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Hostess Amid Talk Of ‘Shared Sacrifice’ By Execs
April 4, 2012

DJ Creditors Say Hostess May Have 'Manipulated' Executive Pay

By Rachel Feintzeig
Of DOW JONES DAILY BANKRUPTCY REVIEW

Unsecured creditors suspect that Hostess Brands Inc. may have
"manipulated" its executives' pay--sending its former chief executive's
salary, in particular, skyrocketing- in the months leading up to its
Chapter 11 filing, in an effort to dodge the Bankruptcy Code's
compensation requirements, according to a redacted court filing reviewed
by Dow Jones.

The official committee representing Hostess's unsecured creditors wants
to launch a formal investigation in the bankruptcy case, hoping to dig
deeper into the bakery company's senior executive compensation. The
information the group has already gathered suggests "the possibility"
that the company converted a chunk of its top executives' pay from
performance-based bonuses to guaranteed salary, "at least in part to
sidestep" rules designed to ensure that companies in bankruptcy aren't
enticing their employees to stay on board with the promise of cash.

"As such, the debtors' continued payment of the executives' salaries in
these increased amounts may violate the Bankruptcy Code," the unsecured
creditors said in documents that were filed with the U.S. Bankruptcy
Court in White Plains, N.Y., but largely redacted. Dow Jones was able to
view those details because when the papers were saved to a
word-processing program, the redactions disappeared.

A spokesman for Hostess dismissed the creditors' allegations.

"We do not believe their theory has any basis in law," he said.
"Nevertheless, we are working cooperatively with the committee to
address their concerns and expect to resolve this amicably."

In court papers, the creditors say testimony from Hostess's executive
vice president of human resources indicates that "in the run-up to
bankruptcy"--when Hostess had already hired bankruptcy attorneys--it was
also working to shift its compensation structure. Hostess slashed
bonuses payable only if certain performance goals were met and, on July
26, the company's compensation committee signed off on "substantial
salary increases for numerous senior executives," the creditors said,
calling the jumps "dramatic."

Hostess's then-CEO, Brian Driscoll, saw his salary rise to $2.55 million
from $750,000--a 300% increase.

"Other executives' salaries were increased by from 35% to 80%," the
creditors said.