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Case Status:    SETTLED
On or around 09/08/2005 (Date of order of final judgment)

Filing Date: February 20, 2003

According to a press release dated September 13, 2005, a federal judge has signed a final order approving the $ 18 million settlement of a class-action shareholder lawsuit filed against Interstate Bakeries Corp. and three former executives. The settlement, signed late last week by U.S. District Judge Fernando Gaitan Jr., covers investors who bought Interstate's stock between April 2, 2002, and April 8, 2003. The agreement, in which the defendants denied any wrongdoing, provides for an insurance policy from which Interstate can pay $ 15 million of the settlement. The company would pay the remaining $ 3 million as it emerges from Chapter 11 bankruptcy proceedings. Interstate filed for Chapter 11 bankruptcy protection a year ago after experiencing declining sales amid high fixed costs.

As reported in the Company's Form 10-Q filing for the quarterly period ended March 6, 2004, on March 30, 2004, the Company and its insurance carriers participated in a mediation with the plaintiffs. At the end of that session, the parties reached a preliminary agreement on the economic terms of a potential settlement of the cases in which Interstate Bakeries Corporation's insurers would contribute $15,000,000 and Interstate Bakeries Corporation would contribute $3,000,000. The Company also agreed with plaintiffs and the Company's carriers to work towards the resolution of any non-economic issues related to the potential settlement, including documenting and implementing the parties’ agreement. Assuming that these remaining issues can be resolved, any agreement will be subject to court approval after notice to the class and a hearing. In connection with the potential settlement, the Company recorded a one-time charge of $3,000,000 during the third quarter.

According to the Form 10-Q filing for the quarterly period ended November 15, 2003, seven putative class actions were brought against Interstate Bakeries. The seven cases have been consolidated before a single judge and a lead plaintiff has been appointed by the Court. On October 6, 2003, plaintiffs filed their consolidated amended class action complaint. The parties have engaged in preliminary discussions looking towards the possibility of settlement.

The Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between September 17, 2002 and December 17, 2002, thereby artificially inflating the price of IBC common stock. Throughout the Class Period, as alleged in the Complaint, defendants issued numerous statements regarding the Company's financial performance and future prospects. Specifically, defendants claimed that the Company was experiencing a rebound in the sales of its sweet cake products, which had slowed down in the previous quarter, and described how the Company would be able to increase prices for certain bread products and maintain its anticipated level of profitability in the face of increasing commodity prices. The Complaint alleges that these statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that since the beginning of the Class Period, the Company was actually experiencing a negative variance with respect to cake sales as compared to the prior year and, therefore, had not seen any indication of any rebound in cake sales; and (ii) the Company did not maintain sufficient centralized control over price increases to ensure that the Company could raise prices on bread products without damaging profitability; defendants knew that an increase in prices typically would result in a sacrifice in market share and the Company actually was exposed to significant risk with respect to its ability to attain profits based upon commodity prices. On December 17, 2002, the last day of the Class Period, IBC shocked the market by reporting extremely poor second quarter earnings, which it attributed primarily to weak sales of its sweet cakes. Following this announcement, shares of IBC common stock plunged in value by over 35%, from $23.16 per share on December 16, 2002, to $15.00 per share on December 17, 2002, on extremely heavy trading volume that was almost fifty (50) times more active than normal. Prior to the disclosure of the Company's true financial condition, certain of the Individual Defendants and other IBC insiders sold shares of their personally-held common stock for gross proceeds in excess of $16 million.

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