================================================================= INTERSTATE BAKERIES BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2004 (ISSN XXXX-XXXX) September 23, 2004 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- INTERSTATE BAKERIES BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Freya Natasha P. Fernandez, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of INTERSTATE BAKERIES BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO INTERSTATE BAKERIES BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF INTERSTATE BAKERIES [00002] CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 6, 2004 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] INTERSTATE BAKERIES' CHAPTER 11 DATABASE [00005] LIST OF THE DEBTORS' 30-LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION TO APPROVE $200,000,000 DIP FINANCING [00007] S&P LOWERS INTERSTATE BAKERIES RATINGS TO 'D' KEY DATE CALENDAR ----------------- 09/22/04 Voluntary Petition Date 10/07/04 Deadline for filing Schedules of Assets and Liabilities 10/07/04 Deadline for filing Statement of Financial Affairs 10/07/04 Deadline for filing Lists of Leases and Contracts 10/12/04 Deadline to provide Utilities with adequate assurance 11/21/04 Deadline to make decisions about lease dispositions 12/21/04 Deadline to remove actions pursuant to F.R.B.P. 9027 01/20/05 Expiration of Debtors' Exclusive Plan Proposal Period 03/21/05 Expiration of Debtors' Exclusive Solicitation Period 09/22/06 Expiration of $200,000,000 DIP Financing Facility 09/22/06 Deadline for Debtors to Commence Avoidance Actions Organizational Meeting with UST to form Committees First Meeting of Creditors pursuant to 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO INTERSTATE BAKERIES BANKRUPTCY NEWS ----------------------------------------------------------------- INTERSTATE BAKERIES BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Please enter my personal subscription to INTERSTATE BAKERIES BANKRUPTCY NEWS at US$45 per issue until I tell you to cancel my subscription. Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) INTERSTATE BAKERIES BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of INTERSTATE BAKERIES BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF INTERSTATE BAKERIES ----------------------------------------------------------------- Interstate Bakeries Corporation 12 E. Armour Boulevard Kansas City, Missouri 64111 http://www.interstatebakeriescorp.com/ Interstate Bakeries Corporation is the largest wholesale baker and distributor of fresh baked bread and sweet goods in the United States. The Company has three major divisions: -- the Western Division, headquartered in Phoenix, Arizona; -- the Central Division, headquartered in Kansas City, Missouri; and -- the Eastern Division, headquartered in Charlotte, North Carolina. The Company also sells dry products. The Company operates 54 bakeries and more than 1,000 distribution outlets throughout the United States and employs more than 33,000 people. From these strategically dispersed bakeries, the Company's sales force delivers baked goods to more than 200,000 food outlets on approximately 9,100 delivery routes. The Company's products are distributed throughout the United States, primarily through its direct route system and approximately 1,200 Company-operated thrift stores, and to some extent through distributors. Interstate Bakeries' product line is marketed under a number of well-known national and regional brands, which include Wonder, Hostess, Home Pride, Drake's, Beefsteak, Bread du Jour, Dolly Madison, Butternut, Merita, Parisian, Colombo, Sunbeam, Millbrook, Eddy's, Holsum, Sweetheart, Cotton's Holsum, Di Carlo, J.J. Nissen, Marie Callender's and Mrs. Cubbison's. In addition, the Company is a baker and distributor of Roman Meal and Sun-Maid bread. For the 52 weeks ending May 29, 2004, the Company generated net sales of $3,468,000,000 and reported a net loss of approximately $26,000,000. For that same period, the Debtors estimate assets of $1,626,000,000, at book value, and liabilities totaling $1,322,000,000. Bakery outlet sales represented approximately 12% of net sales during the 52-week period ended May 29, 2004. The Debtors Interstate Bakeries Corporation is the parent corporation of the Debtors, and owns or licenses all of Debtors' trademarks and tradenames. IBC Services, LLC, provides corporate management services to the Debtors. Interstate Brands Corporation operates the bakeries and produces the Debtors' products. The majority of the Debtors' assets, including the majority of real property, are owned or leased by Interstate Brands. The majority of the Debtors' work force is employed by Interstate Brands. Interstate Brands then makes a portion of these employees available to IBC Services and IBC Sales under various arrangements. IBC Sales Corporation provides sales and distribution services to the Debtors. IBC Trucking, LLC, provides transportation services to IBC Sales through employees leased from IBC Sales. Baker's Inn Quality Baked Goods, LLC, does not own any assets. Baker's Inn was formed and is registered to do business in various states to aid in the protection of the Baker's Inn trademark owned by Interstate Bakeries and in support of the marketing of Debtors' products sold under the "Baker's Inn" registered trademark. Armour and Main Redevelopment Corporation is a Missouri redevelopment corporation no longer actively engaged in business. New England Bakery Distributors, LLC, is a Connecticut limited liability company no longer actively engaged in business. Events Leading to the Chapter 11 Filing The Debtors cite five primary challenges that have hindered their ability to successfully compete in the markets in which they operate: (1) Declining Sales The Debtors experienced volume declines in both branded cake and branded bread sales. During fiscal 2004 -- ending May 29, 2004 -- total unit volumes of branded bread declined by 3.7% from the comparable fiscal 2003 period, while unit volumes of branded sweet goods also declined by 3.7%. Consumer interest in low-carbohydrate diets contributed to the reduced demand for the Debtors' products. Consumer interest in reduced carbohydrate consumption increased during the last fiscal year as a result of the popularity of diets like the Atkins and South Beach diets. The Debtors introduced new product lines and whole grain foods to address new consumer demands. However, the substantial majority of the Debtors' bread revenues are generated from the sale of white bread and other refined grain bread products. (2) High Fixed-Cost Structure The Debtors have not been able to adequately reduce their costs in response to decreased demand for their products due to their somewhat inflexible fixed cost structure. Because approximately 81% of the Debtors' workers are employed under collective bargaining agreements, the Debtors' wages are generally higher and the Debtors' ability to implement productivity improvements and effect savings with respect to health care, pension and other retirement costs is more restricted than that of many non-union competitors. (3) Excess Industry Capacity Bakery industry consolidation by larger food companies and more efficient production methods, including extended shelf life programs, have resulted in excess industry capacity. This excess industry capacity has made it more difficult for the Debtors to raise their selling prices to offset increased costs of production. (4) Rising Employee Pension and Healthcare Costs The Debtors also face rising healthcare and pension costs required to be paid under the various collective bargaining agreements. In addition, non-union healthcare costs are rising. These costs have risen more dramatically for the Debtors than for some of their competitors due to the aging of the Debtors' workforce and the Debtors' high proportion of union employees. (5) Higher Costs for Ingredients and Energy The principal raw materials used to produce the Debtors' fresh bread and sweet goods, or package the Debtors products as well as gas, electricity and fuel used in the Debtors' bakeries and trucks are all subject to substantial price fluctuations. The Debtors experienced sharply rising prices at various times for their raw materials, packaging and energy needs during the period before the Petition Date. Debtors' Competitive Initiatives In 2003, the Debtors commenced a major, company-wide project, internally referred to as Program SOAR, an acronym for Systems Optimization And Re-engineering. Program SOAR is focused on re- engineering the Debtors' business processes to increase efficiency, centralizing the Debtors' management and administrative function from a longstanding decentralized model, and rationalizing investment in production, distribution and administrative functionality to reduce the ongoing cost of supporting these infrastructures. Direct costs of the multi-year program are expected to total approximately $60,000,000, of which approximately $9,600,000 was spent in fiscal 2003 and $22,600,000 in fiscal 2004. Most of the costs related to software and hardware acquisition and consulting fees. The Debtors expect to realize savings on a going forward basis as a result of these expenditures, in areas like: (i) closure, consolidation and realignment of manufacturing and distribution facilities; (ii) centralization, negotiation and effective management of company-wide purchasing; and (iii) efficient coordination of trade promotion spending based on market analysis. The Debtors estimated that Program SOAR would generate savings of approximately $25,000,000 in fiscal 2005, prior to restructuring costs, and that savings would be even greater in subsequent years of Program SOAR's estimated three-year implementation period. In addition to Program SOAR, during fiscal 2004 and before the Petition Date, the Debtors closed or began closing five bakeries and 96 bakery outlets and began the restructuring of several other facilities. As a result, the Debtors have incurred or will incur one time restructuring charges aggregating several million dollars. However, the Debtors estimate pre-tax annual savings from these actions to be approximately $10,000,000 to $12,000,000. Debtors' Financial Deterioration Despite their efforts to address the competitive challenges they have recently faced, the Debtors experienced certain specific and compounding events leading to their decision to reorganize under Chapter 11: March 31, 2004 Interstate Bakeries suspended payment of dividends on its publicly held common stock due to declining cash flow. April 2004 Standard & Poor's Rating Services lowered its rating of the Debtors' senior secured bank debt to CCC+, and also lowered other ratings, with a negative outlook. May 7, 2004 The Debtors adjusted the financial covenants in their senior secured credit facility with JPMorgan Chase Bank, as agent, to provide additional flexibility for the fourth quarter of 2004. May 27, 2004 The Debtors amended the leverage and interest coverage covenants in the Credit Facility to exclude the effect of the additional workers' compensation reserve of up to $40,000,000. The Debtors otherwise would not have been able to comply with these covenants as of the end of their fiscal year 2004. June 3, 2004 The Debtors increased their reserve for workers' compensation during fiscal 2004 and took a $40,000,000 charge to pretax income. The Debtors found it necessary to modify the manner in which they were calculating their estimates of workers' compensation reserves, primarily as a result of increases in the Debtors' fiscal 2004 actual expenses associated with workers' compensation claims and increases in associated healthcare costs nationwide. As a result of the modification, the Debtors determined that the increase, which represented a 40% increase in total reserves for workers' compensation expenses, was required. July 2004 Moody's Investors Service lowered its rating of the Debtors' senior secured credit facility to B2, and also lowered other ratings, with a negative outlook. August 11, 2004 The Debtors announced that they would delay the filing of their annual report for the fiscal year ended May 29, 2004, with the Securities and Exchange Commission pending completion of their financial statements and the issuance by their independent auditors of the report. The Debtors determined that there was a need to restate their financial statements for the second and third quarters of fiscal 2004 as a result of the investigation related to their workers' compensation reserves. August 12, 2004 The Debtors again amended the leverage and interest coverage covenants of the Existing Credit Agreement to relax these covenant levels until November 2005. As a result of this amendment, the interest rates for all loans under the Existing Agreements increased by 0.50%. To create more liquidity, the Debtors issued $100 million in senior subordinated convertible notes through a private placement. The net proceeds of the offering were primarily used to prepay the Debtors' principal payments due under their senior secured credit facility and for general corporate purposes. August 27, 2004 The Debtors deferred filing their Annual Report with the SEC. September 10, 2004 The Debtors received commitment from Bank Lenders to continue funding. Ronald B. Hutchison, Chief Financial Officer and Executive Vice President of Interstate Bakeries, relates that the Debtors will use the breathing spell afforded under Chapter 11 to re-examine all aspects of their operations and to improve their cost structure and profitability. The Debtors will also evaluate opportunities to continue to improve their product mix to meet changing consumer tastes. These activities will require time and, in some cases, additional funding which the reorganization process will provide. ----------------------------------------------------------------- [00002] CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 6, 2004 ----------------------------------------------------------------- Interstate Bakeries Corporation Unaudited Consolidated Balance Sheets At March 6, 2004 (In thousands) Assets Current assets: Accounts receivable $180,038 Inventories 71,576 Other current assets 79,890 ----------- Total current assets 331,504 Property and equipment: Land and buildings 450,399 Machinery and equipment 1,099,482 ----------- 1,549,881 Less accumulated depreciation (734,225) ----------- Net property and equipment 815,656 Goodwill 215,346 Other intangible assets 190,875 Other assets 43,970 ----------- Total Assets $1,597,351 =========== Liabilities and Stockholders' Equity Current liabilities: Long-term debt payable within one year $62,347 Accounts payable 116,428 Accrued expenses 243,405 ----------- Total current liabilities 422,180 Long-term debt 477,675 Other liabilities 364,070 ----------- Total long-term liabilities 841,745 Stockholders' equity: Preferred stock, par value $0.01 per share; authorized - 1,000,000 shares; issued - none - Common stock, par value $0.01 per share; authorized - 120,000,000 shares; issued - 81,579,000 shares 816 Additional paid-in capital 586,595 Retained earnings 445,576 Treasury stock, at cost (678,911) Treasury stock held in rabbi trust, at cost - Unearned restricted stock compensation (7,602) Accumulated other comprehensive loss (13,048) ----------- Total stockholders' equity 333,426 ----------- Total Liabilities and Stockholders' Equity $1,597,351 =========== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- * Receives Commitment for $200 million in DIP Financing; * Tony Alvarez Named CEO KANSAS CITY, Missouri -- September 22, 2004 -- Interstate Bakeries Corp. (NYSE:IBC) said today that, in order to provide it with the necessary time to complete an operational and financial restructuring, it and its operating subsidiaries have filed cases under Chapter 11 of the Bankruptcy Code. Concurrent with the filing, the company said that, subject to Court approval, it has received a commitment for $200 million in debtor-in-possession financing from JPMorgan Chase Bank to fund post-petition operating expenses, supplier and employee obligations. The company said that it would continue to operate its bakeries, outlet stores and distribution centers and deliver its products, which include Wonder(R), Merita(R) and Butternut(R) breads; Drake's(R), Twinkies(R) and Hostess(R) cakes to retail outlets across the country in the normal course. Separately, the company announced that its Board of Directors had named nationally recognized turnaround experts, Tony Alvarez as chief executive officer and John Suckow as chief restructuring officer. Mr. Alvarez co-founded and is co-chief executive and Mr. Suckow is a managing director of the global corporate advisory and turnaround management services firm Alvarez & Marsal, Inc. In addition, Director Leo Benatar was elected non-executive Chairman of the company's Board of Directors. James R. Elsesser, the company's former chairman and CEO, resigned both positions effective today. IBC cited liquidity issues, resulting from declining sales, a high fixed-cost structure, excess industry capacity, rising employee healthcare and pension costs and higher costs for ingredients and energy, as major factors in its decision to file. "IBC has some of the most recognizable and popular baked breads and sweet goods brands in the nation," said Mr. Alvarez. "By filing for protection under Chapter 11 and obtaining the DIP financing, the company should have the liquidity, time and resources necessary to thoroughly identify, assess and address the issues that will enable this company to be successful in the future." Mr. Alvarez said that the company expects day-to-day operations to continue as usual during the reorganization and that management has sought authority from the Bankruptcy Court to pay employees and honor benefits without interruption or delay. "DIP financing and the protections afforded under the Bankruptcy Code provide the liquidity to ensure payment to vendors for post-petition purchases in the ordinary course," Mr. Alvarez said. The filing occurred in U.S. Bankruptcy Court for the Western District of Missouri in Kansas City. Details regarding the filing can be found at http://www.mow.uscourts.gov Interstate Bakeries Corporation is the nation's largest wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company, which is headquartered here, employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. ----------------------------------------------------------------- [00004] INTERSTATE BAKERIES' CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: Interstate Bakeries Corporation 12 E. Armour Boulevard Kansas City, Missouri 64111 Chapter 11 Petition Date: September 22, 2004 Lead Bankruptcy Case No.: 04-45814 Debtor-affiliates filing separate Chapter 11 petitions: Case No. Debtor Entity -------- ------------- 04-45816 Interstate Brands Corporation 04-45817 IBC Sales Corporation 04-45818 IBC Trucking, LLC 04-45819 New England Bakery Distributors, L.L.C. 04-45820 Baker's Inn Quality Baked Goods, LLC 04-45821 IBC Services, LLC 04-45822 Armour and Main Redevelopment Corporation Bankruptcy Court: United States Bankruptcy Court Western District of Missouri Western Division at Kansas City Charles Evans Whittaker Courthouse 400 E. 9th Street Kansas City, Missouri 64106 Telephone (816) 512-1800 http://www.mow.uscourts.gov/ Bankruptcy Judge: The Honorable Jerry W. Venters Circuit: Eighth Debtors' Lead Bankruptcy Counsel: J. Eric Ivester, Esq. Samuel S. Ory, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 333 West Wacker Drive, Suite 2100 Chicago, IL 60606-1285 Telephone (312) 407-0700 Fax (312) 407-0411 http://www.skadden.com/ - and - J. Gregory Milmoe, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 Telephone (212) 735-3000 Fax (212) 735-2000 http://www.skadden.com/ Debtors' Local Bankruptcy Counsel: Paul M. Hoffmann, Esq. Stinson Morrison Hecker LLP 2600 Grand Boulevard Kansas City, MO 64108 Telephone (816) 691-2600 Fax (816) 474-4208 http://www.stinson.com/ Debtors' Restructuring Managers: Antonio Alvarez II John K. Suckow Robert A. Campagna Arthur J. Morissette Joseph J. Sciametta Victor Alvarez Alvarez & Marsal, LLC 101 East 52nd Street New York, NY 10022 Telephone (212) 759-4433 Fax (212) 759-5532 Debtors' Financial Advisor: Miller Buckfire Lewis Ying & Co., LLC Debtors' Accountants: Deloitte & Touche LLP Debtors' Claims Agent: Eric S. Kurtzman Jonathan A. Carson Kurtzman Carson Consultants LLC 12910 Culver Blvd Ste I Los Angeles, CA 90066 Telephone (310) 823-9000 Fax (310) 923-9133 http://www.kccllc.com/ U.S. Trustee: Charles E. "Sketch" Rendlen III United States Trustee for Region 13 Paula C. Acconcia, Esq., Asst. U.S. Trustee 400 East 9th Street, Room 3440 Kansas City, MO 64106 Telephone (816) 512-1940 Fax 816-512-1964 Counsel to the Post-Petition DIP Lenders: Gregory D. Willard, Esq. Bryan Cave LLP 211 N. Broadway, Suite 3600 St. Louis, Missouri 63102 - and - Laurence M. Frazen, Esq. Bryan Cave LLP 1200 Main Street, Suite 3500 Kansas City, Missouri 64105 Counsel to the Pre-Petition Lenders: Kenneth S. Ziman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 - and - Scott Goldstein, Esq. Spencer Fane Britt & Browne LLP 1000 Walnut Street, Suite 1400 Kansas City, Missouri 64106-2140 Financial Condition as of May 29, 2004: Total Assets: $1,626,425,000 Total Debts: $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014 on August 12, 2004) ----------------------------------------------------------------- [00005] LIST OF THE DEBTORS' 30-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Creditor Nature of Claim Claim Amount -------- --------------- ------------ Highbridge International LLC 9 W. 57th St., 27th Fl. New York, NY 10019 Fax: 212-287-4915 Convertible Note $35,000,000 Isotope Limited Waterfronte Centre 28 N. Church St., 2nd Floor George Town, Grand Caymen, Caymen Islands, British West Indies Fax: 203-422-3500 Convertible Note $35,000,000 AG Offshore Convertibles LTD 245 Park Ave., 26th Fl. New York, NY 10167 Attn: Michael Gordon Fax: 212-867-6395 Convertible Note $10,500,000 Shepherd Investments Int. LTD 3600 South Lake Dr. St. Francis, WI 53235 Fax: 414-294-7700 Convertible Note $10,500,000 Cereal Foods Processors 2001 Shawnee Mission Parkway Mission Woods, KS 66205 Attn: Mark Dobbins Phone: 913-890-6300 Trade $8,642,222 Stark Trading 3600 South Lake Dr. St. Francis, WI 53235 Fax: 414-294-7700 Convertible Note $5,000,000 Horizon Milling 15407 McGinty Rd. W Wayzata, MN 55391 Attn: Mike Wagner Phone: 952-742-5571 Fax: 952-742-7934 Trade $4,850,751 AG Domestic Convertibles LP 245 Park Ave., 26th Fl. New York, NY 10167 Attn: Michael Gordon Fax: 212-867-6395 Convertible Note $4,500,000 ADM 8000 W. 110th Street Overland Park, KS 66201-2312 Attn: Mike Marsh Phone: 913-491-9400 Fax: 913-491-9610 Trade $4,109,900 Cargill P.O. Box 5693 Minneapolis, MN 55440 Attn: Sam Schmidt National Accts. Mngr. Phone: 952-742-6749 Fax: 952-742-5503 Trade $3,644,723 Campbell-Mithun NW-1315 Minneapolis, MN 55485 Attn: Steve Gordon Phone: 612-347-1412 Fax: 612-347-1038 Trade $3,640,176 Con Agra Flour Milling 400 S. Executive Dr., Ste. 100 Brookfield, WI 53005 Attn: Stuart Dalton Phone: 402-595-7574 Trade $3,354,662 Innovative Cereal Systems 26994 SW 95th Ave. Building 100 Wilsonville, OR 97070 Attn: Greg Worthington President Phone: 503-570-7501 Fax: 503-570-8502 Trade $2,572,971 Bartlett Milling 4800 Main Street, Suite 600 Kansas City, MO 64112 Attn: Rod Geiger, VP Phone: 800-888-6300 Fax: 816-931-3404 Trade $2,572,971 Accenture 15115 Park Row, Suite 200 Houston, TX 77084 - and - Accenture 1010 Market, Suite 900 St. Louis, MO 63101 Attn: Mike Fox Fax: 314-345-3505 Trade $2,441,919 Pliant 1475 Woodfield Rd., Suite 700 Schaumburg, IL 60173 Attn: Doug Bengtson Phone: 847-969-3301 Trade $2,017,615 American Yeast 4000 Air Park Cove, Suite One Memphis, TN 38118 Attn: Jean Chagnon, CEO Phone: 901-547-1579 Fax: 901-362-2961 Trade $1,727,646 Fleishchmann's Yeast 240 Larkin Williams Court Fenton, MO 63026 Attn: Frank Schoonyang Phone: 800-247-7473 Telephone: 636-349-8800 Fax: 636-349-8865 Trade $1,612,566 Bunge Foods 10820 Windsor Woods Blvd. Fort Wayne, IN 46845 Attn: Dan Updike Phone: 219-425-5202 Fax: 260-416-0852 Trade $1,545,193 General Mills Inc. 3089 N. 86th Place Scottsdale, AZ 85251 Attn: Michael Carter Director of Sales Phone: 513-489-7774 Fax: 480-421-9618 Trade $1,512,408 Ed Miniat 1055 W. 175th St., Suite 201 Homewood, IL 60430 Attn: Mike Botelho, VP Phone: 800-621-8793 Fax: 708-957-7382 Trade $1,364,869 Chicago Displays 1999 N. Ruby Melrose Park, IL 60160 Attn: Craig Binney Phone: 800-681-4340 Fax: 708-681-4340 Trade $1,343,697 Tate and Lyle 2200 E. El Dorado Decatur, IL 62521 Attn: Tom Szanajda Territory Manager Phone: 651-322-8164 Fax: 651-322-1264 Trade $1,171,679 Bay State Milling 100 Congress St. Quincy, MA 02169 Attn: Steve Bramwell, VP Sales Phone: 617-328-4400 Fax: 617-328-4400 Trade $1,045,153 Service Warehouse Center 500 South Kitley Ave. Indianapolis, IN 46219 Attn: Charlie Mong Phone: 317-698-8437 Fax: 800-541-9649 Trade $933,454 Amalgamated Sugar 2427 Lincoln Ave. Ogden, UT 84402 Attn: Bill Smith, VP Sales Phone: 801-399-3431 Fax: 801-393-8042 Trade $909,834 Milner Milling P.O. Box 2247 Chattanooga, TN 37409 Attn: Peter Fredrick, VP Phone: 423-265-2313 Fax: 423-265-2468 Trade $868,009 Roman Meal Milling Company 2101 S. Tacoma Way Tacoma, WA 98409 Attn: Bill Zimmerman Phone: 253-473-3952 Fax: 253-720-6851 Trade $832,573 Barry Callebaut USA 400 Industrial Park Rd St. Albans, VT 05478 Attn: Joseph Lucas Phone: 802-524-9711 Fax: 802-524-5148 Trade $786,151 Manildra Milling 4210 Shawnee Mission Parkway Suite 312A Mission, KS 66205 Attn: Jay Peaster Phone: 913-362-0777 Fax: 913-362-0674 Trade $758,707 ----------------------------------------------------------------- [00006] DEBTORS' MOTION TO APPROVE $200,000,000 DIP FINANCING ----------------------------------------------------------------- Paul M. Hoffmann, Esq., at Stinson Morrison Hecker, LLP, in Kansas City, Missouri, informs the Court that the Debtors' capital structure includes amounts owed to certain financial institutions pursuant to an Amended and Restated Credit Agreement, dated as of April 25, 2002, among: (1) Interstate Brands Corporation and Interstate Brands West, as borrowers; (2) Interstate Bakeries Corporation, IBC Sales Corporations, Baker's Inn Quality Baked Goods, LLC, and IBC Services, LLC, as guarantors; (3) JPMorgan Chase Bank, as Prepetition Agent; and (4) a consortium of prepetition secured lenders. The Existing Agreements provided IBC with three separate term loans and a revolving credit line. As of the Petition Date, these approximate amounts were outstanding under the Existing Agreements: $187,500,000 (term loan A) $120,000,000 (term loan B) $97,000,000 (term loan C) $71,000,000 (Revolver) $173,000,000 (letters of credit) ------------- $648,500,000 Aggregate exposure Under the Existing Agreements, the Debtors granted to the Prepetition Secured Lenders security interests in and mortgages and liens on a substantial portion of their assets including the majority of owned real property and all inventory, accounts, chattel paper, deposit accounts, documents, equipment, general intangibles, intellectual property, investment property, other personal property not specifically excluded, and books and records pertaining to all these prepetition collateral. To improve liquidity, the Debtors issued senior subordinated convertible notes under an Indenture dated as of August 12, 2004, with Interstate Bakeries as the issuing company and Interstate Brands Corporation, Baker's Inn Quality Baked Goods, LLC, IBC Sales Corporation, IBC Services, LLC, and IBC Trucking, LLC, as Guarantors, and U.S. Bank National Association as Trustee. Pursuant to the Indenture, Interstate Bakeries issued $100,000,000 in aggregate principal amount of 6% Senior Subordinated Convertible Notes Due August 15, 2014. The 2014 Notes are unsecured notes, with interest payable each February 15 and August 15 during the term, with all principal and other outstanding obligations due on August 15, 2014. The Debtors used the net proceeds of the offering to prepay certain required term loan principal payments due under the Existing Agreements, to reduce the amount outstanding under the Revolver, and for general purposes. The Debtors Need Cash Mr. Hoffmann, however, tells the Court that the Debtors' existing cash on hand may not be sufficient to fund the completion of their restructuring process. The Debtors believe that obtaining a firm commitment for postpetition financing and the use of cash collateral at the outset of their Chapter 11 cases are necessary for them to operate their businesses in Chapter 11 and for their successful reorganization. Before the Petition Date, the Debtors approached JPMorgan as well as other financial institutions about providing postpetition financing. Recognizing that the Prepetition Liens encumber a substantial portion of their assets and that JPMorgan possesses pre-existing knowledge of their businesses, and determining in their sound business judgment that JPMorgan's proposal for Postpetition Financing was the most favorable under the circumstances and addressed their working capital needs, the Debtors ultimately decided to accept the proposal submitted by, JPMorgan and JPMorgan Securities, Inc. DIP Financing Terms The Credit Agreement and other documents to be executed in connection with the Postpetition Financing are the result of arm's-length negotiations between the Debtors and the Postpetition Lenders. The Postpetition Financing's principal provisions are: (A) Borrowers Interstate Bakeries Corporation; Armour & Main Redevelopment Corporation; Baker's Inn Quality Baked Goods, LLC; IBC Sales Corporation; IBC Services, LLC; IBC Trucking LLC; Interstate Brands Corporation; and New England Bakery Distributors, LLC. (B) Administrative Agent and Lenders JPMorgan Chase Bank will serve as Administrative Agent under the Postpetition Financing for a syndicate of financial institutions to be arranged by JPMorgan. (C) Collateral Agent JPMorgan Chase Bank will serve as Collateral Agent under the Facility for the Lenders. (D) Commitment & Availability A total revolving credit commitment of up to $200,000,000, with a sub-limit of $75,000,000 for standby letters of credit to be issued for purposes that are satisfactory to the Administrative Agent. During the period commencing on the Petition Date and ending on the date the Bankruptcy Court enters the Final Order, up to $100,000,000 of the Commitment will be available to the Debtors. (E) Term Borrowings will be repaid in full, and the Commitment will terminate, at the earliest of: (i) 24 months after the Petition Date; (ii) 35 days after the entry of the Interim Order if the Final Order has not been entered prior to the expiration of this period; (iii) the substantial consummation of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court or any other court having jurisdiction over the Debtors' Chapter 11 cases; and (iv) the acceleration of the Loans and the termination of the Commitment in accordance with the Credit Agreement. (F) Priority and Liens All direct borrowings and reimbursement obligations under Letters of Credit and in respect of overdrafts will at all times receive the priority in payment and be secured. (G) Carve-Out The liens and priority will be subject in each case only to: (i) in the event of the occurrence and during the continuance of an Event of Default or an event that would constitute an Event of Default with the giving of notice or lapse of time or both, the payment of allowed and unpaid professional fees and disbursements incurred by the Borrowers and any appointed statutory committees in an aggregate amount not in excess of $3,000,000; and (ii) the payment of fees pursuant to 28 U.S.C. Section 1930 and to the Clerk of the Bankruptcy Court. No portion of the Carve-Out will be utilized for the payment of professional fees and disbursements incurred in connection with any challenge to the amount, extent, priority, validity, perfection or enforcement of the Indebtedness of the Borrowers owed with respect to the parties primed by the priming Liens or to the collateral securing the Indebtedness or any other action against the parties. Amounts in the Letter of Credit Account will not be subject to the Carve-Out. The Borrowers, thus, consent to the priming Liens. And so long as no Default or Event of Default will have occurred and be continuing, the Borrowers will be permitted to pay compensation and reimbursement of expenses allowed and payable under Sections 328, 330 and 331 of the Bankruptcy Code, as the same may be due and payable, and any compensation and expenses previously paid, or accrued but unpaid, prior to the occurrence of the Default or Event of Default will not reduce the Carve-Out. (H) Fees and Expenses Commitment Fee: 0.50% per annum on the unused portion of the Commitment. The Commitment Fee will be payable monthly in arrears during the term of the Facility. Structuring Fee: $4,000,000 Syndication Fee: $2,000,000 Letter of Credit Fees: 2.75% per annum on the outstanding face amount of each Letter of Credit plus: (i) a fronting fee in an amount equal to 0.25% per annum of the stated amount of each letter of credit, payable at the issuance of each letter of credit and on any annual renewal or extension; and (ii) JPMorgan's customary issuance, amendment and processing fees; and Administrative Agent Fee: $200,000 per year (I) Interest JPMorgan's Alternate Base Rate plus 1.75% or, at the Debtors' option, LIBOR plus 2.75% for interest periods of one, three or six months; interest will be payable monthly in arrears, at the end of any interest period and on the Termination Date. (J) Default Interest Default interest will be payable on demand at 2% above the then applicable rate. (K) Events of Default (1) Failure by the Debtors to pay principal, interest or fees when due under the Credit Agreement; (2) Breach by the Debtors of any of the negative covenants; (3) Breach by the Debtors of any other covenant contained in the Credit Agreement and this breach will continue unremedied for more than 10 days; (4) Failure by the Debtors to deliver a certified Borrowing Base Certificate when due and this default will continue unremedied for more than three business days; (5) Any representation or warranty made by the Debtors will prove to have been incorrect in any material respect when made; (6) Any of the Debtors' Chapter 11 cases will be dismissed or converted to a Chapter 7 Case; a Chapter 11 Trustee, a responsible officer or an examiner with enlarged powers relating to the operation of the Debtors' business will be appointed and the order appointing the Trustee, responsible officer, or examiner will not be reversed or vacated within 35 days after entry; or any other super-priority Claim which is pari passu with or senior to the claims of the Administrative Agent and the Lenders will be granted; or the Bankruptcy Court will enter an order terminating the use of cash collateral; (7) Other than payments authorized by the Court in respect of the first-day orders, as may be permitted in the Credit Agreement, the Debtors will make any payment of principal or interest or otherwise on account of any prepetition indebtedness or payables; (8) The Bankruptcy Court will lift the automatic stay to permit a holder or holders of any security interest to foreclose on any assets of the Debtors which have an aggregate value in excess of $1,000,000; (9) A Change of Control will occur; (10) Any provision of the Credit Agreement will cease to be valid and binding on the Debtors, or the Debtors will so assert in any pleading filed in any court; (11) An order will be entered reversing, amending, supplementing, staying for a period in excess of 10 days, vacating or otherwise modifying the Interim Order or the Final Order; (12) Any judgment in excess of $1,000,000 as to any post- petition obligation will be rendered against the Debtors and the enforcement will not be stayed, it being understood that Rule 62(a) of the Federal Rules of Civil Procedure provides for a ten-day stay on enforcement of money judgments; or there will be rendered against the Debtors a non-monetary judgment with respect to a postpetition event which causes or would reasonably be expected to cause a material adverse change or a material adverse effect on the ability of the Debtors to perform their obligations under the Postpetition Credit Facility Documentation; (13) Certain ERISA-related and environment-related defaults; or (14) Other Events of Default as may be mutually agreed on by the Administrative Agents and the Debtors. The Prepetition Secured Lenders have advised the Debtors that: (a) As of the Petition Date, the Debtors owed the Prepetition Secured Lenders, without defense, counterclaim or offset of any kind, $649,000,000 in respect of Loans made. The alleged Prepetition Bank Debt constitutes legal, valid and binding obligations of the Debtors, enforceable in accordance with its terms. No portion of the Prepetition Bank Debt is subject to avoidance, or subordination pursuant to the Bankruptcy Code or applicable non- bankruptcy law. (b) The liens and security interests granted to the Prepetition Agent pursuant to and in connection with the Existing Agreements are: * valid, binding, perfected, enforceable, first-priority liens and security interests in the personal and real property described in the Existing Agreements; and * not subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law. The Debtors and the Official Committee of Unsecured Creditors have until November 20, 2004, to challenge the allegations made by the Prepetition Secured Lenders. By this motion, the Debtors seek the Court's authority to: (a) obtain up to $200,000,000 in secured postpetition financing to be syndicated by JPMorgan and arranged by JPMorgan Securities; (b) grant the Postpetition Lenders, so as to secure the Debtors' obligations under the Postpetition Financing: (i) priority in payment, pursuant to Section 364(c)(1) of the Bankruptcy Code, with respect to these obligations over all administrative expenses of the kinds specified in Sections 503(b) and 507(b); (ii) perfected first priority liens, pursuant to Section 364(c)(2), on all unencumbered property of the Debtors and on all cash maintained in the Letter of Credit Account and any direct investments of the funds, provided that following the Termination Date amounts in the Letter of Credit Account will not be subject to a Carve-Out; (iii) perfected junior liens, pursuant to Section 364(c)(3), on all property of the Debtors that is subject to valid and perfected Liens in existence on the Petition Date or that is subject to valid Liens in existence on the Petition Date that are perfected subsequent to the Petition Date as permitted by Section 546(b); and (iv) perfected first priority, senior priming liens, pursuant to Section 364(d)(1), senior priming lien on all of the property of the Debtors that is subject to the existing liens which secure: -- the obligations of the Parent Borrower and certain of the Subsidiary Borrowers under or in connection with the Prepetition Credit Agreement; and -- other obligations or indebtedness of the Debtors pursuant to other agreements in an aggregate amount exceeding $1,000,000. The Primed Liens will be primed by and made subject and subordinate to the perfected first priority senior Liens to be granted to the Administrative Agent, which senior priming Liens in favor of the Administrative Agent will also prime any Liens granted after the Petition Date to provide adequate protection Liens in respect of any of the Primed Liens but will not prime Liens, if any, to the extent these Liens secure obligations in an aggregate amount less than or equal to $1,000,000, subject in each case only to the Carve- Out; (c) use the Cash Collateral and to provide adequate protection to the Prepetition Secured Lenders under the Existing Agreements with respect to any diminution in the value of their interests in the Prepetition Collateral resulting from the priming liens and security interests to secure the Postpetition Financing, the use of the Cash Collateral, the use, sale or lease of the Prepetition Collateral or imposition of the automatic stay; (d) borrow up to $50,000,000 under the DIP Credit Agreement on an interim basis pending a Final Hearing; (e) pursuant to Rule 4001 of the Federal Rules of Bankruptcy Procedure, schedule a Final Hearing to consider entry of a Final Order authorizing the Postpetition Financing. Mr. Hoffmann notes that the Postpetition Financing is the sole means of preserving and enhancing the Debtors' going concern value. With the credit provided by the Postpetition Financing, the Debtors will be able to obtain goods and services in connection with their operations, pay their employees, and operate their businesses to preserve the ongoing value of their businesses for the benefit of all parties-in-interest. In addition, the availability of postpetition credit should give the Debtors' vendors and suppliers the necessary confidence to resume ongoing relationships with the Debtors, including the extension of credit terms for the payment of goods and services. It will also likely be viewed favorably by the Debtors' employees and customers and, therefore, help promote the Debtors' successful reorganization. Without the Postpetition Financing, the Debtors will not be able to meet their payroll and other direct operating expenses, will suffer irreparable harm, and their entire reorganization effort will be jeopardized. Debtors Need To Use Cash Collateral Mr. Hoffmann informs the Court that the Debtors also need to use Cash Collateral pending a final hearing on the Postpetition Financing. The Debtors require the use of the Cash Collateral to pay present operating expenses including payroll and to pay vendors to ensure a continued supply of materials essential to the Debtors' continued viability. Absent the authority to use the Cash Collateral, the Debtors will be compelled to shut down bakery production and bring the Debtors' businesses to a halt. Adequate Protection for the Prepetition Secured Lenders In accordance with Section 363(c)(2), the Debtors and JPMorgan negotiated and agreed that the Prepetition Secured Lenders will receive as adequate protection against diminution in value of the Prepetition Secured Lenders' interests in the Debtors' interests in the Prepetition Collateral: (a) Adequate Protection Liens As security for payment of the Adequate Protection Obligations, the Prepetition Agent will be granted a replacement security interest in and lien on all the Collateral, subject and subordinate only to: (i) the security interests and liens granted to the Postpetition Agent for the benefit of the Postpetition Lenders in the Interim Financing Order and pursuant to the Credit Agreement and any liens on the Collateral to which these liens so granted to the Agent are junior; and (ii) the Carve-Out; (b) Section 507(b) Claim The Prepetition Agent and the Prepetition Secured Lenders will be granted a super-priority claim equal to the Adequate Protection Obligations as provided for in Section 507(b), immediately junior to the claims under Section 364(c)(1) held by the Postpetition Agent and the Postpetition Lenders. However, the Prepetition Agent and the Prepetition Secured Lenders will not receive or retain any payments, property or other amounts in respect of the super-priority claims under Section 507(b) or under the Existing Agreements unless and until the Obligations under the Credit Agreement have indefeasibly been paid in cash in full; (c) Interest, Fees and Expenses The Prepetition Agent will receive from the Debtors: (i) immediate cash payment of all accrued and unpaid interest on the Prepetition Bank Debt and letter of credit fees at the rates as of the Petition Date as provided for in the Existing Agreements, and all other accrued and unpaid fees and disbursements owing under the Existing Agreements at the non- default contract rate and incurred before the Petition Date; (ii) current cash payments of all fees and expenses payable to the Prepetition Agent under the Existing Agreements, including, but not limited to, the reasonable fees and disbursements of counsel, financial and other consultants for the Prepetition Agent; (iii) current cash payment of all reasonable out-of- pocket expenses of the steering committee of Prepetition Secured Lenders, in their capacity as such; and (iv) on the first business day of each month, all accrued but unpaid interest on the Prepetition Bank Debt, and letter of credit and other fees at the non-default contract rate applicable on the Petition Date under the Existing Agreements. The Prepetition Secured Lenders reserve their rights to assert claims for the payment of additional interest calculated at any other applicable rate of interest, or on any other basis, provided for in the Existing Agreements; (d) Monitoring of Collateral The Prepetition Secured Lenders will be permitted to retain expert consultants and financial advisors at the expense of the Debtors. The consultants and advisors will be given reasonable access for purposes of monitoring the business of the Debtors and the value of the Collateral; and (e) Information The Debtors will provide the Prepetition Agent with any written financial information or periodic reporting that is provided to, or required to be provided to, the Postpetition Agent or the Postpetition Lenders. The Debtors believe that the proposed adequate protection is fair and reasonable and sufficient to satisfy any diminution in value of the Prepetition Collateral. Interim Approval Should Be Granted Bankruptcy Rule 4001(b) and (c) provides that a final hearing on a motion to use cash collateral pursuant to Section 363 and to obtain credit pursuant to Section 364 may not be commenced earlier than 15 days after the service of the motion. By request, however, the Court is empowered to conduct a preliminary expedited hearing on the motion and authorize the use of cash collateral and the obtaining of credit to the extent necessary to avoid immediate and irreparable harm to the Debtor's estate. The Debtors ask the Court to (a) conduct an expedited preliminary hearing on the DIP Financing Motion and (b) authorize them from and after the entry of the Interim Financing Order until the Final Hearing to draw up to $50,000,000 from the DIP Facility and to utilize the Cash Collateral. * * * Shortly following the filing of their Chapter 11 Petitions, Judge Venters authorized the Debtors to use up to $14,000,000 of Cash Collateral through the conclusion of an Interim DIP Financing hearing scheduled for 9:00 a.m. today. ----------------------------------------------------------------- [00007] S&P LOWERS INTERSTATE BAKERIES' RATINGS TO 'D' ----------------------------------------------------------------- NEW YORK, New York -- September 22, 2004 -- Standard & Poor's Ratings Services said today that it lowered its corporate credit rating and its senior secured debt on Kansas City, Mo.- based Interstate Bakeries Corp. (IBC) to 'D' from 'CCC+' due to the company's filing under Chapter 11 of the Bankruptcy Code today. Total liabilities of the firm approximate $1.3 billion. "The firm's high cost structure, largely resulting from employee-related expenses and excess capacity were exacerbated by declining sales and rising ingredient costs, resulting in severe liquidity constraints," said Standard & Poor's credit analyst Kenneth Drucker. The company has received a commitment (subject to court approval) for $200 million in debtor-in-possession financing and has hired Tony Alvarez as Chief Executive Officer to affect a turnaround of the firm. IBC is the largest U.S. wholesale baker and distributor of fresh baked bread and sweet goods under various brands including Wonder, Hostess, Dolly Madison, Drakes, Merita, and Baker's Inn. The company operates 54 bakeries, over 1000 distribution centers, and 1,200 thrift stores throughout the U.S. *** End of Issue No. 1 ***