment of the debtor . . . . Courts should generally defer to a debtor's decision whether to reject an executory contract."). The "business judgment" test is not a strict standard; it merely requires a showing that either assumption or rejection of the executory contract or unexpired lease will benefit the debtor's estate. See, e.g., In re Helm, 335 B.R. 528, 538 (Bankr. S.D.N.Y. 2006) ("To meet the business judgment test, the debtor in possession must establish that rejection will benefit the estate."); Westbury Real Estate Ventures, Inc. v. Bradless, Inc. (In re Bradless Stores, Inc.), 194 B.R. 555, 558 n.1 (Bankr. S.D.N.Y. 1996) ("In reviewing a debtor's decision to assume or reject an executory contract, the court must examine the contract and circumstances and apply its best 'business judgment' to determine if the

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assumption or rejection would be beneficial or burdensome to the estate." (quoting In re Orion Pictures Corp., at 1099)). 18.

The Employment Agreement is an "executory contract" within the

meaning of section 365 of the Bankruptcy Code. The Debtors believe that assumption of the Employment Agreement, at this time and with the non-competition clause set forth therein, is essential to their restructuring efforts and to the preservation of the value of their estates. The Debtors further believe that the assumption of the Employment Agreement will also show to the Debtors' constituencies the Debtors' commitment to a successful and expeditious reorganization. 19.

This is a time in which the leadership of their Chief Executive Officer is

critical to the Debtors and their constituents. The Debtors have commenced time-compressed chapter 11 cases and need certainty that Mr. Driscoll will lead them through these chapter 11 cases, that include the 1113/1114 Process that is vital to the success of these chapter 11 cases and in which the first trial is scheduled to commence on March 5, 2012. 20.

Mr. Driscoll, who is a highly valued and respected leader, possesses in-

depth knowledge of the Debtors' business, strategy and restructuring efforts and has, since his arrival in June 2010, been instrumental in the Debtors' operational review, the development and implementation of a business plan as a result thereof, the prepetition labor negotiations, the planning of these chapter 11 cases and the 1113/1114 Process. Moreover, it is Mr. Driscoll's business plan that will drive revenues and revitalize the Debtors so that they can become a viable company again. Not having the certainty of Mr. Driscoll's commitment and access to his business industry and key customer contacts at this time will put the Debtors and their restructuring as a going concern at tremendous risk, especially given the limited duration of the Debtors' postpetition financing facility.

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Furthermore, the Debtors believe that, if they were unsuccessful in their

reorganization attempt and were forced to liquidate, the Original Agreement would be rejected, which would constitute a material breach thereof, in which case Mr. Driscoll would be free to compete with the Debtors because the Debtors would not be able to enforce the non-competition clause in the Original Agreement. See, e.g., In re UFG Intern. Inc., 225 B.R. 51, 55 (Bankr. S.D.N.Y. 1998) (citing Cornell v. T.V. Dev. Corp., 17 N.Y.2d 69, 75 (1966) (otherwise valid covenant against competition is unenforceable "when the party benefited was responsible for the breach of the contract containing the covenant")); Michael I. Weintraub, M.D., P.C. v. Schwartz, 131 A.D.2d 663, 665–66 (2d Dep't 1987) (even reasonable portion of restrictive covenant was held unenforceable because employer breached contract). 22.

Assumption of the Employment Agreement provides the Debtors with

protection from competition in the event Mr. Driscoll were to resign for Good Reason (as defined in the Employment Agreement) due to a liquidation of the Debtors' businesses and assets. Specifically, in consideration for the assumption of the Employment Agreement, Mr. Driscoll has agreed to an enhanced non-competition clause, applicable during a period of 18 months (compared to 12 months under the Original Agreement) after the termination of his employment with the Debtors, that restricts Mr. Driscoll from accepting a position with responsibilities that are similar to those he possesses with the Debtors, with any Competing Entity (including any acquiror of any assets of the Debtors through these chapter 11 cases) within North America, as well as his ability to participate in the ownership of such Competing Entity, or to solicit for employment or hire any employee of the Debtors. Significantly, he has also agreed to grant the Debtors the right to assign their rights and remedies (including the

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enforcement provisions) under the non-competition and confidentiality provisions of the Employment Agreement to any purchaser(s) of assets of the Debtors. 23.

In addition, under the Employment Agreement, in the event the Debtors

must liquidate their businesses, Mr. Driscoll has committed to remain with the Debtors for 120 days following his provision of notice of his resignation for Good Reason (as defined in the Employment Agreement) to assist the Debtors in connection with such liquidation, which could take the form of assistance with a sale of substantially all of the Debtors' assets. He is not obligated to do so under the Original Agreement. The Debtors believe Mr. Driscoll's commitment to stay on during such 120-day period is of material benefit to their estates. 24.

Moreover, the non-competition and assignment provisions are highly

valuable to the Debtors because they are comprehensive, enforceable and focused on the Debtors' current needs, since (a) the outcome of the 1113/1114 Process is unknown at this time and the Debtors might be required to solicit proposals from new investors and/or proceed with asset sales in the future and (b) if Mr. Driscoll would decide to end his employment with the Debtors, the Debtors will have the certainty that he will not be able to compete with the Debtors. In these circumstances, the non-competition and assignment provisions are not only valuable to the Debtors, but also to prospective investors who will be assured that the Debtors' competitors will not benefit from Mr. Driscoll's work, experience and business contacts, which the Debtors believe will also enhance the saleable value of their assets in the event of a liquidation. In addition, Mr. Driscoll's commitment to stay with the Debtors for 120 days if the Debtors need to liquidate their business will similarly enhance the saleable value of their assets. 25.

The Debtors believe that the value of the non-competition clause and the

other provisions of the Employment Agreement surpasses the Non-Competition Payment. The

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Debtors have retained BDO to independently value the non-competition clause. While the Debtors will file BDO's expert report with the Court shortly (and in any event prior to the objection deadline for this Motion), BDO has confirmed the Debtors' determination that the value of the non-competition clause to the Debtors and their estates exceeds the obligation that the Debtors will undertake if assumption of the Employment Agreement is approved. 26.

Furthermore, the Debtors believe that replacing Mr. Driscoll with an

equally qualified candidate, if such a candidate exists and is available, would not only be a very significant setback for their restructuring but also a time-consuming and expensive process. At this time, in the current stage of these chapter 11 cases, the Debtors do not have several months to spend on recruiting a new Chief Executive Officer. Moreover, given the Debtors' chapter 11 cases and the uncertain outcome of the pending 1113/1114 Process, it is likely that a new Chief Executive Officer, if willing to join the Debtors in these circumstances, would require significantly higher compensation than the compensation to which Mr. Driscoll is entitled pursuant to the Employment Agreement. 27.

The payments to be made pursuant to the Employment Agreement comply

with section 503(c)(2) of the Bankruptcy Code. The Employment Agreement specifically limits the severance payment to the amounts permissible under section 503(c)(2). All other payments are non-severance in nature. Therefore, the Employment Agreement does not violate section 503(c)(2) of the Bankruptcy Code. See In re Dana Corp., 358 B.R. 567, 573 and 584 (Bankr. S.D.N.Y. 2006) (approving assumption of employment agreement). 28.

The Debtors do not believe that any breach of the Employment Agreement

has occurred. As a result, the Debtors do not expect to incur any costs associated with curing any defaults outstanding under the Employment Agreement pursuant to section 365 of the

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Bankruptcy Code. Therefore, while the benefits to assuming the Employment Agreement are significant, the costs are insignificant, if any. 29.

Accordingly, for all the foregoing reasons, in the sound exercise of their

business judgment, the Debtors have determined that the assumption of the Employment Agreement pursuant to section 365 of the Bankruptcy Code is in the best interests of their estates. See Id., at 584 (approving assumption of employment agreements with Chief Executive Officer and senior executives of the core management team and holding that the assumption was fair and reasonable and well within the Debtors' business judgment). 30.

Relief similar to the relief requested in this Motion has been granted by

Courts in this District. See, e.g., In re Publicard, Inc., No. 07-11517 (RDD) (Bankr. S.D.N.Y. June 20, 2007) (approving assumption of employment agreement with Chief Executive Officer); In re Calpine Corp., No. 05-60200 (BRL) (Bankr. S.D.N.Y. May 15, 2006) (approving assumption of CEO employment agreement); In re Teligent, Inc., No. 01-12974 (SMB) (Bankr. S.D.N.Y. July 30, 2001) (approving assumption of amended employment agreement of Chief Operating Officer and Senior Vice President, reporting directly to the Chairman and Chief Executive Officer).6 Notice 31.

No trustee or examiner has been appointed in these chapter 11 cases.

Notice of this Motion has been provided to: (a) the U.S. Trustee; (b) counsel to the DIP Lenders; (c) counsel to General Electric Capital Corporation, as agent under the Debtors' first lien assetbacked revolving credit facility; (d) counsel to Silver Point Finance, LLC, as agent under the 6

The unreported orders cited herein are not attached to this Motion. Copies of these unreported orders will be made available to the Court at or prior to the hearing on this Motion and are available to other parties from counsel to the Debtors upon request.

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Debtors' first lien term loan facility and third lien credit facility; (e) counsel to The Bank of New York Mellon Trust Company, as indenture trustee for the Debtors' fourth lien 5% secured convertible notes; (f) counsel to IBC Investors I, LLC, IBC Investors II, LLC and IBC Investors III, LLC; (g) counsel to the International Brotherhood of Teamsters; (h) counsel to the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union; (i) counsel to the Creditors Committee; (j) those persons who have formally appeared and requested service in this proceeding pursuant to Bankruptcy Rule 2002; and (k) counsel to Brian J. Driscoll. The Debtors submit that no other or further notice need be provided. No Prior Request 32.

No prior request for the relief sought in this Motion has been made to this

or any other Court in connection with these chapter 11 cases.

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WHEREFORE, the Debtors respectfully request that the Court (i) enter an order substantially in the form attached hereto as Exhibit C, granting the relief requested herein; and (ii) grant such other and further relief to the Debtors as the Court may deem proper. Respectfully submitted, Dated: February 7, 2012 New York, New York

/s/ Corinne Ball Corinne Ball Heather Lennox Lisa Laukitis Veerle Roovers JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 - and Ryan T. Routh JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telephone: (216) 586-3939 Facsimile: (216) 579-0212 ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION

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EXHIBIT A Employment Agreement

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FORM OF RELEASE OF CLAIMS 1.

Release of Claims

In partial consideration of the severance and noncompetition payments described in Sections 4.8 and 4.9 of that certain letter agreement, dated as of February 7, 2012 by and among Brian J. Driscoll (“Executive”), Interstate Brands Corporation (the “Company”), Hostess Brands Inc. (“Hostess”), and each of their subsidiaries (the “Employment Agreement”), to which Executive agrees that Executive is not entitled until and unless Executive executes this Release and it becomes effective in accordance with the terms hereof, Executive, for and on behalf of himself and his heirs, successors and assigns, subject to the last sentence of this Section 1, hereby waives and releases any common law, statutory or other complaints, claims, charges or causes of action of any kind whatsoever, both known and unknown, in law or in equity, which Executive ever had, now has or may have against the Company, Hostess, their respective shareholders, subsidiaries, predecessors, successors, assigns, directors, officers, partners, members, managers, employees, trustees (in their official and individual capacities), employee benefit plans and their administrators and fiduciaries (in their official and individual capacities), representatives or agents, and each of their affiliates, successors and assigns, (collectively, the “Releasees”) by reason of facts or omissions which have occurred on or prior to the date that Executive signs this Release, including, without limitation, any complaint, charge or cause of action arising out of Executive’s employment or termination of employment, or any term or condition of that employment, or arising under federal, state or local laws pertaining to employment, including, but not limited to, the Age Discrimination in Employment Act of 1967 (“ADEA,” a law which prohibits discrimination on the basis of age), the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1990, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991 and any other Federal, state and local laws relating to discrimination on the basis of age, sex or other protected class, the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act, the Sarbanes-Oxley Act of 2002, all as amended, and all claims under Federal, state or local laws for express or implied breach of contract, wrongful discharge, defamation, intentional infliction of emotional distress, and any related claims for attorneys’ fees and costs. Executive further agrees that this Agreement may be pleaded as a full defense to any action, suit, arbitration or other proceeding covered by the terms hereof which is or may be initiated, prosecuted or maintained by Executive, Executive’s descendants, dependents, heirs. executors, administrators or permitted assigns. By signing this Release, Executive acknowledges that Executive intends to waive and release any rights known or unknown that Executive may have against the Releasees under these and any other laws; provided, that Executive does not waive or release claims with respect to (i) any rights he may have to any severance payments or noncompetition payments under the Employment Agreement, (ii) any rights Executive has, or may have in the future, to indemnity, defense or other rights as a director of Hostess, officer, employee or agent of the Company or Hostess pursuant to their respective articles of association, organizational regulations, and officers and directors insurance, or (iii) rights that cannot be released as a matter of law, (collectively, the “Unreleased Claims”).

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EXHIBIT B Backstop Letter

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EXHIBIT C Proposed Order

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

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

ORDER AUTHORIZING THE ASSUMPTION OF EMPLOYMENT AGREEMENT This matter coming before the Court on the Motion of Debtors and Debtors in Possession, Pursuant to Section 365 of the Bankruptcy Code, Bankruptcy Rule 6006 and Local Bankruptcy Rule 6006-1(a), for an Order Authorizing the Assumption of Employment Agreement of Brian J. Driscoll, as Amended (the "Motion"),2 filed by the debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors"); the Court having reviewed the Motion and having considered the statements of counsel and the evidence adduced with respect to the Motion at a hearing before the Court (the "Hearing"); the Court having found that (i) the Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, (ii) this is a core proceeding pursuant to 28 U.S.C. § 157(b), (iii) notice of the Motion and the Hearing was sufficient under the circumstances, (iv) a sound business purpose exists for the relief granted herein and (v) the assumption of the Employment Agreement is in the best interests of the

1

2

The Debtors are the following six entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Hostess Brands, Inc. (0322), IBC Sales Corporation (3634), IBC Services, LLC (3639), IBC Trucking, LLC (8328), Interstate Brands Corporation (6705) and MCF Legacy, Inc. (0599). Capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Motion.

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Debtors, their estates and creditors; and the Court having determined that the legal and factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein; IT IS HEREBY ORDERED THAT: 1.

The Motion is GRANTED.

2.

The Debtors are authorized to assume the Employment Agreement

pursuant to section 365 of the Bankruptcy Code, effective as of the date hereof, and to pay all amounts set forth therein as and when the same become due and owing. 3.

Any and all amounts payable by the Debtors pursuant to Sections 4.8

and/or 4.9 of the Employment Agreement that remain outstanding following a Liquidation Event (as such term is defined in the Final Order approving the DIP Financing Motion (Docket No. 254) (the "DIP Financing Order")) shall be included in, and treated as, the "Carve Out" (as such term is defined in the DIP Financing Order). 4.

No cure amount is due by the Debtors in connection with the Debtors'

assumption of the Employment Agreement. 5.

This Court shall retain jurisdiction to resolve all matters arising from or

related to the interpretation, implementation and/or enforcement of this Order.

Dated: White Plains, New York ____________, 2012 ____________________________________ UNITED STATES BANKRUPTCY JUDGE

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