<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-76763
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
NEW WORLD PASTA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2098 52-2006441
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
WINCHESTER PASTA, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2098 54-1924168
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
PASTA GROUP, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2098 25-1825424
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
85 SHANNON ROAD
HARRISBURG, PENNSYLVANIA 17112
(717) 526-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
MARK E. KIMMEL, ESQ.
VICE PRESIDENT, ADMINISTRATION AND DEVELOPMENT, GENERAL COUNSEL AND SECRETARY
85 SHANNON ROAD
HARRISBURG, PENNSYLVANIA 17112
(717) 526-2203
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
ROBERT B. PINCUS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE RODNEY SQUARE
WILMINGTON, DELAWARE 19801
(302) 651-3000
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior Subordinated Exchange
Notes Due 2009...................... $160,000,000 100% $160,000,000 $44,480
- --------------------------------------------------------------------------------------------------------------------------
Guarantees of the 9 1/4% Senior
Subordinated Exchange Notes(2)...... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total................................. $160,000,000 100% $160,000,000 $44,480(3)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with Rule 457(f) promulgated under the Securities
Act of 1933, as amended.
(2) No separate consideration will be received for the Guarantees, and,
therefore, no additional registration fee is required.
(3) Pursuant to Rule 457(b) under the Securities Act, $44,480 of the
Registration Fee was previously paid in connection with the initial filing
of this Registration Statement on April 21, 1999.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED;
DATED JULY 16, 1999
OFFER TO EXCHANGE ALL 9 1/4% SENIOR SUBORDINATED NOTES DUE 2009
FOR 9 1/4% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2009
OF
NEW WORLD PASTA COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON [ ], 1999, UNLESS EXTENDED.
------------------------
Terms of the exchange offer:
- - We will issue up to $160,000,000 aggregate principal amount of new notes.
- - We will exchange new notes for all outstanding old notes that are validly
tendered and not withdrawn prior to the expiration of the exchange offer.
- - You may withdraw tenders of old notes at any time prior to the expiration of
the exchange offer.
- - The exchange of old notes for new notes will not be a taxable transaction for
U.S. federal income tax purposes but you should see the discussion under the
caption "Material United States Federal Income Tax Consequences" on page 34
for more information.
- - We will not receive any cash proceeds from the exchange offer.
- - The terms of the new notes are substantially identical to those of the
outstanding old notes, except that the transfer restrictions and registration
rights relating to the old notes do not apply to the new notes.
- - The old notes are, and the new notes will be, unconditionally guaranteed by
New World Pasta's wholly owned subsidiaries, Winchester Pasta, L.L.C. and
Pasta Group, L.L.C.
- - The exchange offer is the initial public offering of the new notes.
- - There is no established trading market for the new notes or the old notes.
- - We do not intend to apply for listing of the new notes on any national
securities exchange or for quotation through The Nasdaq National Market.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF RISKS YOU SHOULD
CONSIDER BEFORE TENDERING YOUR OLD NOTES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is [ ], 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
The Exchange Offer........................................ 1
Consequences of Not Exchanging Old Notes.................. 5
Summary Description of the New Notes...................... 5
Risk Factors.............................................. 7
New World Pasta Company................................... 7
Summary Historical and Pro Forma Financial Data........... 7
Risk Factors................................................ 12
Company Risks............................................. 12
Industry Risks............................................ 18
Offering Risks............................................ 21
Use of Proceeds............................................. 23
The Exchange Offer.......................................... 24
Terms of the Exchange Offer; Period for Tendering Old
Notes.................................................. 24
Procedures for Tendering Old Notes........................ 25
Acceptance of Old Notes for Exchange; Delivery of New
Notes.................................................. 27
Book-Entry Transfer....................................... 28
Guaranteed Delivery Procedures............................ 28
Withdrawal Rights......................................... 29
Conditions to the Exchange Offer.......................... 30
Exchange Agent............................................ 31
Fees and Expenses......................................... 31
Transfer Taxes............................................ 31
Consequences of Exchanging or Failing to Exchange Old
Notes.................................................. 32
Material United States Federal Income Tax Consequences...... 33
Exchange of Old Note for New Note......................... 33
U.S. Holders.............................................. 33
Non-U.S. Holders.......................................... 34
Information Reporting and Backup Withholding.............. 35
Recently Issued Treasury Regulations...................... 36
The Recapitalization........................................ 37
Ownership of New World Pasta Following the
Recapitalization....................................... 38
Capitalization.............................................. 40
Unaudited Pro Forma Combined Financial Information.......... 41
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1998.............................. 42
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended April 4, 1999.......................... 43
Notes to the Unaudited Pro Forma Combined Statements of
Operations................................................ 44
Selected Historical Combined Financial Data................. 46
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 48
General................................................... 48
Net Sales................................................. 48
Operating Expenses........................................ 49
Interest Expense.......................................... 50
Results of Operations..................................... 50
Three Months Ended April 4, 1999 Compared with Three
Months Ended April 5, 1998............................. 50
Year Ended December 31, 1998 compared with Year Ended
December 31, 1997...................................... 51
Year Ended December 31, 1997 compared with Year Ended
December 31, 1996...................................... 52
Year Ended December 31, 1996 compared with Year Ended
December 31, 1995...................................... 53
Quarterly Data............................................ 55
Liquidity and Capital Resources........................... 55
Year 2000 Compliance...................................... 57
Inflation................................................. 59
Market Risk............................................... 59
New Accounting Standard................................... 59
Business.................................................... 60
Overview.................................................. 60
Competitive Strengths..................................... 61
Growth Strategy........................................... 63
Synergies and Cost Saving Opportunities................... 65
Pasta Industry............................................ 65
Products.................................................. 67
Marketing................................................. 69
Sales..................................................... 70
Customers................................................. 71
Production................................................ 71
Manufacturing Facility Summary............................ 73
Transportation and Distribution........................... 73
Quality................................................... 74
Raw Materials............................................. 74
Miller Milling Company.................................... 75
Competition............................................... 76
Trademarks and Domain Names............................... 77
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
Regulation................................................ 77
Employees................................................. 78
Legal Proceedings......................................... 79
Market Data............................................... 79
Management.................................................. 80
Board of Directors........................................ 82
Executive Compensation.................................... 82
Employment Agreements..................................... 83
Stock Ownership of Certain Beneficial Owners and
Management................................................ 86
Certain Relationships and Related Transactions.............. 88
Stockholders' Agreement................................... 88
Procurement Agreement..................................... 90
Fresno Mill Agreement..................................... 90
Winchester Mill Agreement................................. 90
Winchester Lease.......................................... 90
Transitional Services Agreement........................... 91
Employment Agreements..................................... 91
Tax Sharing Agreement..................................... 91
Description of the Notes.................................... 93
General................................................... 93
Principal, Maturity and Interest.......................... 94
Mandatory Redemption...................................... 94
Optional Redemption....................................... 94
Repurchases at the Option of Holders...................... 95
Subordination............................................. 96
Subsidiary Guarantees..................................... 97
Repurchase of Notes upon a Change of Control.............. 98
Covenants................................................. 98
Events of Default......................................... 114
Defeasance................................................ 116
Amendments, Modifications and Waivers..................... 118
No Personal Liability of Incorporators, Stockholders,
Officers, Directors, or Employees...................... 119
Concerning the Trustee.................................... 119
Satisfaction and Discharge................................ 120
Governing Law............................................. 120
Definitions............................................... 120
Book-Entry; Delivery and Form............................. 139
Certificated Securities................................... 140
Registration Rights....................................... 141
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
Description of Other Indebtedness........................... 144
Description of Preferred Stock.............................. 146
Plan of Distribution........................................ 146
Legal Matters............................................... 147
Experts..................................................... 147
Available Information....................................... 147
Index to Financial Statements............................... F-1
</TABLE>
iv
<PAGE> 7
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the new notes, as well as information
regarding our business and detailed financial data. We encourage you to
carefully read this entire prospectus, including the discussion of risks and
uncertainties affecting our business included under the caption "Risk Factors"
beginning on page 12, and the documents to which we refer you.
THE EXCHANGE OFFER
OLD NOTES....................... 9 1/4% Senior Subordinated Notes due 2009,
which were issued on February 19, 1999.
NEW NOTES....................... 9 1/4% Senior Subordinated Exchange Notes
due 2009. The terms of the new notes are
substantially identical to those of the
outstanding old notes, except that the
transfer restrictions and registration
rights relating to the old notes do not
apply to the new notes.
EXCHANGE OFFER.................. We are offering to issue up to $160,000,000
aggregate principal amount of the new notes
in exchange for a like principal amount of
the old notes. The new notes are offered to
satisfy our obligations under the
registration rights agreement that we
entered into when the old notes were sold in
transactions under Rule 144A and Regulation
S under the Securities Act.
EXPIRATION DATE; TENDERS........ The exchange offer will expire at 5:00 p.m.,
New York City time, on [ ],
1999, unless extended. By tendering your old
notes, you represent to us:
- that you are not an "affiliate" of New
World Pasta, as defined in Rule 405 under
the Securities Act;
- that any new notes you receive in the
exchange offer are being acquired by you
in the ordinary course of your business;
- that, at the time of commencement of the
exchange offer, neither you nor, to your
knowledge, anyone receiving new notes from
you, has any arrangement or understanding
with any person to participate in the
distribution of the new notes, as defined
in the Securities Act, in violation of the
Securities Act;
- if you are not a participating
broker-dealer, that you are not engaged
in, and do not intend to engage in, the
distribution of the new notes, as defined
in the Securities Act; and
1
<PAGE> 8
- if you are a participating broker-dealer,
that you will receive the new notes for
your own account in exchange for old notes
that were acquired by you as a result of
your market-making or other trading
activities and that you will deliver a
prospectus in connection with any resale
of the new notes you receive. For further
information regarding resales of the new
notes by participating broker-dealers, see
the discussion below under the caption
"Plan of Distribution" on pages 146 to
147.
WITHDRAWAL; NON-ACCEPTANCE...... You may withdraw any old notes tendered in
the exchange offer at any time prior to 5:00
p.m., New York City time, on
[ ], 1999. If we decide for
any reason not to accept any old notes
tendered for exchange, the old notes will be
returned to the registered holder at our
expense promptly after the expiration or
termination of the exchange offer. In the
case of old notes tendered by book-entry
transfer into the exchange agent's account
at The Depository Trust Company, any
withdrawn or unaccepted old notes will be
credited to the tendering holder's account
at The Depository Trust Company. For further
information regarding the withdrawal of
tendered old notes, see "The Exchange
Offer -- Terms of the Exchange Offer; Period
for Tendering Old Notes" on pages 24 to 25
and " -- Withdrawal Rights" on pages 29 to
30.
CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is subject to customary
conditions, which we may waive. See the
discussion below under the caption "The
Exchange Offer -- Conditions to the Exchange
Offer" on pages 30 to 31 for more
information regarding the conditions to the
exchange offer.
PROCEDURES FOR TENDERING OLD
NOTES........................... Unless you comply with the procedures
described below under the caption "The
Exchange Offer -- Guaranteed Delivery
Procedures" on pages 28 to 29, you must do
one of the following on or prior to the
expiration of the exchange offer to
participate in the exchange offer:
- tender your old notes by sending the
certificates for your old notes, in proper
form for transfer, a properly completed
and duly executed letter of transmittal,
with any required signature guaran-
2
<PAGE> 9
tees, and all other documents required by
the letter of transmittal, to The Bank of
New York, as exchange agent, at one of
the addresses listed below under the
caption "The Exchange Offer -- Exchange
Agent" on page 31; or
- tender your old notes by using the
book-entry transfer procedures described
below and transmitting a properly
completed and duly executed letter of
transmittal, with any required signature
guarantees, or an agent's message instead
of the letter of transmittal, to the
exchange agent. In order for a book-entry
transfer to constitute a valid tender of
your old notes in the exchange offer the
exchange agent must receive a confirmation
of book-entry transfer of your old notes
into its account at The Depository Trust
Company prior to the expiration of the
exchange offer. For more information
regarding the use of book-entry transfer
procedures, including a description of the
required agent's message, see the
discussion below under the caption "The
Exchange Offer -- Book Entry Transfer" on
page 28.
GUARANTEED DELIVERY
PROCEDURES...................... If you are a registered holder of the old
notes and wish to tender your old notes in
the exchange offer, but
- the old notes are not immediately
available,
- time will not permit your old notes or
other required documents to reach the
exchange agent before the expiration of
the exchange offer, or
- the procedure for book-entry transfer
cannot be completed prior to the
expiration of the exchange offer,
you may tender old notes by following the
procedures described below under the caption
"The Exchange Offer -- Guaranteed Delivery
Procedures" on pages 28 to 29.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............... If you are a beneficial owner whose old
notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your old notes in the exchange offer,
you should promptly contact the person in
whose name the old notes are registered and
instruct that person to tender on your
behalf. If you wish to tender in the
exchange offer on your
3
<PAGE> 10
own behalf, prior to completing and
executing the letter of transmittal and
delivering your old notes, you must either
make appropriate arrangements to register
ownership of the old notes in your name or
obtain a properly completed bond power from
the person in whose name the old notes are
registered.
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS....... The exchange of old notes for new notes in
the exchange offer will not be a taxable
transaction for United States federal income
tax purposes. See the discussion below under
the caption "Material United States Federal
Income Tax Consequences" on pages 33 to 36
for more information regarding the tax
consequences to you of the exchange offer.
USE OF PROCEEDS................. We will not receive any cash proceeds from
the exchange offer.
EXCHANGE AGENT.................. The Bank of New York is the exchange agent
for the exchange offer. The addresses and
telephone number of the exchange agent can
be found below under the caption "The
Exchange Offer -- Exchange Agent" on page
31.
RESALES......................... Based on interpretations by the staff of the
Securities and Exchange Commission, as set
forth in no-action letters issued to third
parties, we believe that the new notes you
receive in the exchange offer may be offered
for resale, resold or otherwise transferred
without compliance with the registration and
prospectus delivery provisions of the
Securities Act. However, you will not be
able to freely transfer the new notes if:
- you are an "affiliate" of New World Pasta,
as defined in Rule 405 under the
Securities Act;
- you are not acquiring the new notes in the
exchange offer in the ordinary course of
your business;
- you have an arrangement or understanding
with any person to participate in the
distribution of the new notes, as defined
in the Securities Act, you will receive in
the exchange offer; or
- you are a participating broker-dealer that
receives new notes for its own account in
the exchange offer in exchange for old
notes that were acquired as a result of
market-making or other trading activities.
If you fall within one of the exceptions
listed above, you must comply with the
registration and
4
<PAGE> 11
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction involving the new notes.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the exchange offer, your old notes
will continue to be subject to the restrictions on transfer described in the
legend on the certificate for your old notes. In general, you may offer or sell
your old notes only:
- if they are registered under the Securities Act and applicable state
securities laws;
- if they are offered or sold under an exemption from registration under
the Securities Act and applicable state securities laws; or
- if they are offered or sold in a transaction not subject to the
Securities Act and applicable state securities laws.
We do not currently intend to register the old notes under the Securities Act.
Under some circumstances, however, holders of the old notes -- including holders
who are not permitted to participate in the exchange offer or who may not freely
resell new notes received in the exchange offer -- may require us to file, and
cause to become effective, a shelf registration statement which would cover
resales of old notes by these holders. For more information regarding the
consequences of not tendering your old notes and our obligation to file a shelf
registration statement, see "The Exchange Offer -- Consequences of Exchanging or
Failing to Exchange Old Notes" on page 32 and "Description of the
Notes -- Registration Rights" on pages 141 to 143.
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and those of the outstanding old notes are
substantially identical, except that the transfer restrictions and registration
rights relating to the old notes do not apply to the new notes. In addition, if
the exchange offer is not completed by [the 35th day following effectiveness of
the registration statement], 1999, and we do not have an effective shelf
registration statement on file with the SEC to register the old notes on that
date, the interest rate on the old notes will increase by 0.5% every 90 days, up
to a maximum increase of 1.0%, until the exchange offer is completed or an
effective shelf registration statement is on file.
SECURITIES OFFERED.............. $160,000,000 aggregate principal amount of
9 1/4% Senior Subordinated Exchange Notes
due 2009.
MATURITY DATE................... February 15, 2009.
INTEREST........................ Interest on the new notes will accrue at the
rate of 9 1/4% per annum and will be payable
semiannually in cash on February 15 and
August 15 of each year, commencing on August
15, 1999.
RANKING......................... The new notes will rank equally with our
other senior subordinated indebtedness. The
new notes will be junior to all of our
senior indebtedness.
At April 4, 1999, after giving effect to the
offering of the old notes and the
recapitalization transaction in which our
current principals acquired control of
5
<PAGE> 12
New World Pasta, New World Pasta and its
subsidiaries had approximately $310.4
million of long-term indebtedness
outstanding, of which approximately $150.0
million was senior to the old notes and will
be senior to the new notes.
SINKING FUND.................... None.
OPTIONAL REDEMPTION............. We may redeem any of the new notes beginning
on February 15, 2004 at an initial
redemption price equal to 104.625% of their
principal amount, plus accrued and unpaid
interest. The redemption price will decline
each year after 2004 and will be 100% of the
principal amount, plus accrued and unpaid
interest, beginning on February 15, 2007.
In addition, before February 15, 2002, we
may redeem up to 35% of the aggregate
principal amount of all old notes and new
notes outstanding on the date of redemption
at a redemption price equal to 109.25% of
the aggregate principal amount redeemed,
plus accrued and unpaid interest and
liquidated damages, if any. We may only
redeem the notes using the net cash proceeds
from issuances of our capital stock, subject
to some limitations. For additional
information regarding optional redemption of
the notes, see the discussion below under
the caption "Description of the
Notes -- Optional Redemption" on pages 94 to
95.
CHANGE OF CONTROL............... Upon a change of control of New World Pasta,
we will be required to make an offer to
purchase all outstanding old notes and new
notes. The purchase price will equal 101% of
the aggregate principal amount of all notes
outstanding on the date of purchase, plus
accrued and unpaid interest. We may not have
sufficient funds available at the time of
any change of control to make any required
debt repayment -- including repurchases of
the notes -- and the terms of our senior
credit facilities may block these payments.
COVENANTS....................... The terms of the new notes restrict our
ability, among other things, to:
- pay dividends or make distributions on our
capital stock,
- repurchase or redeem our capital stock,
- create liens,
- make particular kinds of investments and
other restricted payments,
- incur additional indebtedness,
6
<PAGE> 13
- merge or consolidate with other companies,
- sell assets, and
- enter into transactions with our
stockholders or affiliates.
These limitations are subject to a number of
important qualifications and exceptions. For
further information regarding the
restrictions imposed on New World Pasta by
the terms of the new notes, see the
discussion below under the caption
"Description of the Notes -- Covenants" on
pages 98 to 114.
SUBSIDIARY GUARANTEES........... The obligations of New World Pasta under the
new notes will be guaranteed by Pasta Group,
L.L.C. and Winchester Pasta, L.L.C., New
World Pasta's only current subsidiaries.
These guarantees will be full and
unconditional and will be subordinated to
all senior indebtedness of the subsidiary
guarantors.
RISK FACTORS
You should carefully consider all of the information contained in this
prospectus before deciding to tender your old notes in the exchange offer. In
particular, you should carefully review the specific factors described below
under the caption "Risk Factors" beginning on page 12, which contain important
information about New World Pasta and the risks that may affect our business.
NEW WORLD PASTA COMPANY
COMPANY OVERVIEW. We manufacture and distribute retail branded pasta in
the United States, and supply dry pasta to the U.S. private label, industrial
and foodservice sectors. Our primary business is the production of dry pasta
which is marketed and sold under regional brands in supermarkets and foodstores.
These brand names include such regional brands as Ronzoni, San Giorgio, American
Beauty, Skinner, Ideal and P&R. Our principal executive offices are located at
85 Shannon Road, Harrisburg, Pennsylvania 17112 and our telephone number is
(717) 526-2200.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma financial
data for New World Pasta. The summary historical financial data for the years
ended December 31, 1998, 1997 and 1996 has been derived from the audited
combined financial statements of New World Pasta appearing elsewhere in this
prospectus. The summary historical financial data for the year ended December
31, 1995 has been derived from the unaudited combined financial statements of
Hershey Pasta Group, a wholly owned division of Hershey Foods Corporation and
the predecessor to New World Pasta, which have not been included in this
prospectus. The summary historical financial data for the year ended December
31, 1994 has been derived from the unaudited internal records of the Hershey
Pasta Group. In the opinion of management, the unaudited data for 1995 and 1994
reflects all adjustments necessary for a fair presentation of the information
included in the
7
<PAGE> 14
summary historical financial data for these periods. The summary historical
financial data for the three months ended April 4, 1999 and April 5, 1998 has
been derived from the unaudited consolidated financial statements of New World
Pasta appearing elsewhere in this prospectus. In the opinion of management, such
data includes all adjustments necessary for a fair presentation of the
information included therein. The results of operations for the three months
ended April 4, 1999 are not necessarily indicative of the results for the entire
year or any other interim period. The summary historical financial data set
forth in the following table should be read in conjunction with our historical
combined financial statements and the related notes appearing elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The unaudited pro forma statement of income data for the year ended
December 31, 1998 and the three months ended April 4, 1999 give effect to the
recapitalization in which our current principals acquired control of New World
Pasta and the offering of the old notes, as if these events had occurred on the
first day of the period presented.
The unaudited pro forma financial data does not purport to represent what
our results of operations would actually have been if these events had in fact
occurred at the beginning of the periods presented, or to project our results of
operations for any future date or period. The unaudited pro forma financial data
should be read in conjunction with the unaudited pro forma combined statements
of operations and the related notes and our historical combined financial
statements and the related notes appearing elsewhere in this prospectus.
When reviewing the following Summary Historical and Pro Forma Financial
Data, you should be aware that:
- A 0.125% increase or decrease in the assumed average interest rate on
the variable-rate debt incurred in connection with the
recapitalization in which our current principals acquired control of
New World Pasta would change:
- the pro forma interest expense for the year ended December 31,
1998 by approximately $188,000;
- the pro forma interest expense for the three-month period ended
March 31, 1999 by approximately $113,000;
- the pro forma net income for the year ended December 31, 1998 by
approximately $47,000; and
- the pro forma net income for the three-month period ended March
31, 1999 by approximately $28,000.
- Pro forma interest expense includes $732,000 of amortization of debt
issuance costs for the year ended December 31, 1998 and $183,000 for
the three-month period ended April 4, 1999.
- Selling, general and administrative expenses for the three-month
period ended April 4, 1999 include $7.1 million of non-recurring
expenses incurred in connection with the recapitalization in which our
current principals acquired control of New World Pasta and related
financing transactions.
- Historically, Hershey Pasta Group did not incur indebtedness or
related interest expense as a division of Hershey Foods Corporation.
As an independent company, New World Pasta is required to service the
interest expense on any
8
<PAGE> 15
borrowings incurred by it including the debt associated with the
recapitalization in which our current principals acquired control of
New World Pasta and to fund its capital expenditures.
- EBITDA represents earnings before interest, taxes, depreciation and
amortization. We believe that EBITDA provides useful information
regarding our ability to service our debt. EBITDA is not a measure of
operating performance computed in accordance with GAAP and should not
be considered as a substitute for operating income, net income, cash
flows from operations, or other statement of operations or cash flow
data prepared in conformity with GAAP, or as a measure of
profitability or liquidity. In addition, EBITDA may not be comparable
to similarly titled measures of other companies. EBITDA may not be
indicative of the historical operating results of New World Pasta, and
is not meant to be predictive of future results of operation or cash
flows. You should also see the audited combined statements of cash
flows contained within the audited combined financial statements
appearing elsewhere in this prospectus. During 1998, New World Pasta
incurred various legal expenses and paid retention bonuses related to
the recapitalization. EBITDA on an adjusted basis without the effect
of these non-recurring charges would have been $59.0 million for the
year ended December 31, 1998.
- Cash flow data for 1994 has not been presented due to the
unavailability of 1993 balance sheet data.
- Cash interest expense excludes $732,000 of amortization of debt
issuance costs for the year ended December 31, 1998 and $183,000 for
the three-month period ended April 4, 1999.
9
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................. $397,770 $419,090 $407,370 $386,218 $373,096
Cost of sales............. 237,485 241,464 235,025 210,003 205,773
-------- -------- -------- -------- --------
Gross profit.............. 160,285 177,626 172,345 176,215 167,323
Marketing expenses........ 93,146 109,123 106,121 101,731 92,081
Selling, general and
administrative
expenses................ 36,543 36,878 35,080 32,764 33,374
-------- -------- -------- -------- --------
Operating income.......... 30,596 31,625 31,144 41,720 41,868
Interest expense.......... -- -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes................... 30,596 31,625 31,144 41,720 41,868
Provision for income
taxes................... 13,470 13,188 12,451 16,563 15,954
-------- -------- -------- -------- --------
Net income (loss)......... 17,126 18,437 18,693 25,157 25,914
Dividends on preferred
stock................... -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)
attributable to common
stock................... $ 17,126 $ 18,437 $ 18,693 $ 25,157 $ 25,914
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital........... $ 19,621 $ 14,739 $ 15,084 $ 8,183 $ 20,798
Total assets.............. 293,678 259,731 246,563 231,920 225,017
Long-term debt (including
current portion)........ -- -- -- -- --
Mandatorily redeemable
non-voting preferred
stock................... -- -- -- -- --
Stockholders' equity
(deficit)............... 234,450 194,155 183,698 162,777 166,944
<CAPTION>
PRO FORMA
---------------------------
THREE MONTHS ENDED THREE MONTHS
-------------------- YEAR ENDED ENDED
APRIL 5, APRIL 4, DECEMBER 31, APRIL 4,
1998 1999 1998 1999
-------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................. $108,647 $ 96,271 $373,096 $96,271
Cost of sales............. 59,492 51,613 205,773 51,613
-------- --------- -------- -------
Gross profit.............. 49,155 44,658 167,323 44,658
Marketing expenses........ 29,064 27,222 92,081 27,222
Selling, general and
administrative
expenses................ 7,934 14,252 33,374 14,252
-------- --------- -------- -------
Operating income.......... 12,157 3,184 41,868 3,184
Interest expense.......... -- (5,426) (28,157) (7,039)
-------- --------- -------- -------
Income (loss) before
provision for income
taxes................... 12,157 (2,242) 13,711 (3,855)
Provision for income
taxes................... 4,632 1,162 5,484 517
-------- --------- -------- -------
Net income (loss)......... 7,525 (3,404) 8,227 (4,372)
Dividends on preferred
stock................... -- (2,427) (13,618) (3,405)
-------- --------- -------- -------
Net income (loss)
attributable to common
stock................... $ 7,525 $ (5,831) $ (5,391) $(7,777)
======== ========= ======== =======
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital........... $ 23,117
Total assets.............. 351,976
Long-term debt (including
current portion)........ 310,000
Mandatorily redeemable
non-voting preferred
stock................... 115,912
Stockholders' equity
(deficit)............... (116,206)
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA.................... $ 46,466 $ 47,558 $ 47,136 $ 57,157 $ 56,515
Net cash provided by
operating activities.... N/A 44,288 38,056 47,928 26,407
EBITDA as a percentage of
net sales............... 11.7% 11.3% 11.6% 14.8% 15.1%
Depreciation and
amortization
expense................. $ 15,870 $ 15,933 $ 15,992 $ 15,437 $ 14,647
Capital expenditures...... 9,097 5,952 8,906 1,850 4,660
Cash interest expense..... -- -- -- -- --
Ratio of pro forma EBITDA
to cash interest........ -- -- -- -- --
Ratio of pro forma EBITDA
to cash interest and
preferred stock
dividends............... -- -- -- -- --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends............... -- -- -- -- --
Deficiency of earnings
before income taxes to
combined fix charges and
preferred stock
dividends............... -- -- -- -- --
<CAPTION>
PRO FORMA
---------------------------
THREE MONTHS ENDED THREE MONTHS
-------------------- YEAR ENDED ENDED
APRIL 5, APRIL 4, DECEMBER 31, APRIL 4,
1998 1999 1998 1999
-------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA.................... $ 15,950 $ 13,966 $ 56,515 $13,966
Net cash provided by
operating activities.... 3,318 8,535 (636) 1,679
EBITDA as a percentage of
net sales............... 14.7% 14.5% 15.1% 14.5%
Depreciation and
amortization
expense................. $ 3,793 $ 3,571 $ 14,647 3,571
Capital expenditures...... 560 625 4,660 625
Cash interest expense..... -- 963 27,425 6,856
Ratio of pro forma EBITDA
to cash interest........ -- -- 2.1x 2.0x
Ratio of pro forma EBITDA
to cash interest and
preferred stock
dividends............... -- -- 1.4x 1.4x
Ratio of earnings to
combined fixed charges
and preferred stock
dividends............... -- -- 1.0x --
Deficiency of earnings
before income taxes to
combined fix charges and
preferred stock
dividends............... 4,669 -- $ 7,260
</TABLE>
11
<PAGE> 18
RISK FACTORS
You should carefully consider the risk factors described below as well as
all other information contained in this prospectus before deciding to tender
your old notes in the exchange offer. The risk factors described below -- other
than "-- Consequences Of Not Exchanging Old Notes" -- are generally applicable
to the old notes as well as the new notes.
The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also materially and adversely affect our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected.
COMPANY RISKS
OUR SIGNIFICANT INDEBTEDNESS MAY LIMIT OUR ABILITY TO GROW AND COMPETE WITH
OTHER PASTA MANUFACTURERS
As a result of the recapitalization in which our current principals
acquired control of New World Pasta, we are a highly leveraged company. At April
4, 1999, we had, after giving effect to the recapitalization and the offering of
the old notes, $310.4 million of outstanding debt -- including approximately
$150.0 million of senior indebtedness. We also had negative stockholders' equity
of $117.2 million and negative tangible net worth of $186.7 million.
Our level of indebtedness could have important consequences to you because
it:
- limits our ability to obtain additional financing to fund our growth
strategy, working capital requirements, capital expenditures, debt
service requirements or other needs;
- limits our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service;
- increases our vulnerability to interest rate fluctuations because much of
our debt may be at variable interest rates, although a portion of this
indebtedness is required to be hedged under the terms of our senior
credit facilities;
- limits our ability to compete with others who are not as highly
leveraged; and
- limits our ability to react to changing market conditions, changes in our
industry and economic downturns.
Our ability to pay principal and interest on the new notes and to satisfy
our other debt obligations will depend upon our future operating performance.
Prevailing economic conditions and financial, business and other factors, many
of which are beyond our control, will also affect our ability to make these
payments. If we cannot generate sufficient cash from operations to make
scheduled payments on the new notes or to meet our other obligations, we will
need to refinance our debt, obtain additional financing or sell assets. We
cannot assure you that our business will generate cash flow, or that we will be
able to refinance our debt or obtain additional financing, sufficient to satisfy
our debt service requirements.
12
<PAGE> 19
IN THE EVENT THAT WE WERE TO SEEK BANKRUPTCY PROTECTION, HOLDERS OF THE NEW
NOTES WOULD NOT BE REPAID UNTIL OUR SENIOR CREDIT FACILITIES ARE REPAID
The new notes will be subordinated to all of our senior indebtedness, in
particular, our senior credit facilities. At April 4, 1999, we had $150.0
million of senior indebtedness. We also may incur additional senior indebtedness
consistent with the terms of our debt agreements. In the event of our
bankruptcy, liquidation or dissolution, our assets would be available to pay
obligations on the new notes only after all payments had been made on our senior
indebtedness. We cannot assure you that sufficient assets would remain to make
any payments on the new notes. In addition, some of the events of default under
our senior indebtedness would prohibit us from making any payments on the new
notes, including interest payments.
OUR DEBT AGREEMENTS CONTAIN PROVISIONS WHICH RESTRICT OUR ACTIVITIES AND
MAY AFFECT OUR ABILITY TO MAKE PAYMENTS TO THE HOLDERS OF NEW NOTES
We are subject to operating and financial restrictions and covenants in our
existing debt agreements, including our senior credit facilities and the
indenture under which the old notes were issued and the new notes will be
issued. In addition, any future financing agreements may have similar
restrictions. These restrictions may adversely affect our ability to finance
future operations or capital needs or to engage in other business activities.
Specifically, our debt agreements restrict our ability to:
- declare dividends or redeem or repurchase capital stock;
- prepay, redeem or purchase debt, including the new notes;
- incur liens and engage in sale-leaseback transactions;
- make loans and investments;
- incur additional indebtedness;
- amend or otherwise change debt and other material agreements;
- make capital expenditures;
- engage in mergers, acquisitions and asset sales;
- enter into transactions with our affiliates; and
- change our primary business.
A breach of any of these restrictions could cause a default under our senior
credit facilities, other debt agreements, the old notes or the new notes. A
significant portion of our indebtedness then may become immediately due and
payable. We are not certain whether we would have, or would be able to obtain,
sufficient funds to make these accelerated payments, including payments on the
new notes.
If our cash flow is insufficient to meet our payment obligations and we are
unable to refinance or obtain sufficient additional financing, we could be
forced to sell our assets on unfavorable terms to make up for any shortfall in
our payment obligations. Our senior credit facilities restrict our ability to
sell assets and also restrict the use of any proceeds from sales of assets.
Moreover, our senior credit facilities are secured by substantially all of our
assets and our obligations under the new notes are subordinate to our
obligations under the senior credit facilities. We cannot be sure that our
assets will be sufficient in value or could be sold quickly enough or for
sufficient amounts to enable us to meet our obligations, including our
obligations with respect to the new notes. Furthermore, a substantial portion of
our assets are, and may continue to be, intangible assets. Therefore, it may be
difficult for the holders of the new notes to be paid in the event of an
13
<PAGE> 20
acceleration of the new notes. For a further description of the restrictions
imposed on New World Pasta by the terms of our debt agreements, see the
discussion below under the caption "Description of the Notes -- Covenants" on
pages 98 to 114 and "Description of Other Indebtedness" on pages 144 to 145.
BECAUSE WE DO NOT HAVE AN INDEPENDENT OPERATING HISTORY, WE MAY NOT BE ABLE
TO ACCURATELY PREDICT OUR WORKING CAPITAL REQUIREMENTS
Since 1966, our business operations have been conducted by various entities
owned directly or indirectly by Hershey Foods Corporation, and we do not have an
independent operating history. While owned by Hershey, we were able to use some
of the financial and administrative resources and infrastructure of Hershey in
such areas as treasury, legal, systems and benefits administration. As a result
of the recapitalization in which our current principals acquired control of New
World Pasta, we will now be required to supplement our financial, administrative
and other resources to provide services necessary to operate successfully as an
independent company. We will also need to fund our working capital requirements
and other cash needs from our cash flow and other sources. We have a $50.0
million revolving credit facility -- all of which was available for borrowing as
of June 15, 1999 -- that can be used to fund our working capital and other
general corporate requirements. Our cash flow and the revolving credit facility
may not, however, be adequate to meet our working capital and other cash needs
in the future.
WHEN OUR TRANSITIONAL SERVICES AGREEMENT WITH HERSHEY FOODS CORPORATION
EXPIRES, WE MAY HAVE DIFFICULTY OBTAINING SUBSTITUTE SERVICES AT A REASONABLE
COST
In connection with the recapitalization, we entered into a Transitional
Services Agreement in which Hershey Foods Corporation agreed to continue to
provide us with a variety of services for a period generally not to exceed six
months from January 28, 1999. Under the Transitional Services Agreement, Hershey
Foods Corporation continues to provide us with the following services:
- systems technology services; and
- benefits administration.
When this agreement terminates, we will have to provide these services in-house
or contract with third parties. We cannot assure you that we have accurately
assessed the difficulties and costs of replacing these services and successfully
operating as an independent company.
BECAUSE OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE COMPARABLE TO
FUTURE PERIODS, OUR FINANCIAL STATEMENTS MAY NOT ACCURATELY REFLECT CHANGES IN
OUR FINANCIAL POSITION
The historical financial information included in this prospectus may not
necessarily reflect our results of operations, financial position and cash flows
in the future or be illustrative of what our results of operations, financial
position and cash flows would have been had we been a separate, independent
entity during the periods presented. The historical financial information
included in this prospectus does not reflect many significant changes that have
occurred in our capital structure, funding and operations as a result of the
recapitalization in which our current principals acquired control of New World
Pasta and the offering of the old notes or the additional costs we expect to
incur in operating as an independent company. For example, funds required for
working capital and other cash
14
<PAGE> 21
needs historically were obtained from Hershey Foods Corporation on an
interest-free intercompany basis without any debt service requirement. In
addition, because we cannot currently estimate these adjustments, the pro forma
combined financial statements appearing elsewhere in this prospectus do not
reflect the potentially significant working capital adjustments that may be
required subsequent to the completion of the recapitalization. Also, Hershey
Foods Corporation's cash management system -- in which Hershey Pasta Group
participated -- historically resulted in Hershey Pasta Group maintaining zero
cash balances. As a result, our results of operations and financial condition
subsequent to the recapitalization are not and will not be comparable to prior
periods. In addition, the information regarding the results of operations, cash
flows and financial condition of Hershey Pasta Group for 1994 and 1995 are
unaudited. If this information had been audited, the results for these periods
might have been different.
BECAUSE OF FACTORS BEYOND OUR CONTROL, WE MAY BE UNABLE TO ACHIEVE OUR
BUSINESS STRATEGIES
Our business plan for New World Pasta depends upon our successful execution
of our business strategies and cost saving initiatives. However, we cannot
assure you that we will successfully implement our plans or that the costs of
implementing our plans will not be greater than currently expected. We also
cannot be sure as to the timing or amount of any positive changes which may be
realized as a result of our business strategies or that the changes in our
business strategy might not result in unanticipated material adverse
consequences.
Our future results of operations will also depend upon a number of factors
and events, some of which are beyond our control, including the following:
- the levels of demand for our existing products;
- our ability to develop new products and successfully implement our
marketing initiatives;
- our ability to maintain acceptable profit margins on product sales;
- our ability to increase our private label business;
- our ability to control our costs and repay our indebtedness;
- the substantial competition we encounter;
- our transition to operating as an independent company and the costs
associated with that transition; and
- possible changes in the pasta industry or the grocery industry and
general economic conditions.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDER, JOSEPH LITTLEJOHN & LEVY, MAY
CONFLICT WITH YOUR INTERESTS AS A NEW NOTE HOLDER
Joseph Littlejohn & Levy Fund III, L.P., which is controlled by Joseph
Littlejohn & Levy, beneficially owns 83.4% of our outstanding common stock and
voting power through its membership interest in New World Pasta, LLC. As a
result of its voting power and a stockholders agreement among the holders of our
common stock, Joseph Littlejohn & Levy Fund III, L.P. is in a position to elect
a majority of our board of
15
<PAGE> 22
directors and control all matters affecting New World Pasta, including any
determination with respect to:
- the direction and policies of New World Pasta;
- the acquisition and disposition of assets;
- future issuances of common and preferred stock or other securities;
- our future incurrence of debt; and
- any dividends on our common stock or preferred stock.
Some decisions concerning the operations or financial structure of New
World Pasta may present conflicts of interest between Joseph Littlejohn & Levy
Fund III, L.P. and the holders of the new notes. If we encounter financial
difficulties, or we are unable to pay our debts as they mature, the interests of
our equity holders might conflict with those of the holders of the new notes. In
addition, our equity holders may have an interest in pursuing acquisitions,
divestitures, financings or other transactions, that, in their judgment, could
enhance their equity investment, even though these transactions might involve
risks to the holders of the new notes.
MILLER MILLING COMPANY'S PROCUREMENT ACTIVITIES MAY NEGATIVELY AFFECT OUR
ABILITY TO BENEFIT FROM REDUCED DURUM/SEMOLINA PRICES UNDER SOME CIRCUMSTANCES
Miller Milling Company will have responsibility, on behalf of New World
Pasta, for procurement of all of New World Pasta's durum/semolina requirements.
The prices we will pay for durum/semolina under procurement arrangements with
Miller Milling Company will be based upon prevailing market prices. Miller
Milling Company will attempt to minimize the effects of durum/semolina cost
fluctuations through forward purchase contracts and, where appropriate, hedging
activities but these practices also may temporarily affect our ability to
benefit from possible durum/semolina cost decreases.
OUR RELIANCE ON A SINGLE VENDOR FOR OUR RAW MATERIAL PROCUREMENT MAY EXPOSE
US TO RISKS RELATED TO OUR VENDOR'S FINANCIAL CONDITION AND ABILITY TO PERFORM
ITS OBLIGATIONS
New World Pasta has historically sourced up to 67% of its durum/semolina
needs through Miller Milling Company under two milling agreements. We have
negotiated a procurement agreement with Miller Milling Company to supply us with
all of our additional durum/semolina needs at a competitive rate. Despite the
expected advantages associated with having a single procurement source for our
durum/semolina needs, we may not obtain the expected benefits from this
relationship. Moreover, an adverse change in, or termination or expiration
without renewal of, our relationship with Miller Milling Company could have a
material adverse effect on our business, financial condition and results of
operations. Similarly, any downturn in the financial viability of Miller Milling
Company, or its ability to perform under our contracts, would negatively impact
our business. If we had to obtain durum/semolina from alternative sources, we
might not be able to do so on equally favorable terms.
16
<PAGE> 23
TWO OF OUR SENIOR MANAGEMENT MEMBERS ARE PRINCIPALS OF OUR LARGEST RAW
MATERIAL SUPPLIER
Two of the principals of Miller Milling Company, Messrs. Miller and Snow,
are executive officers and directors of New World Pasta. As a result, there may
be conflicts between their interests as officers of New World Pasta and the
interests of Miller Milling Company, which is neither owned nor controlled by
New World Pasta. For a further discussion of the relationship between New World
Pasta and Miller Milling Company, see "Business -- Miller Milling Company"
beginning on page 75 and "Certain Relationships and Related Transactions"
beginning on page 88.
THE LOSS OF ANY OF OUR KEY PERSONNEL WITH PASTA INDUSTRY EXPERTISE COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION
Our operations and prospects depend in large part on the performance of our
senior management team. The team includes: Mickey Skinner, Chairman of the Board
and Chief Executive Officer; John Miller, Co-Chairman and President; Michael
Snow, Executive Vice President; James Bohenick, Vice President -- Finance and
Chief Financial Officer; Clifford Larsen, Executive Vice President -- Marketing
and Sales; and Mark Kimmel, Vice President, Administration and Development and
General Counsel. We cannot be sure that we would be able to find qualified
replacements for any of these individuals if their services were no longer
available. The loss of the services of one or more members of our senior
management team could have a material adverse effect on our business, financial
condition and results of operations. We do not currently maintain key person
life insurance on any of our key employees. We do, however, have employment
agreements with Messrs. Skinner, Miller and Snow. Messrs. Miller and Snow are
also employees of Miller Milling Company and will be devoting a considerable
portion of their business time to activities on behalf of Miller Milling
Company. For further information regarding our senior management team, see the
discussion below under the caption "Management" beginning on page 80.
WE MAY BE SUBJECT TO LIABILITY IF ENVIRONMENTAL PROBLEMS AT OUR PROPERTIES
ARE DISCOVERED IN THE FUTURE
Various federal, state and local laws and regulations impose liability on
current or former real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In addition, these laws impose liability for
clean-up costs on persons who disposed of or arranged for the disposal of
hazardous substances at third-party sites. A number of current and former
Hershey Pasta Group facilities have been operated as manufacturing facilities
for some time. Consequently, we cannot be sure that we will not incur liability
in the future if evidence of environmental problems is discovered in the future.
This liability may be imposed regardless of whether the original actions
were legal or whether we knew of, or were responsible for, the presence of
hazardous or toxic substances. This liability may be joint and several with
other parties. If the liability is joint and several, we could be responsible
for payment of the full amount of the liability, whether or not any other
responsible party is also liable.
In addition, our operations are subject to extensive environmental laws and
regulations concerning, among other things, emissions to air, discharges to
water, and the generation, treatment and disposal of wastes and other materials.
We may also incur costs and expenses in connection with the repair or upgrade of
our facilities to meet existing or new
17
<PAGE> 24
requirements under environmental laws. In many instances, the ultimate costs and
the time period during which costs are likely to be incurred are difficult to
predict.
INDUSTRY RISKS
EXPECTED INCREASES IN THE PRODUCTION CAPACITIES OF OUR COMPETITORS MAY
CREATE PRICE PRESSURE AND NEGATIVELY AFFECT OUR PROFIT MARGINS
We operate in a highly competitive environment and compete against numerous
national, regional and foreign companies, as well as many smaller companies, in
the procurement of raw materials, the development of new pasta products and
product lines, the improvement and expansion of previously introduced pasta
products and product lines and the production, marketing and sale of pasta
products. Our main competitors are American Italian Pasta Company, Barilla
G.ER.F. LLI S.p.A., Bestfoods Inc., Borden Food Holdings Corporation and Dakota
Growers Pasta Company. Some of our competitors have greater production capacity
and financial or other resources than we have.
Many pasta producers have disclosed that they recently increased or intend
to increase production capacity by either constructing new facilities or
expanding existing facilities by adding additional processing lines. This
increase in our competitors' capacity could cause increased competition for
sales, potentially causing pressure on profit margins. If increased competition
were to occur, it could have a material adverse effect on our business,
financial condition and results of operations.
BECAUSE RETAIL PASTA SALES ARE DECLINING, OUR EFFORTS TO INCREASE OUR
MARKET SHARE AND SALES VOLUME MAY BE UNSUCCESSFUL
We cannot assure you that our marketing initiatives will be sufficient to
offset the overall decline in retail pasta sales. Retail pasta sales, as
measured by Information Resources, Inc., have been declining since 1997, and the
rate of decline has been increasing. Although retail private label sales have
increased during this period, this increase has been more than offset by a
decrease in retail branded pasta sales. Furthermore, sales of dry pasta through
our primary distribution channels -- grocery store chains and grocery
wholesalers -- have declined, as measured by Information Resources, Inc. You
should note that in making this calculation, Information Resources, Inc. does
not include sales through mass merchants and club stores, where we also sell our
products. In addition, Hershey Pasta Group has historically had a limited share
of the private label market. We plan to increase our activity in the private
label business, but we cannot assure you that we will successfully implement our
plans or that the successful implementation of those plans will be sufficient to
offset the overall decline in retail pasta sales.
WE ARE EXCLUSIVELY FOCUSED ON THE DRY PASTA INDUSTRY AND ARE SUBJECT TO
RISKS ARISING FROM REDUCED DEMAND FOR DRY PASTA AND CHANGES IN PRICING
We have focused exclusively on the dry pasta industry and expect to
continue to derive substantially all of our revenues from the sale of dry pasta
and pasta-related products. Because of this product concentration, any decline
in the demand or pricing for dry pasta, any shift in consumer preferences away
from dry pasta, or any other factor that adversely affects the pasta market,
could have a more significant adverse effect on our business, financial
condition and results of operations. In addition, our pasta production equipment
is highly specialized and is not adaptable to the production of non-pasta food
products.
18
<PAGE> 25
OUR PROFITABILITY IS SUBJECT TO FLUCTUATIONS IN THE PRICES OF
DURUM/SEMOLINA AND OTHER RAW MATERIALS, WHICH HISTORICALLY HAVE BEEN VOLATILE,
AND OUR PRICING STRUCTURE MAY NOT ALLOW US TO OFFSET THE COST INCREASES CAUSED
BY THIS VOLATILITY
The principal raw material in our products is semolina, a flour made from
durum wheat. Durum/semolina is used almost exclusively in pasta production and
is a narrowly traded commodity crop. As a result, the profitability of New World
Pasta will be subject to changes in the market prices for durum/semolina.
The supply and price of durum/semolina are subject to market conditions and
are influenced by numerous factors beyond our control, including general
economic conditions, natural disasters, weather conditions, agricultural
problems such as pestilence, competition and governmental programs and
regulations. The cost of durum/semolina has varied in recent years and future
changes in durum/semolina costs may cause our results of operations and profit
margins to fluctuate significantly.
We also rely on the supply of packaging materials, primarily cartons,
flexible packaging and corrugated cardboard, which have experienced price
fluctuations as well. A large, rapid increase in the cost of these raw materials
could have a material adverse effect on our business, financial condition and
results of operations.
Historically, changes in prices of our pasta products have lagged behind
changes in our raw material costs. Competitive pressures may also limit our
ability to raise prices in response to increased raw material costs in the
future. Accordingly, we cannot assure you that we will be able to offset raw
material cost increases with increased product prices. For further information
regarding the impact on our business of raw material costs, see the discussions
below under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 48 and "Business -- Raw
Materials" on pages 74 to 75.
NEW WORLD PASTA AND ITS SUPPLIERS COULD BE AFFECTED BY THE YEAR 2000
PROBLEM
Because computers, software and other equipment include a computer code in
which calendar year data is abbreviated to only two digits, some of these
systems could fail to operate or fail to produce correct results because they
may misinterpret "00" to mean the year 1900, rather than the year 2000. This is
widely known as the "Year 2000 Problem." The Year 2000 Problem affects some of
our computers, software and equipment. If we fail to properly recognize and
address the Year 2000 Problem in our systems, our business, financial condition
and results of operations could be materially adversely affected.
New World Pasta expects to incur incremental expenses of approximately $1.0
million through the end of 1999 to resolve any known Year 2000 Problems that
relate to mission critical systems. There can be no assurance, however, that
these incremental costs will not exceed our current expectations, perhaps to a
significant extent. In addition, if Miller Milling Company or any of our other
suppliers or customers fails to resolve its Year 2000 Problems, our business
could be disrupted or otherwise materially adversely affected.
OUR SALES OF FOOD PRODUCTS EXPOSE US TO THE RISK OF PRODUCT LIABILITY
CLAIMS
The sale of food products for human consumption involves the risk of injury
to consumers. These injuries may result from tampering by unauthorized third
parties, product contamination or spoilage, including the presence of foreign
objects, substances, chemicals, aflatoxin and other agents, or residues
introduced during the growing, storage,
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handling or transportation phases. We have from time to time been involved in a
limited number of product liability lawsuits, none of which was material to our
business. We cannot be sure that consumption of our products will not cause a
health-related illness in the future or that we will not be subject to claims or
lawsuits relating to these matters. In addition, we cannot be sure that we will
not incur claims or liabilities for which we are not insured or that exceed the
amount of our insurance coverage.
WE ARE SUBJECT TO THE RISK OF UNION DISPUTES AND ADVERSE EMPLOYEE RELATIONS
Some of our employees are unionized. A dispute between us and our
employees, or between any of our major suppliers or customers and its employees,
could have a material adverse effect on our business, financial condition and
results of operations. As of December 1998, approximately 56% of our employees
were represented by The Bakery, Confectionary and Tobacco Worker's Union of
America, United Foods and Commercial Workers International Union, International
Union of Operating Engineers or the Teamsters. Our collective bargaining
agreements with these unions expire at various times and are generally
renegotiated every three years. We cannot assure you that satisfactory
renegotiations will be obtained. For further information regarding our labor
relations and the scheduled renegotiation of our collective bargaining
agreements, see "Business -- Employees" on pages 78 to 79.
BECAUSE WE MUST SHIP RAW MATERIALS TO OUR PRODUCTION FACILITIES AND
FINISHED PRODUCTS TO OUR DISTRIBUTION CENTERS, WE ARE SUBJECT TO ADVERSE
TRANSPORTATION RISKS
Durum/semolina is shipped to our production facilities in Virginia,
Pennsylvania, Kansas, Kentucky, California and Nebraska directly from North
Dakota and Canada -- and potentially Mexico, should some of our durum/semolina
supply be sourced from Mexico in the future. An extended interruption in our
ability to ship durum/semolina to our facilities could have a material adverse
effect on our business, financial condition and results of operations.
Similarly, any extended disruption in the distribution of our finished pasta
products could have a material adverse effect on our business, financial
condition and results of operations. While we would attempt to transport these
materials by alternative means if we were to experience an interruption due to
strike, natural disasters or otherwise, we cannot be sure that we would be able
to do so or be successful in doing so in a timely and cost-effective manner. For
further information regarding our transportation and distribution arrangements,
see the discussion below under the caption "Business -- Transportation and
Distribution" on page 73.
BECAUSE WE USE IMPORTED RAW MATERIALS AND COMPETE WITH FOREIGN PASTA
PRODUCERS, WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT TRADE POLICIES
Our operations may be affected by governmental trade policies and
regulations, including those impacting the volume of pasta and the amount of
durum/semolina imported from Canada, and potentially Mexico, should some of our
durum/semolina supply be sourced from Mexico in the future. Pricing policy
actions by the Canadian Wheat Board in recent years may have resulted in
increased sales of Canadian durum/ semolina in the United States and lower
durum/semolina prices. These actions have resulted in complaints from
durum/semolina growers in the United States, and a continuing dispute over
possible restrictions on durum/semolina imports. If restrictions are
implemented, they could negatively impact our business.
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Domestic pasta prices are also influenced by competition from foreign pasta
producers and, as such, by the trade policies of both the U.S. government and
foreign governments. In 1996, a U.S. Department of Commerce investigation
determined that several Italian and Turkish pasta producers were selling pasta
at less than fair value in U.S. markets, and some were benefitting from
subsidies from their respective governments. Consequently, the U.S.
International Trade Commission imposed punitive anti-dumping and countervailing
duties on pasta imported from both nations, effective July 1996. However,
foreign pasta producers have also entered the U.S. pasta market by establishing
production facilities in the United States, further increasing competition in
the U.S. pasta market.
OFFERING RISKS
OUR SUBSIDIARIES' GUARANTEES COULD BE VOID IF THEY ARE FOUND BY A COURT TO
BE FRAUDULENT CONVEYANCES
Some of our subsidiaries will guarantee the new notes. The issuance of
these guarantees could be subject to review under applicable fraudulent transfer
or conveyance laws in a bankruptcy or other similar proceeding. Under these
laws, the issuance of a guarantee will be a fraudulent conveyance if either (1)
the subsidiary issued the guarantee with the intent of hindering, delaying or
defrauding its creditors, or (2) the subsidiary received less than reasonably
equivalent value or fair consideration in return for issuing the guarantee, and,
in the case of (2) only, one of the following is also true:
- the subsidiary was insolvent or became insolvent when it issued the
guarantee,
- issuing the guarantee left the subsidiary with an unreasonably small
amount of capital, or
- the subsidiary intended to, or believed that it would, be unable to pay
its debts as they matured.
If the issuance of any guarantee were found by a court to be a fraudulent
conveyance, a court could, among other things, void the subsidiary's obligations
under the guarantee and require the repayment of any amounts paid under the
guarantee.
Generally, an entity will be considered insolvent if:
- the sum of its debts is greater than the fair value of its property,
- the present fair value of its assets is less than the amount that it will
be required to pay on its existing debts as they become due, or
- it cannot pay its debts as they become due.
We believe that immediately after issuance of the new notes in the exchange
offer, our subsidiaries will be solvent, will have sufficient capital to carry
on their businesses and will be able to pay their debts as they mature. We
cannot be sure, however, as to what standard a court would apply in making these
determinations or that a court would reach the same conclusions with regard to
these issues.
BECAUSE THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, YOU MAY FIND
IT DIFFICULT TO SELL YOUR NOTES
There is no established trading market for the new notes or the old notes.
Although Morgan Stanley & Co. Incorporated and Scotia Capital Markets (USA)
Inc., the placement agents from the offering of the old notes, have informed us
that they currently
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intend to make a market in the new notes, they have no obligation to do so and
may discontinue making a market at any time without notice.
We do not intend to apply for listing of the new notes on any national
securities exchange or for quotation through The Nasdaq National Market.
The liquidity of any market for the new notes will depend upon the number
of holders of the new notes, the performance of New World Pasta, the market for
similar securities, the interest of securities dealers in making a market in the
new notes and other factors relating to New World Pasta. A liquid trading market
may not develop for the new notes. In addition, to the extent old notes are
tendered and accepted in the exchange offer, the trading market, if any, for the
old notes would be adversely affected.
HOLDERS WHO FAIL TO EXCHANGE THEIR OLD NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFERS
If you do not exchange your old notes for new notes in the exchange offer,
you will continue to be subject to the restrictions on transfer of your old
notes described in the legend on the certificates for your old notes. The
restrictions on transfer of your old notes arise because we issued the old notes
under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not plan to register the old
notes under the Securities Act. For further information regarding the
consequences of tendering your old notes in the exchange offer, see the
discussions below under the captions "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes" on page 32 and "Material United
States Federal Income Tax Consequences" on pages 33 to 36.
SOME HOLDERS WHO EXCHANGE THEIR OLD NOTES MAY BE DEEMED TO BE UNDERWRITERS
If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
BECAUSE OF RISKS AND UNCERTAINTIES BEYOND OUR CONTROL, THE FORWARD-LOOKING
STATEMENTS IN THIS PROSPECTUS MAY NOT PROVE TO BE ACCURATE
This prospectus includes or incorporates forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. Many of these statements may be identified by
the use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential," among others. These
forward-looking statements are subject to risks, uncertainties and assumptions,
including the following:
- our high degree of leverage;
- our ability to service indebtedness incurred as a result of the
recapitalization transaction in which we acquired New World Pasta Company
from Hershey;
- our lack of history as an independent operating company;
- our ability to successfully implement our business strategies;
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- our ability to realize cost savings and operating synergies from better
plant utilization and sourcing arrangements;
- the risks associated with several of our new marketing initiatives;
- intense levels of competition in the pasta industry;
- the historical variability in the price of raw materials;
- our dependence on a single key supplier;
- our ability to implement our year 2000 compliance plan; and
- our ability to successfully integrate any future acquisitions.
These forward-looking statements are also subject to the risks,
uncertainties and assumptions discussed above, as well as under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 48 to 59.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes in
the exchange offer. We will receive old notes in like principal amount in
exchange for the issuance of the new notes in the exchange offer. We will cancel
all old notes surrendered in exchange for new notes in the exchange offer.
The net proceeds from the offering of the old notes, after deducting
underwriting discounts and our expenses, were approximately $155,276,500 and
were used to refinance our then outstanding senior subordinated increasing rate
notes due January 28, 2000 and repay a $50.0 million term loan.
The senior subordinated increasing rate notes bore interest at a floating
rate, adjusted quarterly, equal to the greater of
- 3-month U.S. Dollar London Inter-Bank Offered Rate plus 5.75%,
- the base rate as announced by Citibank, N.A. plus 4.50% or
- the yield on specified U.S. Treasury obligations plus 6.25%.
The interest rate increased the longer the senior subordinated increasing rate
notes were outstanding, to a maximum of 18.0%. The senior subordinated
increasing rate notes were scheduled to be due on January 28, 2000 and were
issued to finance a portion of the recapitalization in which our current
principals acquired control of New World Pasta.
Borrowings under the $50.0 million term loan were also used to finance a
portion of the recapitalization in which our current principals acquired control
of New World Pasta. The material terms of the $50.0 million term loan are
described below under the caption "Description of Other Indebtedness." For
further information regarding the current indebtedness of New World Pasta, see
"Capitalization."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
On February 19, 1999, we issued an aggregate principal amount of
$160,000,000 of our 9 1/4% Senior Subordinated Notes due 2009 in offerings under
Rule 144A and Regulation S of the Securities Act that were not registered under
the Securities Act. The old notes were issued, and the new notes will be issued,
under an indenture, dated as of February 19, 1999, by and among New World Pasta,
New World Pasta's wholly owned subsidiaries, Pasta Group, L.L.C. and Winchester
Pasta, L.L.C., as subsidiary guarantors, and The Bank of New York, as trustee.
We sold the old notes to Morgan Stanley & Co. Incorporated and Scotia Capital
Markets (USA) Inc., as placement agents, under a Purchase Agreement, dated
February 11, 1999, among New World Pasta, Pasta Group, L.L.C., Winchester Pasta,
L.L.C., Morgan Stanley and Scotia Capital Markets. When we sold the old notes to
Morgan Stanley and Scotia Capital Markets, we also signed a Registration Rights
Agreement in which we agreed to exchange all the issued and outstanding old
notes for a like principal amount of our 9 1/4% Senior Subordinated Exchange
Notes due 2009. The terms of the new notes are substantially identical to those
of the outstanding old notes, except that the transfer restrictions and
registration rights relating to the old notes do not apply to the new notes.
This prospectus and the enclosed letter of transmittal constitute an offer
to exchange new notes for all of the issued and outstanding old notes. This
exchange offer is being extended to all holders of the old notes. As of the date
of this prospectus, $160,000,000 aggregate principal amount of the old notes are
outstanding. This prospectus and the enclosed letter of transmittal are first
being sent on or about [ ], 1999, to all holders of old notes
known to us. Subject to the conditions listed below, we will accept for exchange
all old notes which are properly tendered on or prior to the expiration of the
exchange offer and not withdrawn as permitted below. The exchange offer will
expire at 5:00 p.m., New York City time, on [ ], 1999. However, if
we, in our sole discretion, extend the period of time during which the exchange
offer is open, the exchange offer will expire at the latest time and date to
which we extend the exchange offer. Our obligation to accept old notes for
exchange in the exchange offer is subject to the conditions listed below under
the caption "-- Conditions to the Exchange Offer."
We expressly reserve the right, at any time and from time to time, to
extend the period of time during which the exchange offer is open, and thereby
delay acceptance for exchange of any old notes. If we elect to extend the period
of time during which the exchange offer is open, we will give you oral or
written notice of the extension and delay, as described below. During any
extension of the exchange offer, all old notes previously tendered and not
withdrawn will remain subject to the exchange offer and may be accepted for
exchange by us. We will return to the registered holder, at our expense, any old
notes not accepted for exchange as promptly as practicable after the expiration
or termination of the exchange offer. In the case of an extension, we will issue
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration of
the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange if any of the events described below under the caption "-- Conditions
to the Exchange Offer" should occur. We will give you oral or written notice of
any amendment, termination or non-acceptance as promptly as practicable.
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Following completion of the exchange offer, we may, in our sole discretion,
commence one or more additional exchange offers to those old note holders who
did not exchange their old notes for new notes. The terms of these additional
exchange offers may differ from those applicable to this exchange offer, as
provided in the Registration Rights Agreement. We may use this prospectus, as
amended or supplemented from time to time, in connection with any additional
exchange offers. These additional exchange offers will take place from time to
time until all outstanding old notes have been exchanged for new notes, subject
to the terms and conditions contained in the prospectus and letter of
transmittal we will distribute in connection with the additional exchange
offers.
PROCEDURES FOR TENDERING OLD NOTES
Old notes tendered in the exchange offer must be in denominations of $1,000
principal amount and any integral multiple thereof.
When you tender your old notes, and we accept the old notes, this will
constitute a binding agreement between you and New World Pasta, subject to the
terms and conditions set forth in this prospectus and the enclosed letter of
transmittal. Unless you comply with the procedures described below under the
caption "-- Guaranteed Delivery Procedures," you must do one of the following on
or prior to the expiration of the exchange offer to participate in the exchange
offer:
- tender your old notes by sending the certificates for your old notes, in
proper form for transfer, a properly completed and duly executed letter
of transmittal, with any required signature guarantees, and all other
documents required by the letter of transmittal, to The Bank of New York,
as exchange agent, at one of the addresses listed below under the caption
"-- Exchange Agent"; or
- tender your old notes by using the book-entry procedures described below
under the caption "-- Book-Entry Transfer" and transmitting a properly
completed and duly executed letter of transmittal, with any required
signature guarantees, or an agent's message instead of the letter of
transmittal, to The Bank of New York, as exchange agent, at one of the
addresses listed below under the caption "-- Exchange Agent."
In order for a book-entry transfer to constitute a valid tender of your old
notes in the exchange offer, the exchange agent must receive a confirmation of
book-entry transfer of your old notes into the exchange agent's account at The
Depository Trust Company prior to the expiration of the exchange offer. The term
"agent's message" means a message, transmitted by The Depository Trust Company
and received by the exchange agent and forming a part of the book-entry
confirmation, which states that The Depository Trust Company has received an
express acknowledgment from you that you have received and have agreed to be
bound by the letter of transmittal. If you use this procedure, we may enforce
the letter of transmittal against you.
THE METHOD OF DELIVERY OF CERTIFICATES FOR OLD NOTES, LETTERS OF
TRANSMITTAL, AGENT'S MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR
ELECTION. IF YOU DELIVER YOUR OLD NOTES BY MAIL, WE RECOMMEND REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. DO NOT SEND CERTIFICATES FOR OLD
NOTES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGES TO US.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless you are either (1) a registered old note
holder and have not completed the box entitled "Special Issuance Instructions"
or "Special Delivery
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Instructions" on the letter of transmittal or (2) you are exchanging old notes
for the account of an eligible guarantor institution. An eligible guarantor
institution means:
- Banks, as defined in Section 3(a) of the Federal Deposit Insurance Act;
- Brokers, dealers, municipal securities dealers, municipal securities
brokers, government securities dealers and government securities brokers,
as defined in the Securities Exchange Act of 1934, as amended;
- Credit unions, as defined in Section 19B(1)(A) of the Federal Reserve
Act;
- National securities exchanges, registered securities associations and
clearing agencies, as these terms are defined in the Exchange Act; and
- Savings associations, as defined in Section 3(b) of the Federal Deposit
Insurance Act.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible guarantor
institution. If you plan to sign the letter of transmittal but you are not the
registered holder of the old notes -- which term, for this purpose, includes any
participant in The Depository Trust Company's system whose name appears on a
security position listing as the owner of the old notes -- you must have the old
notes signed by the registered holder of the old notes and that signature must
be guaranteed by an eligible guarantor institution. You may also send a separate
instrument of transfer or exchange signed by the registered holder and
guaranteed by an eligible guarantor institution, but that instrument must be in
a form satisfactory to us in our sole discretion. In addition, if a person or
persons other than the registered holder or holders of old notes signs the
letter of transmittal, certificates for the old notes must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered holder or holders that appear on the
certificates for old notes.
All questions as to the validity, form, eligibility -- including time of
receipt -- and acceptance of old notes tendered for exchange will be determined
by us in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of old notes improperly
tendered or to not accept any old notes, the acceptance of which might be
unlawful as determined by us or our counsel. We also reserve the absolute right
to waive any defects or irregularities or conditions of the exchange offer as to
any old notes either before or after the expiration of the exchange
offer -- including the right to waive the ineligibility of any holder who seeks
to tender old notes in the exchange offer. Our interpretation of the terms and
conditions of the exchange offer as to any particular old notes either before or
after the expiration of the exchange offer -- including the terms and conditions
of the letter of transmittal and the accompanying instructions -- will be final
and binding. Unless waived, any defects or irregularities in connection with
tenders of old notes for exchange must be cured within a reasonable period of
time, as determined by us. Neither we, The Bank of New York, as exchange agent,
nor any other person has any duty to give notification of any defect or
irregularity with respect to any tender of old notes for exchange, nor will we
have any liability for failure to give this notification.
If you are a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or act in a similar fiduciary or representative
capacity, and wish to sign the letter of transmittal or any certificates for old
notes or bond powers, you must indicate your
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status when signing. If you are acting in any of these capacities, you must
submit proper evidence satisfactory to us of your authority to so act unless we
waive this requirement.
By tendering your old notes, you represent to us:
- that you are not an "affiliate" of New World Pasta, as defined in Rule
405 under the Securities Act;
- that any new notes you receive in the exchange offer are being acquired
by you in the ordinary course of your business;
- that at the time of the commencement of the exchange offer, you do not
have any arrangement or understanding with any person to participate in
the distribution of the new notes, as defined in the Securities Act, in
violation of the Securities Act;
- if you are not a participating broker-dealer, that you are not engaged
in, and do not intend to engage in, the distribution of the new notes, as
defined in the Securities Act; and
- if you are a participating broker-dealer, that you will receive the new
notes for your own account in exchange for old notes that were acquired
by you as a result of your market-making or other trading activities and
that you will deliver a prospectus in connection with any resale of the
new notes you receive.
As used in this prospectus, a "participating broker-dealer" is a broker-dealer
that receives new notes for its own account in exchange for old notes that it
acquired as a result of market-making or other trading activities. The SEC has
taken the position that participating broker-dealers may fulfill their
prospectus delivery requirements with respect to resales of the new
notes -- other than a resale of an unsold allotment from the original sale of
the old notes -- by delivering this prospectus to prospective purchasers. For
further information regarding participating broker-dealers and the prospectus
delivery requirement, see "Plan of Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration of the exchange offer, all old
notes properly tendered and will issue the new notes promptly after acceptance
of the old notes. For purposes of the exchange offer, we will be deemed to have
accepted properly tendered old notes for exchange when, as and if we have given
oral or written notice of acceptance to The Bank of New York, as exchange agent,
with written confirmation of any oral notice to be given promptly after any oral
notice.
For each old note accepted for exchange in the exchange offer, the holder
of the old note will receive a new note having a principal amount at maturity
equal to that of the surrendered old note. Interest on the new note will accrue:
(1) from the later of (a) the last date to which interest was paid on the
old note surrendered in exchange for the new note or (b) if the old note is
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of the exchange and
as to which interest will be paid, the date to which interest will be paid on
such interest payment date; or
(2) if no interest has been paid on the old note, from and including
February 19, 1999.
If the exchange offer is not completed by [the 35th day following effectiveness
of the registration statement], 1999, and New World Pasta does not have an
effective shelf registration statement on file with the SEC to register the old
notes on that date, the interest rate on the old notes will increase by 0.5%
every 90 days, up to a maximum increase of 1.0%, until the exchange offer is
completed or an effective shelf registration statement is on file with the SEC.
Payments of interest, if any, on old notes that were
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exchanged for new notes will be made on each August 15th and February 15th
during which the new notes are outstanding. Interest payments will be made to
the person who, at the close of business on the February 1st or August 1st next
preceding the interest payment date, is the registered holder of the old notes
if the record date occurs prior to the exchange, or is the registered holder of
the new notes if the record date occurs on or after the date of the exchange,
even if the notes are cancelled after the record date and on or before the
interest payment date.
In all cases, the issuance of new notes in exchange for old notes will be
made only after The Bank of New York, as exchange agent, timely receives:
- either certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation of transfer of the old notes
into the exchange agent's account at The Depository Trust Company, as the
case may be, and
- a properly completed and duly executed letter of transmittal, with any
required signature guarantees, and all other required documents or, in
the case of a book-entry confirmation, a properly completed and duly
executed letter of transmittal, with any required signature guarantees,
or an agent's message instead of the letter of transmittal.
If for any reason we do not accept any tendered old notes or if old notes are
submitted for a greater principal amount than the holder desires to exchange, we
will return the unaccepted or non-exchanged old notes without expense to the
registered tendering holder. In the case of old notes tendered by book-entry
transfer into the exchange agent's account at The Depository Trust Company by
using the book-entry procedures described below, the unaccepted or non-exchanged
old notes will be credited to an account maintained with The Depository Trust
Company. Any old notes to be returned to the holder will be returned as promptly
as practicable after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
Within two business days after the date of this prospectus, The Bank of New
York, as exchange agent, will establish an account at The Depository Trust
Company for the old notes tendered in the exchange offer. Once established, any
financial institution that is a participant in The Depository Trust Company's
systems may make book-entry delivery of old notes by causing The Depository
Trust Company to transfer the old notes into the exchange agent's account at The
Depository Trust Company in accordance with The Depository Trust Company's
procedures for transfer. Although delivery of the old notes may be effected
through book-entry transfer at The Depository Trust Company, the letter of
transmittal or facsimile of the letter of transmittal, with any required
signature guarantees, or an agent's message instead of a letter of transmittal,
and any other required documents, must be transmitted to and received by the
exchange agent on or prior to the expiration of the exchange offer at one of the
addresses listed below under the caption "-- Exchange Agent." In addition, the
exchange agent must receive book-entry confirmation of transfer of the old notes
into the exchange agent's account at The Depository Trust Company prior to the
expiration of the exchange offer. If you cannot comply with these procedures,
you may be able to use the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of the old notes and wish to tender your old
notes, but
- the certificates for the old notes are not immediately available,
- time will not permit your certificates for the old notes or other
required documents to reach The Bank of New York as exchange agent,
before the expiration of the exchange offer or
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<PAGE> 35
- the procedure for book-entry transfer cannot be completed before the
expiration of the exchange offer, you may effect a tender of your old
notes if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration of the exchange offer, the exchange agent
receives from an eligible guarantor institution a properly completed
and duly executed notice of guaranteed delivery, substantially in the
form we have provided, setting forth your name and address, and the
amount of old notes you are tendering and stating that the tender is
being made by notice of guaranteed delivery. These documents may be
sent by overnight courier, registered or certified mail or facsimile
transmission. If you elect to use this procedure, you must also
guarantee that within three New York Stock Exchange, Inc. trading days
after the date of execution of the notice of guaranteed delivery,
- the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation of transfer of
the old notes into the exchange agent's account at The Depository
Trust Company, as the case may be, and
- a properly completed and duly executed letter of transmittal,
with any required signature guarantees, and all other required
documents or, in the case of a book-entry confirmation, a
properly completed and duly executed letter of transmittal, with
any required signature guarantees, or an agent's message instead
of the letter of transmittal,
will be deposited by the eligible guarantor institution with the
exchange agent; and
- the exchange agent receives
- the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation of transfer of
the old notes into the exchange agent's account at The Depository
Trust Company, as the case may be, and
- a properly completed and duly executed letter of transmittal,
with any required signature guarantees, and all other required
documents or, in the case of a book-entry confirmation, a
properly completed and duly executed letter of transmittal, with
any required signature guarantees, or an agent's message instead
of the letter of transmittal,
in each case, within three NYSE trading days after the date of
execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
YOU MAY WITHDRAW TENDERS OF OLD NOTES AT ANY TIME PRIOR TO THE EXPIRATION
OF THE EXCHANGE OFFER.
For a withdrawal to be effective, a written notice of withdrawal must be
received by The Bank of New York, as exchange agent, prior to the expiration of
the exchange offer at one of the addresses listed below under the caption
"-- Exchange Agent." Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the principal amount of
the old notes, and
- where certificates for old notes have been transmitted, specify the name
in which the old notes are registered, if different from that of the
withdrawing holder.
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<PAGE> 36
If certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of the certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
eligible guarantor institution unless the holder is an eligible guarantor
institution. If old notes have been tendered using the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at The Depository Trust Company to be credited with the
withdrawn old notes and otherwise comply with the procedures of the book-entry
transfer facility. All questions as to the validity, form and
eligibility -- including time of receipt -- of these notices will be determined
by us. Our determination will be final and binding. Any old notes so withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the exchange offer. Any old notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the registered holder
without cost to that holder as soon as practicable after withdrawal,
non-acceptance of tender or termination of the exchange offer. In the case of
old notes tendered by book-entry transfer into the exchange agent's account at
The Depository Trust Company by using the book-entry transfer procedures
described above, any withdrawn or unaccepted old notes will be credited to the
tendering holder's account at The Depository Trust Company. Properly withdrawn
old notes may be retendered at any time on or prior to the expiration of the
exchange offer by following one of the procedures described above under
"-- Procedures for Tendering Old Notes."
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we will not be
required to accept any old notes for exchange or to issue any new notes in
exchange for old notes, and we may terminate or amend the exchange offer if, at
any time before the acceptance of the old notes for exchange or the exchange of
new notes for old notes, any of the following events occurs:
- the exchange offer is determined to violate any applicable law or any
applicable interpretation of the staff of the SEC;
- an action or proceeding is pending or threatened in any court or by any
governmental agency that might materially impair our ability to proceed
with the exchange offer;
- any material adverse development occurs in any existing legal action or
proceeding involving New World Pasta;
- we do not receive any governmental approval we deem necessary for the
completion of the exchange offer; or
- any of the conditions precedent to our obligations under the Registration
Rights Agreement are not fulfilled.
These conditions are for our benefit only and we may assert them regardless
of the circumstances giving rise to any condition. We may also waive any
condition in whole or in part at any time in our sole discretion. Our failure at
any time to exercise any of the foregoing rights will not constitute a waiver of
that right and each right is an ongoing right that we may assert at any time.
30
<PAGE> 37
In addition, we will not accept any old notes for exchange or issue any new
notes in exchange for old notes, if at the time a stop order is threatened or in
effect which relates to:
- the registration statement of which this prospectus forms a part; or
- the qualification under the Trust Indenture Act of 1939 of the indenture
under which the old notes were issued and the new notes will be issued.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer. All completed letters of transmittal and agent's messages should
be directed to the exchange agent at one of the addresses listed below.
Questions and requests for assistance, requests for additional copies of this
prospectus or the letter of transmittal, agent's messages and requests for
notices of guaranteed delivery should be directed to the exchange agent at one
of the following addresses:
Delivery To: The Bank of New York, Exchange Agent
<TABLE>
<S> <C> <C>
By Regular or Certified Mail: By Facsimile: By Overnight Courier or Hand:
The Bank of New York (Eligible Guarantor The Bank of New York
101 Barclay Street, 7E Institutions Only) 101 Barclay Street
New York, NY 10286 (212) 815-6339 Corporate Trust Services
Attention: To Confirm by Telephone Window
Reorganization Section, or for Information Call: Ground Level
Marcia Brown (212) 815-3428 New York, NY 10286
Attention:
Reorganization Section,
Marcia Brown
</TABLE>
DELIVERY OF A LETTER OF TRANSMITTAL OR AGENT'S MESSAGE TO AN ADDRESS OTHER
THAN THE ADDRESS LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS BY FACSIMILE OTHER
THAN AS SET FORTH ABOVE IS NOT VALID DELIVERY OF THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE.
FEES AND EXPENSES
The principal solicitation is being made by mail by The Bank of New York,
as exchange agent. We will pay the exchange agent customary fees for its
services, reimburse the exchange agent for its reasonable out-of-pocket expenses
incurred in connection with the provision of these services and pay other
registration expenses, including fees and expenses of the trustee under the
indenture relating to the notes, filing fees, blue sky fees and printing and
distribution expenses. We will not make any payment to brokers, dealers or
others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person by
officers and regular employees of New World Pasta and its affiliates and by
persons so engaged by the exchange agent.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with the
tender of old notes in the exchange offer unless you instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder. In those cases, you will be responsible for the payment of any
applicable transfer tax.
31
<PAGE> 38
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the provisions of the indenture
relating to the notes regarding transfer and exchange of the old notes and the
restrictions on transfer of the old notes described in the legend on your
certificates. These transfer restrictions are required because the old notes
were issued under an exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the old notes may not be offered or sold, unless registered
under the Securities Act, except under an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not plan to register the old notes under the Securities Act. Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, we believe that the new notes you receive in the
exchange offer may be offered for resale, resold or otherwise transferred
without compliance with the registration and prospectus delivery provisions of
the Securities Act. However, you will not be able to freely transfer the new
notes if:
- you are an "affiliate" of New World Pasta, as defined in Rule 405 under
the Securities Act;
- you are not acquiring the new notes in the exchange offer in the ordinary
course of your business;
- you have an arrangement or understanding with any person to participate
in the distribution of the new notes, as defined in the Securities Act,
you will receive in the exchange offer; or
- you are a participating broker-dealer.
We do not intend to request the SEC to consider, and the SEC has not considered,
the exchange offer in the context of a similar no-action letter. As a result, we
cannot guarantee that the staff of the SEC would make a similar determination
with respect to the exchange offer as in the circumstances described in the
no-action letters discussed above. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of new notes and has no arrangement or understanding to participate
in a distribution of new notes. If you are an affiliate of New World Pasta, are
engaged in or intend to engage in a distribution of the new notes or have any
arrangement or understanding with respect to the distribution of the new notes
you will receive in the exchange offer, you:
- may not rely on the applicable interpretations of the staff of the SEC,
and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction involving
the new notes. If you are a participating broker-dealer, you must
acknowledge that you will deliver a prospectus in connection with any
resale of the new notes. In addition, to comply with state securities
laws, you may not offer or sell the new notes in any state unless they
have been registered or qualified for sale in that state or an exemption
from registration or qualification is available and is complied with. The
offer and sale of the new notes to "qualified institutional buyers" -- as
defined in Rule 144A of the Securities Act -- is generally exempt from
registration or qualification under state securities laws. We do not plan
to register or qualify the sale of the new notes in any state where an
exemption from registration or qualification is required and not
available.
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<PAGE> 39
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States federal
income tax consequences of the acquisition, ownership and disposition of the
notes. This discussion is based on the Internal Revenue Code, and regulations,
rulings and judicial decisions as of the date hereof, all of which may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those described below. These changes could be
applied retroactively in a manner that could adversely affect holders of the
notes. In addition, the authorities on which this discussion is based are
subject to various interpretations. It is therefore possible that the
consequences of the acquisition, ownership and disposition of the notes may
differ from the treatment described below.
This discussion applies only to purchasers of the old notes in the original
offering at the first price at which a substantial amount of the old notes were
sold and does not address other purchasers, including purchasers of notes with
"market discount" or "acquisition premium." In addition, the tax treatment of a
holder of the notes may vary depending upon the particular situation of the
holder. This discussion is limited to investors who will hold the notes as
capital assets and does not deal with holders that may be subject to special tax
rules, including, but not limited to:
- insurance companies,
- tax-exempt organizations,
- financial institutions,
- dealers or traders in securities or currencies,
- U.S. holders whose functional currency is not the U.S. dollar,
- U.S. expatriates, or
- holders who will hold the notes as a hedge against currency risks or as
part of a straddle, synthetic security, conversion transaction or other
integrated investment comprised of the notes and one or more other
investments.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to holders of the notes in light of their
particular circumstances, and it does not address any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction. Holders
should consult their own tax advisors as to the particular tax consequences to
them of acquiring, holding or disposing of the notes.
EXCHANGE OF OLD NOTE FOR NEW NOTE
The exchange of an old note for a new note will not constitute a taxable
exchange. The holder will have the same tax basis and holding period in the new
note as it did in the old note at the time of the exchange.
U.S. HOLDERS
For purposes of this discussion, a U.S. holder of a note is a holder who
for United States federal income tax purposes is:
- an individual that is a citizen or resident of the United States,
including some former citizens and former longtime residents,
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof,
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<PAGE> 40
- an estate the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
Notwithstanding the foregoing, to the extent provided in United States Treasury
regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to that date, that elect to continue to be treated as
United States persons also will be U.S. holders. A non-U.S. holder is a holder
that is not a U.S. holder.
INTEREST. Stated interest on a note will generally be taxable to a U.S.
holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the U.S. holder's method of accounting for income tax
purposes.
Our failure to complete the exchange offer or to file or cause to be
declared effective the shelf registration statement as described below under the
caption "Description of the Notes -- Registration Rights" will cause additional
interest to accrue on the old notes in the manner described in the old notes. In
the unlikely event that the interest rate on the old notes is increased, then
the increased interest may be treated as original issue discount, includable by
a U.S. holder in income as such interest accrues, in advance of receipt of any
cash payment and regardless of the method of income tax accounting employed by
the U.S. holder.
Even though the notes may be redeemed prior to their stated maturity at our
or the holder's option under some circumstances or automatically upon the
occurrence of some specified events, we believe that none of these redemption
rights or obligations are more likely than not to occur, and, therefore, under
applicable Treasury regulations, none of these redemption rights or obligations
will affect the manner of including original issue discount, if any, in income.
DISPOSITION OF NOTES. Upon the sale, retirement at maturity or other
taxable disposition of a note, a U.S. Holder generally will recognize capital
gain or loss equal to the difference between the amount realized by the holder
and the holder's adjusted tax basis in the note, except to the extent such
amount is attributable to accrued interest, which will be treated as ordinary
interest income. This capital gain or loss will be long-term capital gain or
loss if the U.S. holder's holding period for the note exceeds one year at the
time of the sale, retirement at maturity or other taxable disposition.
NON-U.S. HOLDERS
INTEREST. Interest that we pay to a non-U.S. holder will not be subject to
United States federal income or withholding tax if the interest is not
effectively connected with the conduct of a trade or business within the United
States by the non-U.S. holder and, among other things, the non-U.S. holder:
- does not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock;
- is not a controlled foreign corporation for United States federal income
tax purposes and to which we are a related person; and
- certifies to us, our paying agent or the person who would otherwise be
required to withhold United States tax, on Form W-8 or W-9 or
substantially similar form
34
<PAGE> 41
signed under penalties of perjury, that the holder is not a United States
person and provides the holder's name and address.
In the case of interest on a note that is not "effectively connected with the
conduct of a trade or business within the United States" and does not satisfy
the three requirements listed above, the non-U.S. holder's interest on a note
would generally be subject to United States withholding tax at a flat rate of
30% or a lower applicable treaty rate. If a non-U.S. holder's interest on a note
is "effectively connected with the conduct of a trade or business within the
United States," then the non-U.S. holder will be subject to United States
federal income tax on the interest income in essentially the same manner as a
U.S. holder and, in the case of a non-U.S. holder that is a foreign corporation,
may also be subject to the branch profits tax.
GAIN ON DISPOSITION. A non-U.S. holder generally will not be subject to
United States federal income tax with respect to gain recognized on a sale,
redemption or other disposition of a note unless
- the gain is effectively connected with the conduct of a trade or business
within the United States by the non-U.S. holder; or
- in the case of a non-U.S. holder who is a nonresident alien individual
and holds the note as a capital asset, the holder is present in the
United States for 183 or more days in the taxable year and other
specified requirements are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, when required, report to the holders of the notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amount of tax withheld, if any, with respect to these payments.
Some non-corporate U.S. holders may be subject to backup withholding at a
rate of 31% on payments of principal, premium and interest on, and the proceeds
of the disposition of, the notes. In general backup withholding will be imposed
only if the U.S. holder:
- fails to furnish its taxpayer identification number, which, for an
individual, would be his or her Social Security number,
- furnishes an incorrect taxpayer identification number,
- is notified by the IRS that it has failed to report payments of interest
or dividends, or
- under some circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct taxpayer identification number and has
been notified by the IRS that it is subject to backup withholding tax for
failure to report interest or dividend payments.
In addition, payments of principal and interest to U.S. holders will generally
be subject to information reporting. U.S. holders should consult their own tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption, if applicable.
In the case of payments of interest to non-U.S. holders, the general 31%
backup withholding tax and information reporting requirements will not apply to
those payments with respect to which either the certification requirement
discussed above under the caption "-- Non-U.S. Holders -- Interest" has been
satisfied or an exemption has
35
<PAGE> 42
otherwise been established, provided that neither we nor our payment agent has
actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not in fact satisfied. Information
reporting and backup withholding requirements will apply to the gross proceeds
paid to a non-U.S. holder on the disposition of the notes by or through a United
States office of a United States or foreign broker, unless the holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the notes by or through a foreign office of
a United States broker or foreign brokers with particular types of relationships
to the United States unless the broker has documentary evidence in its file that
the holder of the notes is not a United States person and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding requirements generally will
apply to a payment of the proceeds of a disposition of the notes by or through a
foreign office of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be credited toward a holder's United States
federal income tax liability, if any. To the extent that the amounts withheld
exceed a holder's tax liability, the excess may be refunded to the holder
provided the required information is furnished to the IRS, and the holder files
a United States tax return claiming a refund of excess withholding.
RECENTLY ISSUED TREASURY REGULATIONS
The United States Treasury Department has issued new regulations regarding
the withholding and information reporting rules discussed above. In general, the
new regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The new regulations
require, however, that a foreign person furnish its taxpayer identification
number in some circumstances to claim a reduction in United States federal
withholding tax and new rules are provided for foreign persons that hold debt
instruments through a foreign intermediary. In particular, in the case of
payments to foreign partnerships, other than payments to foreign partnerships
that qualify as "withholding foreign partnerships" within the meaning of the new
regulations and payments to foreign partnerships that are effectively connected
with the foreign partnership's conduct of a trade or business in the United
States, the partners of such partnerships will be required to provide the
certification discussed above under the caption "-- Non-U.S.
Holders -- Interest" in order to establish an exemption from backup withholding
tax and information reporting requirements. Moreover, a payor may rely on a
certification provided by a non-U.S. holder only if the payor does not have
actual knowledge or a reason to know that any information or certification
stated in the certificate is unreliable. The new regulations are generally
effective for payments made after December 31, 1999, subject to specified
transition rules. NON-U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE IMPACT, IF ANY, OF THE NEW REGULATIONS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. PROSPECTIVE U.S.
HOLDERS AND NON-U.S. HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE INCOME AND OTHER TAX CONSEQUENCES TO THEM OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS AND THE EFFECTS OF CHANGES IN THOSE LAWS.
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<PAGE> 43
THE RECAPITALIZATION
On January 28, 1999, Hershey Foods Corporation completed a recapitalization
transaction, in which New World Pasta, LLC and Miller Pasta, LLC acquired
control of Hershey Pasta Group, while Hershey Foods Corporation retained a 6%
minority equity interest. Prior to the recapitalization, Hershey Foods
Corporation completed a reorganization in which the net assets of Hershey Pasta
Group were transferred into Hershey Pasta Manufacturing Company, a pre-existing
operating subsidiary of Hershey Foods Corporation. Hershey Pasta Manufacturing
Company subsequently changed its name to New World Pasta Company.
As part of the recapitalization, New World Pasta repurchased $307.7 million
of its common stock from Hershey Foods Corporation, and New World Pasta, LLC
purchased from Hershey Foods Corporation $100.6 million of our mandatorily
redeemable non-voting preferred stock and $41.7 million of our common stock. We
sold $12.9 million of our mandatorily redeemable non-voting preferred stock and
$5.3 million of our common stock directly to Miller Pasta, LLC. After completing
the recapitalization, Hershey Foods Corporation retained 6.0% of our common
stock and voting equity, at an implied value of $3.0 million, and New World
Pasta, LLC and Miller Pasta, LLC held 83.4% and 10.6%, respectively, of our
common stock and voting equity. The historical basis of accounting for New World
Pasta has been maintained.
The recapitalization valued New World Pasta at $453.0 million, subject to a
subsequent working capital adjustment.
In connection with the recapitalization, a syndicate of lenders led by The
Bank of Nova Scotia provided us with $250.0 million of senior credit facilities,
including:
(1) a $50.0 million revolving credit facility and
(2) $200.0 million in term loans consisting of a $50.0 million term loan
and a $150.0 million term loan.
Without taking into account amounts attributable to Hershey Foods Corporation in
respect of its retained interest and fees, the recapitalization was financed
with:
(1) the $50.0 million term loan, which was repaid with a portion of
the proceeds from the offering of the old notes,
(2) the $150.0 million term loan,
(3) the $142.3 million stock purchase by New World Pasta, LLC from
Hershey Foods Corporation,
(4) the equity investment of $18.2 million by Miller Pasta, LLC, and
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<PAGE> 44
(5) the issuance of $110.0 million in senior subordinated increasing
rate notes due 2000, which were refinanced with a portion of the
proceeds from the offering of the old notes. The sources and uses
of funds for the recapitalization are summarized below:
SOURCES AND USES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SOURCES OF FUNDS
Senior credit facilities:
Revolving credit facility................................. --
$50.0 million term loan(1)................................ $ 50,000
$150.0 million term loan.................................. 150,000
Senior subordinated increasing rate notes(1)................ 110,000
Preferred stock investments:
New World Pasta, LLC ..................................... 100,636
Miller Pasta, LLC ........................................ 12,849
Common stock investments:
New World Pasta, LLC ..................................... 41,679
Miller Pasta, LLC ........................................ 5,321
Common stock retained by Hershey Foods Corporation (implied
value).................................................... 3,000
Fees paid by Hershey Foods Corporation...................... 1,925
--------
Total sources..................................... $475,410
========
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
USES OF FUNDS
Repayment of demand note used to repurchase common stock
from Hershey Foods Corporation and purchase of common and
preferred stock from Hershey Foods Corporation............ $450,000
Common stock retained by Hershey Foods Corporation (implied
value)(2)................................................. 3,000
Estimated fees and expenses................................. 22,050
Cash retained by New World Pasta Company.................... 360
--------
Total uses........................................ $475,410
========
</TABLE>
- -------------------------
(1) Net proceeds from the issuance and sale of the old notes were used to repay
the $50.0 million term loan and refinance the senior subordinated increasing
rate notes.
(2) Represents the post-recapitalization value of the retained shares based on
the price per share paid by Miller Pasta, LLC. This non-cash retention has
been included to show the implied value of the retained interest in relation
to the overall capitalization of New World Pasta Company.
OWNERSHIP OF NEW WORLD PASTA FOLLOWING THE RECAPITALIZATION
New World Pasta, LLC, which owns 83.4% of our common stock, is controlled
by Joseph Littlejohn & Levy Fund III, L.P., which is controlled by Joseph
Littlejohn & Levy.
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<PAGE> 45
Joseph Littlejohn & Levy was founded in 1988 as a private partnership dedicated
to making strategic investments in consolidating industries and to investing in
corporate divestitures, recapitalizations and restructurings. To date, Joseph
Littlejohn & Levy has raised $1.6 billion of capital on behalf of a variety of
institutional investors. Since its formation, Joseph Littlejohn & Levy has made
investments in a variety of industries, including food products, automotive
parts, healthcare, radio, building products, specialty chemicals and basic
manufacturing. In February 1998, Joseph Littlejohn & Levy closed on its third
fund, the $1.0 billion Joseph Littlejohn & Levy Fund III, L.P. The investment in
New World Pasta through New World Pasta, LLC is the first investment by Joseph
Littlejohn & Levy Fund III, L.P. and represents the largest investment Joseph
Littlejohn & Levy has made in a single entity.
Miller Pasta, LLC, which owns 10.6% of our common stock, is controlled by a
group of investors, including C. Mickey Skinner, John C. Miller, Michael L. Snow
and Miller Milling Company. Messrs. Skinner, Miller and Snow are executive
officers and directors of New World Pasta. Mr. Skinner was the President and
Chief Executive Officer of Hershey Pasta Group from 1984 to 1997 and Messrs.
Miller and Snow are principals of Miller Milling Company. Miller Milling
Company, which was Hershey Pasta Group's largest durum/semolina supplier for
over 11 years, is one of the largest procurers of durum/semolina in North
America and is now responsible for the procurement of 100% of New World Pasta's
durum/semolina needs.
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<PAGE> 46
CAPITALIZATION
The following table sets forth the actual capitalization of New World Pasta
as of April 4, 1999, after giving effect to the recapitalization in which our
current principals acquired control of New World Pasta.
This table should be read in conjunction with "Unaudited Pro Forma Combined
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical consolidated financial
statements of New World Pasta and the notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 4, 1999
----------------------
ACTUAL
----------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Senior credit facilities:
Revolving credit facility(1)............ $ 0
$50.0 million term loan(2).............. 0
$150.0 million term loan................ 150,000
Old notes(2)............................... 160,000
----------
Total long-term debt............... 310,000
Preferred stock (stated at liquidation
value)(3).................................. 115,912
Stockholders' equity (deficit)............... (116,206)
----------
Total capitalization............... $ 309,706
==========
</TABLE>
- -------------------------
(1) The revolving credit facility provides for a total commitment of $50.0
million. Currently, New World Pasta has not drawn upon the revolving credit
facility.
(2) The recapitalization was financed in part with the $50.0 million term loan
and the $110.0 million senior subordinated increasing rate notes. The net
proceeds from the offering of the old notes were used to repay the $50.0
million term loan and refinance the $110.0 million senior subordinated
increasing rate notes.
(3) The preferred stock is stated at fair value and is mandatorily redeemable in
11 years. The dividends on this preferred stock are payable semi-annually in
cash in arrears when, as and if declared by our board of directors and are
cumulative. The $250.0 million senior credit facilities and the indenture
under which the old notes were issued and the new notes will be issued
impose restrictions on our ability to pay cash dividends on the preferred
stock.
40
<PAGE> 47
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Set forth below is unaudited pro forma combined financial information for
New World Pasta. The Unaudited Pro Forma Combined Statements of Operations for
the year ended December 31, 1998 and the three months ended April 4, 1999 give
effect to the recapitalization in which our current principals acquired control
of New World Pasta and the offering of the old notes as if they had occurred on
the first day of the periods presented. The historical basis of New World
Pasta's assets and liabilities was not impacted by the recapitalization.
The unaudited pro forma adjustments, as described in the Notes to the
Unaudited Pro Forma Combined Statements of Operations, are based on available
information and upon various assumptions that management believes are
reasonable.
The Unaudited Pro Forma Combined Statements of Operations do not purport to
represent what our results of operations would have been if such events had in
fact occurred at the beginning of the periods presented, or to project our
results of operations for any future period. The Unaudited Pro Forma Combined
Statements of Operations should be read in conjunction with the historical
combined financial statements of New World Pasta and notes thereto included
elsewhere in this prospectus.
41
<PAGE> 48
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
HISTORICAL ADJUSTMENTS Pro Forma(a)
---------- ----------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................ $373,096 $ -- $373,096
Cost of sales............................ 205,773 -- 205,773
-------- -------- --------
Gross profit................... 167,323 -- 167,323
Marketing expenses....................... 92,081 -- 92,081
Selling, general and administrative
expenses............................... 33,374 -- 33,374
-------- -------- --------
Operating income......................... 41,868 -- 41,868
Interest expense......................... -- (28,157) (28,157)(b)
-------- -------- --------
Income before income taxes..... 41,868 (28,157) 13,711
Provision for income taxes............... 15,954 (10,470)(c) 5,484
-------- -------- --------
Net income..................... 25,914 (17,687) 8,227
Dividends on preferred stock............. -- (13,618)(d) (13,618)
-------- -------- --------
Net income (loss) attributable to common
stock.................................. $ 25,914 $(31,305) $ (5,391)
======== ======== ========
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Combined Statement of
Operations.
42
<PAGE> 49
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 4, 1999
-----------------------------------------
HISTORICAL ADJUSTMENTS Pro Forma(a)
---------- ----------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net Sales................................ $96,271 $ -- $96,271
Cost of sales............................ 51,613 -- 51,613
------- ------- -------
Gross profit................... 44,658 -- 44,658
Marketing expenses....................... 27,222 -- 27,222
Selling, general and administrative
expenses............................... 14,252 -- 14,252
------- ------- -------
Operating income......................... 3,184 -- 3,184
Interest Expense......................... (5,426) (1,613)(b) (7,039)
------- ------- -------
Income (loss) before income
taxes....................... (2,242) (1,613) (3,855)
Provision for income taxes............... 1,162 (645)(c) 517
------- ------- -------
Net income (loss).............. (3,404) (968) (4,372)
Dividends on preferred stock............. (2,427) (978)(d) (3,405)
------- ------- -------
Net income (loss) attributable to common
stock.................................. $(5,831) $(1,946) $(7,777)
======= ======= =======
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Statement of
Operations.
43
<PAGE> 50
NOTES TO THE UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
THREE MONTHS
YEAR ENDED ENDED
12/31/98 APRIL 4, 1999
---------- -------------
<C> <S> <C> <C>
(a) Pro forma gives effect to the recapitalization in
which our current principals acquired control of
New World Pasta and the issuance of the old notes
as if they had occurred on the first day of the
periods presented.
(b) Reflects the following (in thousands):
Estimated cash interest expense associated with
new debt.......................................... $(27,425) $(6,856)
Estimated amortization of new debt financing
costs............................................. (732) (183)
-------- -------
$(28,157) $(7,039)
======== =======
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST COST INTEREST COST
--------- ------------- -------------
<C> <S> <C> <C> <C>
Annual interest on new debt structure
(in thousands)
Revolving credit facility at LIBOR plus $ -- $ -- $ --
2.75%.................................
Unused revolver commitment fee (.50%)... 250 62
$150.0 million term loan at LIBOR plus 150,000 12,375 3,094
3.25%.................................
Notes (9.25%)........................... 160,000 14,800 3,700
------- ------
$27,425 $6,856
======= ======
</TABLE>
For the purposes of the above, LIBOR is estimated to be 5.0%.
The fees and accrued interest related to the senior subordinated
increasing rate notes and the $50.0 million term loan of $5.3 million are
considered nonrecurring and hence are excluded from the pro forma
presentation since interest cost on replacement debt has been included
for the full year and three-month period.
A 0.125% increase or decrease in the assumed average interest rate on the
variable rate debt incurred in connection with the recapitalization would
change the pro forma interest expense for the year ended December 31,
1998 by approximately $188,000 and the pro forma net income for the year
ended December 31, 1998 by approximately $113,000. A 0.125% increase or
decrease in the assumed average interest rate on the variable rate debt
incurred in connection with the recapitalization would change the pro
forma interest expense for the three-month period ended April 4, 1999 by
approximately $47,000 and the pro forma net income for the three-month
period ended April 4, 1999 by approximately $28,000.
The deferred financing costs are amortized on the interest method over
the term of the associated debt.
(c) The tax effect of the pro forma adjustment is based on the estimated
applicable effective tax rate of 40% for the periods presented.
44
<PAGE> 51
(d) The holders of New World Pasta's preferred stock are entitled to receive
cumulative preferred dividends, in a per share amount equal to 12% of the
liquidation preference of the preferred stock, payable semi-annually in
cash in arrears, when, as and if declared by New World Pasta's board of
directors.
The cumulative preferred dividends are as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
LIQUIDATION YEAR ENDED THREE MONTHS ENDED
COUPON PREFERENCE DECEMBER 31, 1998 APRIL 4, 1999
------ ----------- ----------------- ------------------
<S> <C> <C> <C> <C>
12.00%..................... $113,485 $13,618 $3,405
</TABLE>
45
<PAGE> 52
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table sets forth selected historical combined financial data
for New World Pasta. The selected historical combined financial data for the
years ended December 31, 1998, 1997 and 1996 has been derived from the audited
combined financial statements of New World Pasta appearing elsewhere in this
prospectus. The selected historical combined financial data for the year ended
December 31, 1995 has been derived from the unaudited combined financial
statements of New World Pasta which have not been included in this prospectus.
The selected historical combined financial data for the year ended December 31,
1994 has been derived from the unaudited internal records of Hershey Pasta
Group. In the opinion of management, the unaudited data for 1995 and 1994
reflects all adjustments necessary for a fair presentation of the information
included therein for these periods. The selected historical combined financial
data for the three months ended April 4, 1999 and April 5, 1998 has been derived
from the unaudited consolidated financial statements of New World Pasta and
Hershey Pasta Group, respectively, appearing elsewhere in this prospectus. In
the opinion of management, such data includes all adjustments necessary for a
fair presentation of the information included therein. The results of operations
for the three months ended April 4, 1999 are not necessarily indicative of the
results for the entire fiscal year or any other interim period. The selected
historical combined financial data set forth in the following table should be
read in conjunction with our audited combined financial statements and notes
thereto appearing elsewhere in this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, --------------------
---------------------------------------------------------- APRIL 5, APRIL 4,
1994 1995 1996 1997 1998 1998 1999
----------- ----------- -------- -------- -------- -------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................... $397,770 $419,090 $407,370 $386,218 $373,096 $108,647 $ 96,271
Cost of sales........................... 237,485 241,464 235,025 210,003 205,773 59,492 51,613
-------- -------- -------- -------- -------- -------- ---------
Gross profit..................... 160,285 177,626 172,345 176,215 167,323 49,155 44,658
Marketing expenses...................... 93,146 109,123 106,121 101,731 92,081 29,064 27,222
Selling, general and administrative
expenses............................... 36,543 36,878 35,080 32,764 33,374 7,934 14,252(1)
-------- -------- -------- -------- -------- -------- ---------
Operating income................. 30,596 31,625 31,144 41,720 41,868 12,157 3,184
Interest expense................. -- -- -- -- -- -- (5,426)
Income (loss) before provision
for income taxes................ 30,596 31,625 31,144 41,720 41,868 12,157 (2,242)
Provision for income taxes.............. 13,470 13,188 12,451 16,563 15,954 4,632 1,162
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)................ 17,126 18,437 18,693 25,157 25,914 7,525 (3,404)
Dividends on preferred stock..... -- -- -- -- -- -- (2,427)
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) attributable to
common stock.................... $ 17,126 $ 18,437 $ 18,693 $ 25,157 $ 25,914 $ 7,525 $ (5,831)
======== ======== ======== ======== ======== ======== =========
BALANCE SHEET DATA (AT PERIOD END):
Working capital......................... $ 19,621 $ 14,739 $ 15,084 $ 8,183 $ 20,798 $ 23,117
Total assets............................ 293,678 259,731 246,563 231,920 225,017 351,976
Long-term debt (including current
portion)(2)............................ -- -- -- -- -- 310,000
Stockholders' equity (deficit).......... 234,450 194,155 183,698 162,777 166,944 (116,206)
</TABLE>
46
<PAGE> 53
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, --------------------
---------------------------------------------------------- APRIL 5, APRIL 4,
1994 1995 1996 1997 1998 1998 1999
----------- ----------- -------- -------- -------- -------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(3)............................... $ 46,466 $ 47,558 $ 47,136 $ 57,157 $ 56,515 $ 15,950 $ 13,966
Net cash provided by operating
activities............................. N/A(4) 44,288 38,056 47,928 26,407 3,318 8,535
EBITDA as a percentage of net sales..... 11.7% 11.3% 11.6% 14.8% 15.1% 14.7% 14.5%
Depreciation and amortization expense... $ 15,870 $ 15,933 $ 15,992 $ 15,437 $ 14,647 $ 3,793 $ 3,571
Capital expenditures.................... 9,097 5,952 8,906 1,850 4,660 560 625
Deficiency of earnings to combined fixed
charges and preferred stock
dividends(1)........................... -- -- -- -- -- -- 4,669
</TABLE>
- -------------------------
(1) Includes $7.1 million of non-recurring expenses incurred in connection with
the recapitalization in which our current principals acquired control of New
World Pasta and related financing transactions.
(2) Historically, Hershey Pasta Group did not incur indebtedness or related
interest expense as a division of Hershey Foods Corporation. As an
independent company, New World Pasta is required to service the interest
expense on any borrowings incurred by it including the debt associated with
the recapitalization in which our current principals acquired control of New
World Pasta.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. We believe that EBITDA provides useful information regarding
our ability to service our debt. EBITDA is not a measure of operating
performance computed in accordance with GAAP and should not be considered as
a substitute for operating income, net income, cash flows from operations,
or other statement of operations or cash flow data prepared in conformity
with GAAP, or as a measure of profitability or liquidity. In addition,
EBITDA may not be comparable to similarly titled measures of other
companies. EBITDA may not be indicative of the historical operating results
of New World Pasta, and is not meant to be predictive of future results of
operation or cash flows. You should also see the audited statement of cash
flows contained within the audited combined financial statements appearing
elsewhere in this prospectus. During 1998, New World Pasta incurred legal
expenses and paid retention bonuses related to the recapitalization. EBITDA
on an adjusted basis without the effect of these non-recurring charges would
have been $59.0 million for the year ended December 31, 1998.
(4) Cash flow data for 1994 has not been presented due to the unavailability of
1993 balance sheet data.
47
<PAGE> 54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements of New
World Pasta, the notes thereto, and the other financial information appearing
elsewhere in this prospectus. This discussion contains, in addition to
historical information, forward-looking statements that are subject to risks and
other uncertainties. New World Pasta's actual results may differ materially from
those anticipated in these forward-looking statements. For more information
regarding these risks and uncertainties, see "Risk Factors -- Forward-Looking
Statements."
GENERAL
New World Pasta's primary business is the production of dry pasta, which is
marketed and sold under regional brands through supermarkets and foodstores. Our
operations are a continuation of the operations of Hershey Pasta Group, which
began as a division of Hershey Foods Corporation in 1966. In a series of
transactions that were completed prior to the recapitalization in which our
current principals acquired control of New World Pasta, all of Hershey Foods
Corporation's pasta-related operations were combined into Hershey Pasta
Manufacturing Company and its subsidiaries and Hershey Pasta Manufacturing
Company's name was changed to New World Pasta Company.
While part of Hershey Foods Corporation, Hershey Pasta Group utilized
various shared services, including distribution, procurement, quality assurance,
information technology and finance, for which costs were allocated to Hershey
Pasta Group. A number of other general and administrative costs for treasury,
legal, tax, risk management and human resources departments have been excluded
from the combined statements of income of Hershey Pasta Group as they are
considered to be immaterial. As a result of the completion of the
recapitalization, New World Pasta operates as an independent entity. Therefore,
New World Pasta's historical performance may not be indicative of future
results.
In mid-1996, Hershey Foods Corporation's senior management decided to
operate Hershey Pasta Group with a strategy focused on short-term return on
investment at the expense of growth and long-term potential by, among other
things, curtailing trade promotional spending. Primarily as a result of this
lower promotional spending, Hershey Pasta Group's sales declined 2.8% in 1996,
5.2% in 1997 and 3.4% in 1998. Management believes there is an opportunity to
grow sales and market share and, as a result increase profitability, through
increased promotional spending and, to a lesser extent, expansion into new
markets and product areas resulting in increased utilization and efficiency.
NET SALES
Revenues are generated from the sale in the United States of retail branded
dry pasta and egg noodle products, private label pasta products and pasta and
other products to the foodservice and industrial sectors. These products can be
separated into five broad categories: branded pasta, branded noodles,
foodservice products, industrial and other miscellaneous products and private
label products. Approximately 85% of our 1998 net sales was derived from branded
pasta and noodles with 5.1% coming from foodservice products, 5.7% from
industrial and other miscellaneous products and 4.2% from private label
products. New World Pasta occasionally increases its product prices to reflect
increases in raw material costs. The last significant price increase was in
1994.
48
<PAGE> 55
Net sales consists of revenues from pasta sales reduced by payment
discounts and returns of unsaleable product.
OPERATING EXPENSES
COST OF SALES. Cost of sales consists primarily of raw material,
packaging, manufacturing labor and manufacturing overhead, including
depreciation, and freight and warehousing costs. Semolina, a flour derived from
durum wheat, accounts for approximately 35% to 40% of our cost of sales. Prior
to the recapitalization, Hershey Pasta Group sourced up to 67% of its
durum/semolina through Miller Milling Company. Miller Milling Company has agreed
to procure 100% of New World Pasta's durum/semolina requirements. The prices
paid for durum/semolina under arrangements with Miller Milling Company are based
upon prevailing market prices. Over the last few years, high market prices for
durum/semolina have caused durum/semolina costs as a percentage of cost of sales
to be higher than historical averages. From 1993 to 1997, the average durum
price was $5.97 per bushel versus an average of $4.45 per bushel from 1980 to
1992. With Miller Milling Company's assistance, New World Pasta has entered into
agreements for the purchase of over 90% of its anticipated volume for 1999,
which are expected to produce a cost savings of $10.0 to $11.0 million compared
to 1998 costs. Durum wheat cost risk is managed by Miller Milling Company
primarily through forward purchasing and, when appropriate, futures contracts.
For further information regarding New World Pasta's raw material requirements,
see "Business -- Raw Materials."
The other components of cost of sales generally increase with sales volume
and therefore comprise a relatively consistent percentage of sales except for
overhead and freight and warehousing costs, which have a fixed cost component
that can be leveraged with increasing volume. Freight and warehousing savings
from increased volume, however, are expected to be offset by an increase in
outbound product freight rates in 1999. Therefore, as a percent of sales,
freight and warehousing expenditures are likely to be consistent with historical
levels. Of the total cost of sales in 1998, raw materials represented 40.9%,
manufacturing labor and manufacturing overhead costs, including depreciation,
represented 29.7%, packaging represented 17.7% and freight and warehousing
represented 11.7%.
MARKETING EXPENSES. Marketing expenses represent trade promotions,
advertising and other marketing costs. Trade promotions are critical to
generating revenue growth and establishing a prominent position on retailers'
shelves. Management anticipates a significant increase in trade promotional and
other marketing spending over the next several years as New World Pasta
reestablishes brand awareness, creates new programs, improves customer
relationships and enters new markets. For 1999, management expects to increase
trade promotional spending as a percentage of net sales over 1998 levels. Our
growth strategy thereafter is to maintain a level of trade promotional and other
marketing spending that will support growth and long-term profitability.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As an independent operation,
management expects to incur additional costs over 1998 levels. As a result,
management expects selling, general and administrative expenses to increase as a
percentage of sales in 1999 and decline over the next several years as
management believes it will have a cost structure in place to support continued
growth in the business.
COST SAVINGS. In addition to our expected durum/semolina cost savings, our
management team has identified a number of manufacturing initiatives, which are
expected to save $2.0 to $2.5 million per year on an ongoing basis after initial
capital investments of
49
<PAGE> 56
$6.2 million in 1999 and $2.1 million in 2000. We have also identified a number
of synergies and cost saving initiatives which we expect will save an additional
$3.0 to $4.0 million per year, with minimal up-front cost. These initiatives
include shifting of production between plants, other staffing and shift
adjustments, line upgrades and packaging procurement. Finally, management
believes significant efficiencies and savings can be realized by having an
independent, focused and coordinated organization dedicated to pasta, and
continuing efforts are being made to identify and to evaluate cost saving
opportunities. Other initiatives to utilize excess manufacturing capacity, which
will increase efficiency and improve margins, are under way.
INTEREST EXPENSE
Historically, Hershey Pasta Group did not incur indebtedness or related
interest expense as a division of Hershey Foods Corporation. As an independent
company, New World Pasta is required to service the interest expense on any
borrowings incurred by it including the debt associated with the
recapitalization in which our current principals acquired control of New World
Pasta. On an adjusted pro forma basis, New World Pasta would have incurred
interest expense of $28.2 million for the year ended December 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth specified financial data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 -------------------
------------------------- APRIL 5, APRIL 4,
1995 1996 1997 1998 1998 1999
---- ---- ---- ---- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................... 100% 100% 100% 100% 100% 100%
Cost of Sales....................... 57.6 57.7 54.4 55.2 54.8 53.6
Gross Profit........................ 42.4 42.3 45.6 44.8 45.2 46.4
Marketing Expense................... 26.1 26.1 26.3 24.7 26.7 28.3
Selling, general and administrative
expense........................... 8.8 8.6 8.5 8.9 7.3 14.8
Operating Income.................... 7.5 7.6 10.8 11.2 11.2 3.3
Interest expense.................... 0.0 0.0 0.0 0.0 0.0 5.6
Income (loss) before provision for
income taxes...................... 7.5 7.6 10.8 11.2 11.2 (2.3)
Provision for income taxes.......... 3.1 3.0 4.3 4.3 4.3 1.2
Net income (loss)................... 4.4% 4.6% 6.5% 6.9% 6.9% (3.5)%
</TABLE>
THREE MONTHS ENDED APRIL 4, 1999 COMPARED WITH THREE MONTHS ENDED APRIL 5, 1998
Net sales decreased by $12.4 million, or 11.4% for the three-month period
ended April 4, 1999 compared to the three-month period ended April 5, 1998. This
decrease was primarily due to reductions in unit volume and to a lesser extent
net price declines. The
50
<PAGE> 57
continued effect of Hershey Foods Corporation's strategy, focused on short-term
return on investment at the expense of sales unit growth, was the main reason
for the volume shortfall. Volume was also negatively affected by the loss of a
major food service account late in 1998. Finally, comparison of the first three
months of 1999 to the first three months of 1998 is also impacted by the
difference in the competitive intensity prevalent within the industry, as
several major competitors experienced customer service problems in the first
three months of 1998.
Cost of sales declined by $7.9 million or 13.2% from the first three months
of 1998. The most significant factors for this decline were the volume decline
and the impact of lower durum/semolina costs during the period. Durum/semolina
costs declined 19.8% in the first three months of 1999 versus the first three
months of 1998. Favorable packaging material prices and freight costs also
favorably impacted cost of sales for the period. Gross profit declined by $4.5
million or 9.1% from the first three months of 1998, reflecting the lower sales
revenues, partially offset by cost reductions. Gross margin was 46.4% for the
first three months of 1999 compared to 45.2% for the first three months of 1998.
Marketing costs declined by $1.8 million or 6.3% from the first three
months of 1998. Volume-sensitive trade promotions declined by $1.6 million or
6.3%, despite the influence of higher promotional spending programs instituted
as part of the transition to the new promotional plan. Consumer promotion
spending decreased $.4 million or 17.4%, primarily due to timing changes in the
consumer promotion schedule. Other marketing costs increased $.2 million or
18.0% from year to year due to increased packaging change costs and marketing
research.
Selling, general and administrative costs increased by $6.3 million or
79.6% primarily due to non-recurring expenses of $7.1 million incurred in
connection with the recapitalization and financing transactions. The transition
from the shared service cost allocation environment of Hershey Foods Corporation
in place in 1998, reduced employee relocation costs, and dues and subscriptions
offset some of the impact of these expenses. Selling costs declined by $.1
million or 1.6% from the similar period in 1998. Slightly higher benefit,
personnel and other administrative costs offset a portion of the volume-driven
decline in this area.
Income from operations for the three months ended April 4, 1999 was $3.2
million, a decline of $9.0 million compared to the three months ended April 5,
1998. The decrease in income from operations was due primarily to the decrease
in sales volume and the non-recurring expenses referred to above. The net loss
of $3.4 million for the first three months of 1999, compared to $7.5 million of
income in the first three months of 1998, was also impacted by the net interest
expense of $5.4 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales declined by $13.1 million, or 3.4% in 1998 versus 1997. Sales
were negatively impacted by the continuation of Hershey Foods Corporation's
strategy to maximize short-term return on investment as implemented in mid-1996.
This strategy resulted in a sales volume reduction of 3.3%, which equated to an
$11.2 million decline in net sales for all of New World Pasta's businesses. The
decrease was also the result of unfavorable sales mix in our retail business and
price reductions in our industrial business, both combining for $1.9 million of
the decline in net sales. Due to the decrease in marketing promotional support
and the ineffective execution of marketing programs, Tier II and Tier III
product sales declined, generating the unfavorable sales mix variance.
51
<PAGE> 58
Cost of sales decreased by $4.2 million or 2.0% during 1998 versus 1997.
This decrease includes $6.9 million attributable to the reduction in sales
volume. Offsetting this decrease was an increase in the average purchase price
of semolina, which increased from $.1460 per pound in 1997 to $.1462 per pound
in 1998. The increased average semolina price is primarily attributable to
purchases in early 1998 at higher market rates. In addition, labor and overhead
costs also increased by $1.5 million and packaging material costs increased by
$1.4 million, despite the volume reduction. These increases were partially
offset by a $1.4 million decrease in freight and distribution costs resulting
from reduced volume and favorable rates. Gross margin decreased from 45.6% to
44.8%.
Marketing expenses decreased $9.7 million or 9.5% in 1998 from 1997. Trade
promotion spending decreased by $12 million versus the prior year which was
in-line with the marketing strategy to reduce promotional spending on lower
margin products and shift the sales mix toward higher margin items. In addition,
prior-year promotion fund reversals increased by $2.6 million in 1998, which had
a favorable effect on trade promotion costs. Increased advertising, consumer
promotion support, and other marketing costs had modest offsetting increases.
Selling, general and administrative expenses increased by $610,000, or 1.9%
compared to 1997. This increase is attributable to an increase in allocated
corporate and shared service costs from Hershey Foods Corporation offset by
other selling and administrative efficiencies.
Operating income increased $148,000 or .4% in 1998 compared to 1997 as a
decrease in net sales was offset by greater reductions in cost of sales and
marketing expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales declined by $21.2 million, or 5.2%, in 1997 versus 1996. Sales
were negatively impacted by Hershey Foods Corporation's strategy to maximize
short-term return on investment that was implemented in mid-1996. The
implementation of this new strategy had a positive impact on product mix
increasing net sales $2.1 million during the year. The positive mix variance was
the result of the shift in marketing promotion emphasis to Tier II and Tier III
products, which generate a greater net sales per unit than Tier I products.
However, the overall result of this strategy was a sales volume reduction of
5.7%, which equated to a $23.3 million decline in net sales.
Branded net sales declined by $14.6 million, or 4.3%, versus 1996. The
promotional strategy of focusing on higher margin items had a negative impact on
branded sales volume, which declined $17.3 million, or 5.1%, from the previous
year. This volume decline was partially offset by a small improvement in product
mix. The decrease in sales volume corresponds with an adverse trend in the
retail dry pasta sector, which showed a volume decline of approximately 4% as
measured by Information Resources, Inc.
Increased competition within the industry impacted 1997 foodservice and
private label sales. New World Pasta lost its largest foodservice account and a
significant private label account as the result of its decision not to match
competitors' pricing pursuant to Hershey Foods Corporation's directive to
maximize short-term return on investment.
Cost of sales decreased $25.0 million, or 10.6%, during 1997 compared to
1996. More than half of this decrease was attributable to the reduced sales
volume. A decrease in our semolina costs from $.1683 to $.1460, or 13.3%, also
had a significant impact. Reductions in packaging costs reflected the volume
decrease. Increases in freight and warehousing rates resulting from the volume
reduction were partially offset by New World Pasta
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benefitting from economies of scale from Hershey Foods Corporation combining
shipping volume for all its divisions. Manufacturing depreciation also was lower
in 1997 due to the continuing trend of New World Pasta reducing capital spending
to maximize cash flow. As a result of these factors, gross margin improved from
42.3% in 1996 to 45.6% in 1997.
Marketing expenses in 1997 decreased by $4.4 million, or 4.1%, from 1996.
Volume sensitive trade promotions were reduced while trade spending in core
markets was marginally increased resulting in a net decrease in trade
promotional spending of $4.6 million, or 4.7%, compared to 1996. Advertising
spending was also reduced by $700,000, or 23.3%, as advertising was not
considered integral to a strategy focused on short-term profitability. These
decreases were offset by an increase of $900,000 in other marketing expenses.
Selling, general and administrative expenses in 1997 decreased by $2.3
million, or 6.6%, from 1996. This decrease is attributable to field sales
expense reductions related to the consolidation of the pasta and grocery sales
forces of Hershey Foods Corporation and the start of broker commission rate
reductions negotiated in 1997.
Operating income increased by $10.6 million, or 34.0%, in 1997 compared to
1996. As noted above, decreased net sales were offset by decreases in costs of
sales and marketing. The decrease in raw material costs was the primary driver
in the improved operating margin of 10.8% versus 7.6% in the previous year.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales declined by $11.7 million, or 2.8%, in 1996 compared to 1995.
This decline can be attributed to Hershey Foods Corporation's senior management
decision to have Hershey Pasta Group focus on short-term return on investment,
as well as a lower level of promotional activity during the fourth quarter of
1996. An improvement in product mix had a positive $4.4 million impact on net
sales. This positive mix variance was the result of the shift in marketing
promotion emphasis from Tier I to Tier II and Tier III products, which generate
a greater net sales per unit. The increase in sales from the product mix
improvement was outweighed by a substantial decrease in branded and private
label sales volume. In particular, private label net sales decreased $5.8
million primarily as the result of the loss of a large private label account due
to a decision not to match competitive pricing.
Net sales declined in our retail branded dry pasta business in 1996 by $7.5
million, or 2.2%, from the prior year. Part of this decline can be attributed to
a 1.1% volume decline in the retail dry pasta sector, as defined by Information
Resources, Inc. Skinner and American Beauty brands were the only brands to have
net sales increases between 1995 and 1996. The remaining decrease in net sales
was attributable to a reduction in promotional spending in the fourth quarter of
1996 as well as the loss of a sales force focused exclusively on pasta and a
decrease in the number of field sales personnel resulting from the transition to
a combined pasta and grocery sales force for Hershey Foods Corporation. Our
industrial business showed a net increase in net sales of $1.7 million,
consisting of a $2.8 million increase associated with one customer account,
partially offset by lower net sales from other accounts resulting from the
reduced emphasis on this business.
Cost of sales decreased $6.4 million, or 2.7%, during 1996 compared to 1995
despite an increase in semolina prices from $0.1644 per pound to $0.1683 per
pound during this period. This 2.3% increase in semolina costs was offset
partially by a 5.6% decrease in
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packaging material costs due to favorable case and polyethylene costs. The
increase in semolina procurement costs was further offset by a 6.6% decrease in
freight and warehousing costs due primarily to consolidated rate and truckload
rate efficiencies, as well as to the decrease in volume. The decrease in net
sales was essentially offset by the net effect of these changes, resulting in a
gross margin decline in 1996 of only 0.1% to 42.3%.
Marketing expenses decreased by $3.0 million, or 2.8%, in 1996 from 1995.
Lower promotional spending of $1.1 million resulting from reduced retail trade
participation contributed to this decrease. Advertising spending was reduced by
$500,000. Consumer and other marketing expenses declined by $1.4 million,
primarily related to reductions on discretionary point of sale materials,
couponing and packaging development expenses.
Selling, general and administrative expenses decreased by $1.8 million, or
4.9%, in 1996 from 1995. This decrease was due to a $1.0 million reduction in
field sales personnel expenses, primarily as a result of fourth quarter
personnel reductions. The remainder was attributable to minor fluctuations in
several other general and administrative expenses.
Operating income declined slightly by $500,000, or 1.5%, in 1996 compared
to 1995. Operating margin improved 0.1% to 7.6% resulting from a decrease in
gross margin of 0.1% offset by reduced selling, general and administrative
expenses of 0.2%.
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QUARTERLY DATA
The following table sets forth financial data for the quarters indicated
(in thousands). When reviewing the following table, you should be aware that:
- The first quarter of 1997 ended on March 30, while the first quarter of
1998 ended on April 5.
- The second quarter of 1997 ended on June 30, while the second quarter of
1998 ended on July 5.
- The third quarter of 1997 ended on September 28, while the third quarter
of 1998 ended on October 4.
- EBITDA represents earnings before interest, taxes, depreciation and
amortization. We believe that EBITDA provides useful information
regarding our ability to service our debt. EBITDA is not a measure of
operating performance computed in accordance with GAAP and should not be
considered as a substitute for operating income, net income, cash flows
from operations, or other statement of operations or cash flow data
prepared in conformity with GAAP, or as a measure of profitability or
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the
historical operating results of New World Pasta, and is not meant to be
predictive of future results of operation or cash flows. You should also
see the audited statement of cash flows contained within the audited
combined financial statements appearing elsewhere in this prospectus.
During 1998, New World Pasta incurred legal expenses and paid retention
bonuses related to the recapitalization. EBITDA on an adjusted basis
without the effect of these non-recurring charges would have been $59.0
million for the year ended December 31, 1998.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------ ----------------- ----------------- ------------------
1997 1998 1997 1998 1997 1998 1997 1998
------- -------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $95,803 $108,647 $90,468 $84,263 $96,677 $89,242 $103,270 $90,944
Gross profit.......... 44,051 49,155 41,668 38,646 44,197 39,720 46,299 39,802
Operating income...... 10,715 12,157 10,053 8,833 10,514 11,924 10,438 8,954
Net income............ 6,461 7,525 6,062 5,468 6,340 7,381 6,294 5,540
EBITDA................ 14,489 15,950 13,817 12,382 14,556 15,620 14,295 12,563
EBITDA as a percentage
of net sales........ 15.1% 14.7% 15.3% 14.7% 15.1% 17.5% 13.8% 13.8%
</TABLE>
New World Pasta experiences slight seasonality, with sales being the
slowest in the summer and highest in the fall and winter. In addition, the first
quarter ended March 30, 1997 was negatively impacted by the sales force
consolidation, and the first quarter ended April 5, 1998 was positively impacted
by an effective first quarter sales promotion and New World Pasta's capitalizing
on competitive opportunities. Net sales and operating income in the fourth
quarter of 1998 were negatively impacted by reduced promotional spending.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Hershey Pasta Group's major source of financing has been cash
generated from operations and funds provided by Hershey Foods Corporation. New
World Pasta maintained zero cash balances as cash was swept daily by Hershey
Foods Corporation. Hershey Pasta Group's income and consequently cash provided
by operations during the year were primarily affected by promotional spending
and raw material costs. Since the completion of the recapitalization in which
our current principals acquired control of New World Pasta, New World Pasta has
been an independent entity. Therefore, historical cash flows may not be
indicative of future liquidity. Ongoing operations will
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require the availability of sufficient funds to service debt, fund working
capital, perform maintenance and expansion capital expenditures on plants and
facilities and support trade and promotional programs. Management intends to
finance these activities through cash flows from our operating activities and
from amounts available under our revolving credit facility.
New World Pasta's net cash provided by operating activities totaled $8.5
million for the three-month period ended April 4, 1999 compared to net cash
provided by operations of $3.3 million for the three-month period ended April 5,
1998. This increase was primarily due to increases in other accrued liabilities.
Net cash flow provided by operations was $26.8 million, $46.5 million and $36.3
million for the years ended December 31, 1998, 1997 and 1996, respectively. The
decrease in 1998 was largely attributable to an increase in working capital
requirements and an acceleration of payment terms for semolina purchases during
1998.
Net cash used for investing activities of $.6 million in both the first
three months of 1999 and the first three months of 1998 was primarily for the
purchase of property, plant and equipment. Net cash used by investing activities
was $4.7 million, $1.8 million and $8.9 million for the years ended December 31,
1998, 1997 and 1996, respectively. 1997 was unusually low due to two factors.
First, a significant cost savings project, the rationalization of the Mrs. Weiss
manufacturing facility in Cleveland, Ohio was accelerated and completed in 1996.
Second, the decision of Hershey Foods Corporation management to suspend capital
spending in 1997 deferred a $2.6 million cost savings project at our Omaha plant
into 1998.
Cash flows provided by financing activities of $5.4 million reflects the
proceeds received in conjunction with the recapitalization of New World Pasta as
of January 28, 1999 and the subsequent repayment of the bridge financing and the
$50.0 million term loan. This includes the issuance of debt ($470.4 million),
the proceeds from issuance of the preferred stock ($113.5 million) and the
issuance of common stock ($50.0 million), offset primarily by repurchase of
common stock in connection with the recapitalization transaction, repayment of
bridge financing and repayment of the $50.0 million term loan. Net cash flow
used by financing activities was $21.7 million, $46.1 million and $29.2 million
for the years ended December 31, 1998, 1997 and 1996 respectively. Net cash used
by financing activities represents the net of cash advances to, and cash
withdrawals from, Hershey Foods Corporation's cash management system in which
Hershey Pasta Group participated and accordingly does not provide a meaningful
indication of our financing activities.
During the period 1990 to 1998, Hershey funded $145.0 million of capital
expenditures to modernize and update Hershey Pasta Group's plants and to
construct Hershey Pasta Group's Winchester facility. Since Hershey Pasta Group
was a division of Hershey Foods Corporation, none of these capital expenditures
were funded by Hershey Pasta Group. As a result of the high quality of our
facilities and the nature of the manufacturing process, New World Pasta has had
minimal maintenance capital expenditure requirements. Capital expenditures were
$1.9 million in 1997 and $4.6 million in 1998. Management expects capital
expenditures to be $15.0 million in 1999, including $6.2 million to facilitate
cost savings initiatives, and $3.8 million of one-time expenditures required as
an independent entity. These one-time items include costs for relocation,
information technology systems, Year 2000 compliance, office furnishings and
human resources administrative setup. In 2000, capital expenditure requirements
are expected to fall to $7.1 million, consisting of $5.0 million of maintenance
expenditures and $2.1 million of additional costs related to cost savings
initiatives.
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As part of the recapitalization, we entered into the $250.0 million senior
credit facilities, consisting of the $50.0 million revolving credit facility,
the $50.0 million term loan and the $150.0 million term loan. In addition to the
senior credit facilities, the recapitalization included a $142.3 million stock
purchase by New World Pasta, LLC, an equity investment of $18.2 million by
Miller Pasta, LLC, and the issuance of $110.0 million in senior subordinated
increasing rate notes. The $50.0 million term loan was repaid and the $110.0
million in senior subordinated increasing rate notes were refinanced with the
proceeds from the offering of the old notes.
The yearly term loan principal payments under the $150.0 million term loan
will be as follows:
- $1,125,000 in 1999,
- $1,500,000 per annum in each of the years 2000 through 2004 and
- $141,375,000 in 2005 and subsequent years.
Management believes that New World Pasta will be capable of generating cash flow
which, together with funds available under our $50.0 million revolving credit
facility, will be sufficient to pay such principal and other debt service and to
finance capital expenditures.
Under the terms of New World Pasta's senior credit facilities, in the event
that New World Pasta's earnings before interest, taxes, depreciation and
amortization in any given year exceed the sum of New World Pasta's and its
subsidiaries':
- interest and principal payment obligations under their outstanding
indebtedness, plus
- cash tax payments, plus
- specified capital expenditures, plus
- net increase of current assets over current liabilities, plus
- investments permitted by the senior credit facilities and actually made,
plus
- payments restricted by the senior credit facilities and actually made,
then New World Pasta must use a portion of the excess to prepay outstanding term
loans under the senior credit facilities. The percentage of this excess that
must be devoted to term loan prepayment will equal:
- 75% if New World Pasta's ratio of (a) specified types of indebtedness to
(b) earnings before interest, taxes, depreciation and amortization is
greater than or equal to 4.0 to 1.0;
- 50% if New World Pasta's ratio of specified indebtedness to EBITDA is
greater than or equal to 2.5 to 1.0 but less than 4.0 to 1.0; and
- 0% if New World Pasta's ratio of specified indebtedness to EBITDA is less
than 2.5 to 1.0.
New World Pasta manages through Miller Milling Company the risk of durum
price fluctuations through a procurement strategy that includes expanded
sourcing of durum from a diversified geographic area, the use of forward
purchasing and, where appropriate, futures contracts, and Miller Milling
Company's prominence in the durum market.
YEAR 2000 COMPLIANCE
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, these systems will
recognize the Year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. New World Pasta utilizes software and related computer technologies
essential to its operations that will be affected by the Year 2000 Problem.
While it is difficult to assess the exact nature of the consequences to
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New World Pasta of a failure to be Year 2000 compliant, it has been determined
that such a failure could have a material adverse effect on New World Pasta's
operations.
New World Pasta's effort to address the Year 2000 Problem has been divided
into five phases.
ASSESSMENT. In this first phase we have assessed our hardware and software
systems, and the embedded systems contained in our buildings, plant, equipment
and other infrastructure. Our goal was to identify and prioritize those areas of
the business operations affected by the Year 2000 Problem. As a result of this
review we have:
- identified the kind and amount of necessary resources, such as money and
labor needed in our remediation effort,
- determined validation strategies and testing plans on a system-wide
basis, and
- determined the need for contingency plans, particularly for core business
processes.
We are currently completing our Year 2000 assessment. We have substantially
completed this phase of our remediation effort.
RENOVATION. The second phase involves making software and hardware
changes, developing replacement systems, and eliminating non-functional
applications or system components. We have entered into a contract with a vendor
to perform the remediation of the mission critical software on the AS/400. The
project is on schedule and is expected to be completed by August 1999. We have
done significant testing of embedded systems and hardware in the plants and have
found our exposure to be minimal. We have also engaged an independent third
party to review our Year 2000 remediation plans, and actions taken to date,
during the second quarter of 1999.
VALIDATION. As we make changes to applications and components of our
systems, our intention is to validate and test those changes for Year 2000
compliance. We plan to perform validation and testing on a system-wide basis to
ensure that the changes are compatible with other aspects of our information
systems. We may also conduct acceptance testing, where it deems necessary. We
anticipate completing this phase by the third quarter of 1999.
IMPLEMENTATION. This phase involves integrating the changes made as part
of the above process into New World Pasta's overall information system. As we
implement and integrate the identified changes, we may discover that our systems
include other non-compliant Year 2000 applications and components. We do not
expect this integration to have any significant adverse effect upon our
operations but will develop appropriate contingency and disaster recovery plans
to reduce the risk of such effects. We anticipate completing implementation of
Year 2000 applications for our mission-critical systems by the fourth quarter of
1999.
THIRD-PARTY COMPLIANCE We realize that third-party suppliers and customers
could affect our Year 2000 readiness. We have made contact with many of our key
suppliers to determine their Year 2000 compliance, but will continue to take
measures to ensure that our customers and suppliers are Year 2000 compliant.
CONTINGENCY PLANS. We are in the process of determining our contingency
plans, which are expected to include the identification of our most reasonably
likely worst-case scenarios and methods to address any disruption which could
occur as a result of these scenarios. Contingency plans may include stockpiling
raw and packaging materials, increasing finished goods inventory levels,
securing alternate suppliers and developing manual processes to address issues
that could result from a system failure.
While costs incurred to date to address the Year 2000 Problem have not been
material, we expect to incur incremental expenses of approximately $1.0 million
through
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the end of 1999 to resolve any known Year 2000 Problems that relate to mission
critical systems.
INFLATION
Management believes inflation has not had a significant impact on New World
Pasta's results of operations for the periods presented. Management does not
anticipate inflation having a significant impact on the future results of
operations.
MARKET RISK
New World Pasta is subject to market risk associated with some commodity
prices and, effective with the revolving credit agreement we entered into in
January 1999, changes in interest rates. At December 31, 1998, New World Pasta
had open commodity futures contracts with approximately $2.0 million of deferred
losses which will be recognized during 1999. New World Pasta has entered into a
procurement agreement with Miller Milling Company pursuant to which Miller
Milling Company will supply all of our raw material commodities. Accordingly, we
do not anticipate entering into any further commodity futures contracts.
To manage the risk of fluctuations in interest rates, New World Pasta's
borrowings are a mix of fixed and floating rate obligations. This includes the
$160.0 million of old notes that bear interest at a 9.25% fixed rate and are due
2009. New World Pasta's $150.0 million term loan and revolving credit facility
bear interest at a floating rate. In May 1999, New World Pasta entered into an
interest rate swap agreement that converts the floating interest rate to a fixed
rate for $50.0 million of the $150.0 million term loan. The interest rate under
the interest rate swap agreement is approximately 8.9% and expires June 2, 2002.
The carrying amount of New World Pasta's debt obligations approximates the fair
value of similar debt instruments of comparable maturity and the interest rate
market risk is currently not considered significant.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
comprehensive accounting and reporting standards for derivative instruments and
hedging activities that require a company to record the derivative instruments
at fair value in the balance sheet. Furthermore, the derivative instrument must
meet specific criteria or the change in its fair value is to be recognized in
earnings in the period of change. To achieve hedge accounting treatment the
derivative instrument needs to be part of a well-documented hedging strategy
that describes the exposure to be hedged, the objective of the hedge and a
measurable definition of its effectiveness in hedging the exposure. This
statement is effective as of the beginning of the first quarter of the fiscal
year beginning after June 15, 2000. Adoption of this statement is not expected
to have a material adverse effect on New World Pasta's financial statements. New
World Pasta has entered into a procurement agreement with Miller Milling Company
pursuant to which Miller Milling Company will supply all of our raw material
commodities. Accordingly, we do not anticipate entering into any further
commodity derivative instrument or hedging activities upon expiration of our
existing commodity futures contracts during 1999.
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BUSINESS
OVERVIEW
New World Pasta is a corporation organized under the laws of the State of
Delaware. The current principals of New World Pasta acquired control of Hershey
Pasta Group, New World Pasta's predecessor, in a recapitalization which was
completed on January 28, 1999. Prior to the recapitalization, Hershey Pasta
Group, which was founded in 1966, was a wholly owned division of Hershey Foods
Corporation. Following a unique regional brand strategy, Hershey Foods
Corporation made several opportunistic acquisitions that rounded out its
regional portfolio and formed the basis of New World Pasta's current business
and operations. Those key acquisitions included:
- RONZONI. The Ronzoni brand is the largest selling brand in the New York
City metropolitan area. Ronzoni is also a popular brand in the New
England, Mid-Atlantic and Florida markets. Hershey Foods Corporation
acquired Ronzoni from Kraft/General Foods in 1990.
- SAN GIORGIO. San Giorgio is the sixth most popular brand in the U.S.
with a strong market position on the East Coast and, in particular, in
the Mid-Atlantic market, including Ohio, Pennsylvania and Virginia.
Hershey Foods Corporation acquired San Giorgio from the Guerrisi family
in 1966.
- AMERICAN BEAUTY. American Beauty was acquired from Pillsbury by Hershey
Foods Corporation in 1984 and is the leading brand west of the
Mississippi River.
- SKINNER. Hershey Foods Corporation acquired the Skinner Macaroni Company
in 1979. Skinner has its strongest market share in the Midwestern,
Southwestern and Southeastern regions of the United States.
Additional acquisitions have included several brands which are leaders in
particular markets such as P&R, which is based in Auburn, New York and was
acquired in 1978, and Ideal and Mrs. Weiss, which are based in Cleveland, Ohio
and were acquired in 1993.
As a result of these acquisitions and internal growth, management believes
New World Pasta is the leading manufacturer and distributor of retail branded
dry pasta in the United States, and a supplier of pasta to the U.S. private
label, industrial and foodservice sectors. Our primary business is the
production of dry pasta which is marketed and sold under regional brands through
supermarkets and foodstores. We believe our brands are among the oldest and most
prominent brands in the industry. They include such leading regional brands as
Ronzoni, San Giorgio, American Beauty, Skinner, Ideal and P&R. On a combined
basis, these brands give us the industry-leading national market share of
approximately 27%, which is about 45% larger than our closest competitor. With
approximately a 19% share of the national retail egg noodle market, our noodle
products currently have the #1 share position in the U.S. market and include
such famous brand names as Light 'N Fluffy, American Beauty, Skinner, Mrs.
Weiss, P&R, Ideal and San Giorgio. Our leading national market share is
supported by very strong regional share positions. In the 64 geographic market
areas for pasta measured by Information Resources, Inc. as of February 28, 1999,
New World Pasta held the #1 brand position in 22 market areas, the #2 brand
position in an additional 25 areas and the #3 brand position in 18 areas. We
also held leadership positions in 15 market areas for egg noodles as of February
28, 1999. For the year ended December 31, 1998, we generated net sales of $373.1
million and Pro Forma EBITDA of $56.5 million.
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Despite Hershey Pasta Group's industry-leading position in the production
and marketing of retail branded dry pasta products, it remained a non-core
division of Hershey Foods Corporation. After operating the division with a
strategy focused on short-term return on investment at the expense of growth and
long-term potential since mid-1996, Hershey Foods Corporation decided to divest
the division and focus exclusively on its core chocolate and confectionery
business. New World Pasta reunites the key management who were largely
responsible for engineering Hershey Pasta Group's ascent within the industry and
who are eager to capitalize on New World Pasta's unrealized potential. The
principals of New World Pasta include Mickey Skinner, the President and Chief
Executive Officer of Hershey Pasta Group from 1984 to 1997, John Miller and
Michael Snow of Miller Milling Company, which has been New World Pasta's largest
durum/semolina supplier for over 11 years, and Joseph Littlejohn & Levy, a
private equity partnership specializing in corporate divestitures and
recapitalizations.
We categorize pasta into three broad groupings or "tiers" that vary in
consumer familiarity and price elasticity. Tier I constitutes 50% of the
category and consists of spaghetti, thin spaghetti, elbow macaroni, ziti in the
New York City market and vermicelli in western markets. Tier II constitutes 30%
of the category and consists principally of Italian-style "short-cut" items,
such as rotini, rotelle, mostaccioli, and "long cuts," such as linguine,
capellini and lasagne. Finally, Tier III, constituting 20% of the category,
consists of manicotti, jumbo shells, fettuccine, fortified products, flavored
products, "soup" shapes and a range of specialty items. While the Tier I items
are principally sold through discounted pricing and display, the remaining items
are purchased more for planned recipe use than through price impulse. The leader
in any given market enjoys a broader range of item distribution and can
capitalize on its ability to sell higher margin Tier II and Tier III items. It
has been the history of New World Pasta to enjoy an increasing range of item
distribution as a result of new product innovation and skillful market
expansion.
COMPETITIVE STRENGTHS
We believe we are well-positioned to increase our market share, sales and
profitability due to the following competitive strengths:
- NATIONAL MARKET LEADER IN BRANDED PASTA. We are the largest U.S.
manufacturer and distributor of retail branded dry pasta and hold three
of the top six brand positions in the United States. We have been able to
achieve such high national market share due to our portfolio of
attractive regional pasta brands, including Ronzoni, San Giorgio,
American Beauty, Skinner, Ideal and P&R. Our national leadership position
also enables us to better coordinate our regional sales efforts with
central brokers and national category managers, particularly in light of
increasing food brokerage and grocery chain consolidation.
- STRONG REGIONAL PASTA BRANDS. According to Information Resources, Inc.,
as of February 28, 1999, we held the #1 brand position in 22 of the 64
Information Resources, Inc.-measured pasta market areas, with typical
market shares of 30% to 40%. We also held the #2 brand position in 25
areas and the #3 brand position in another 18 areas. We have focused our
sales and marketing efforts on those areas with the greatest consumption
of pasta. As a result, our brands hold the #1 position in 12 of the 20
largest dollar volume pasta markets. Established brand awareness and a
broad product line are critical to a brand's profitability. Typically, a
brand's high consumer awareness and consumer satisfaction in terms of
quality and consistency earn it additional shelf space for the more
profitable Tier II and
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Tier III products. We also derive additional benefits from our combined
regional strengths including economies of scale in distribution, sales,
marketing and manufacturing.
- LOW-COST AND EFFICIENT MANUFACTURING AND DISTRIBUTION SYSTEM. We are a
low-cost producer. Between 1990 and 1997, Hershey Foods Corporation
invested $140.0 million to update our manufacturing facilities with more
modern pasta-making technology and process controls, including the
construction of our flagship facility at Winchester, Virginia. Our six
manufacturing plants and five distribution facilities are located near
both our major durum/semolina millers as well as our major customers,
significantly reducing our freight costs relative to our competitors'
costs. We believe that this provides us with a significant advantage as
our cost efficiencies can be directly applied to promotions designed to
increase our market share and to the reduction of final product prices
for our customers. Our network of strategically located distribution
centers allows us to deliver over 95% of our volume in full truckload
shipments resulting in significant freight cost savings.
- CONSISTENT, LOW-COST DURUM/SEMOLINA SUPPLY. Durum/semolina accounts for
35% to 40% of our cost of sales. Hershey Pasta Group historically sourced
up to 67% of its durum/semolina requirements from Miller Milling Company.
Due to Miller Milling Company's purchasing expertise, nationally
diversified sources of durum/semolina and near or on-site milling, we
estimate that Hershey Pasta Group has saved approximately $6.0 to $7.0
million per year in raw materials costs versus spot buying. Miller
Milling Company has agreed to procure 100% of our future durum/semolina
requirements. We believe our savings will increase commensurately as a
result of the expansion of this relationship. This expansion should make
Miller Milling Company the largest buyer of durum/semolina products in
North America. As a result, Miller Milling Company should be able to
obtain more favorable terms and improve its buying through larger
contracts, increased market leverage and lower freight rates, all of
which should benefit New World Pasta. With Miller Milling Company's
assistance, we have already secured more than 90% of our 1999
durum/semolina requirements for an expected savings of $10.0 to $11.0
million over our 1998 costs. For a further discussion of the arrangements
between New World Pasta and Miller Milling Company, see "Certain
Relationships and Related Transactions."
- FOCUSED, VERTICALLY-INTEGRATED PASTA COMPANY. In contrast to most of our
branded competitors, New World Pasta is an independent company, focused
exclusively on the pasta business. We believe this autonomy and focus
will allow us to better execute our growth strategy than Hershey Pasta
Group had historically been able to do and better than many of our
competitors are currently able to do. For example, in mid-1996, Hershey
Foods Corporation combined its longstanding dedicated pasta broker sales
force with its general grocery sales force. We believe this combination
lowered Hershey Pasta Group's sales. As the dynamics of pasta promotion
and sales differ from those of other grocery items, personnel not
experienced in pasta sales were unable to effectively promote our pasta
products. In addition, Hershey Pasta Group's sales personnel were less
inclined to sell pasta because it was less labor-intensive to sell
Hershey Foods Corporation's higher margin branded grocery products. We
believe our singular focus on pasta, combined with contractual control of
our raw material procurement, exclusive brokerage sales arrangements and
the vertical integration of our manufacturing, distribution and marketing
functions, will
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promote our flexibility and responsiveness to our customers and further
differentiate us from our competitors.
- EXPERIENCED OWNER-MANAGERS. We benefit from a management team with in-
depth knowledge who are now exclusively focused on the pasta business.
New World Pasta reunites the key management who were largely responsible
for engineering Hershey Pasta Group's ascent within the industry and who
are eager to capitalize on New World Pasta's unrealized potential. Our
team of current and former Hershey Pasta Group executives has significant
experience in the pasta industry. Our top ten executive officers combined
have over 200 years of experience in the pasta business with Hershey
Pasta Group and its affiliated brands. We believe the experience of our
management team and their continuity with Hershey Pasta Group provide us
with an advantage over our key competitors. In addition, our management
team is highly incentivized and will have stock options to purchase up to
15.4% of our common stock on a fully diluted basis.
GROWTH STRATEGY
In mid-1996, Hershey Foods Corporation decided to operate its pasta
division with a strategy focused on short-term return on investment at the
expense of growth and long-term potential by, among other things, curtailing
trade and other promotional spending. Prior to this decision, Hershey Pasta
Group was successful in increasing revenue and generating market share gains.
Excluding the Ideal Macaroni Company and Mrs. Weiss Noodle Company acquisitions,
the compound annual growth rate of New World Pasta's net sales from the time of
the Ronzoni acquisition in 1990 to 1995 was 6.4%. Excluding acquisitions, our
net sales compound annual growth rate from 1985 to 1995 was 7.0%.
We have developed a growth strategy that leverages and builds upon our
competitive strengths and the historical advantages that have enabled Hershey
Pasta Group to generate consistent levels of cash flow and remain one of the
leading pasta companies in the United States. We expect to achieve consistent
revenue growth through highly-developed marketing and promotional programs,
opportunistic private label and industrial collaborations, the introduction of
innovative new products and geographic expansion of our strong regional brands.
We can utilize our 29% excess production capacity to support increased sales
volumes and generate higher incremental profit margins. We believe that our
refocused sales strategy, our reunited experienced management team, favorable
consumption trends and changes in the competitive environment in our key
business -- retail branded dry pasta -- provide significant opportunities for
New World Pasta to expand market share in the branded pasta business, grow
revenues and improve profitability. The principal elements of our strategy to
maximize these opportunities include the following:
- INCREASE BRANDED SALES THROUGH PROMOTIONAL SPENDING. Primarily as a
result of the lower promotional spending, Hershey Pasta Group's sales
declined 2.8% in 1996, 5.2% in 1997 and 3.4% in 1998. As the category
leader, we believe that we have a substantial opportunity to expand our
sales and market share by increasing promotional spending. We intend to
increase trade promotional spending in 1999 by approximately 15% over
1998 levels, which will be primarily directed at increasing sales in
those markets where we have the #1 brand position. By increasing sales of
lower priced Tier I products such as spaghetti and elbow macaroni, we
believe we can earn more shelf space for our higher-priced, higher-margin
Tier II and Tier III products and, therefore, increase overall category
sales and improve the profitability of our brands. In addition, in the 29
markets where we have the #2 or #3, but not
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the #1, brand positions, effective trade promotional spending could
strengthen our share position, enabling us to improve our product mix and
thereby generate higher margins.
- PURSUE STRATEGIC PRIVATE LABEL PARTNERSHIPS. Private label sales account
for approximately 17% of the U.S. retail dry pasta market; however,
private label sales represent only 4% of our net sales due mainly to
Hershey Foods Corporation's focus on branded products. In 1997, the
former category leader, Borden Food Holdings Corporation, withdrew from
the private label sector, providing an opportunity for other pasta
companies to increase their private label market shares. We believe we
can successfully expand into the private label sector given our
historically limited participation and this favorable market development.
While some of the recent growth in the private label sector is
attributable to the underpromotion of branded pasta by key industry
players, we believe there is a group of price-sensitive consumers who
prefer private label pasta. As private label pasta appeals to a different
consumer than branded pasta, we believe incremental sales can be gained
without category cannibalization. Our strategy is to partner with key
strategic wholesale and retail accounts. We believe our relationships
with leading retail food stores and outlets, our low delivered cost
position and economies to be gained through the use of our excess
capacity and similar distribution and delivery channels make private
label an attractive niche.
- GROW PASTA SALES OPPORTUNISTICALLY IN INDUSTRIAL AND FOODSERVICE
SECTORS. In 1997, we estimate the industrial and foodservice sectors
accounted for approximately 50% of U.S. pasta dollar sales volume, but
only approximately 12% of New World Pasta net sales. Therefore, we
believe we have significant growth opportunities in these sectors. We
intend to selectively pursue large contracts with industrial and, to a
lesser extent, foodservice companies. Hershey Foods Corporation's margin
maximization strategy prevented the active pursuit of contracts in these
sectors. In contrast, we believe competitively-priced industrial and
foodservice contracts will naturally augment our core product sales and
provide significant incremental volume to improve our operating leverage
and cash flow. In addition, as a low-cost producer, we believe we can
establish accounts within these sectors without relinquishing
profitability. We believe that increased outsourcing among industrial
food processors, fragmentation within the foodservice industry and
consistent compound annual growth rates within both sectors of
approximately 3% further support our participation in these markets.
- DISTRIBUTE LIGHT 'N FLUFFY BRAND NATIONALLY. With approximately a 19%
share of the national egg noodle market, we are the leading producer of
egg noodle products in the United States. We believe substantial growth
opportunities remain in this product category. One of our internally
developed brands, Light 'N Fluffy, has risen to become the second leading
noodle brand in the country. Unlike pasta, which benefits from regional
name recognition and acceptance, we believe egg noodle products can be
marketed on a national basis. As the highly successful Light 'N Fluffy
brand is distributed in only 50% of the country, we believe significant
potential exists for U.S. expansion.
- CAPITALIZE ON CATEGORY MANAGEMENT CAPABILITIES. As a market leader in
the branded pasta sector and with a renewed emphasis on private label, we
have an opportunity to expand our category management activities for our
largest customers and exploit our proprietary technology in this area.
Hershey Pasta Group pioneered
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the analysis and utilization of scanner data through its internally
developed and proprietary Pasta Experts(R) software program. We use this
tool to analyze the price elasticity, display effectiveness and volume
potential of our promotional programs to improve our profitability. By
combining this tool with shelf management programs and
manufacturer-initiated ordering, we can maximize category profitability
for our customers while minimizing the resources required by either
party.
- EXPAND INTO NEW MARKETS AND INTRODUCE NEW PRODUCTS. We intend to expand
the Ronzoni brand into other large markets to take advantage of its
growing familiarity. We also intend to opportunistically enter markets
currently occupied by weakening brands of our largest competitors. In
addition, new products, such as fortified, flavored and specialty-cut
pasta, have updated and modernized our brand images and increased our
market share. More importantly, they have helped to transition consumers
from lower-margin Tier I items to higher-margin Tier II and Tier III
items.
SYNERGIES AND COST SAVING OPPORTUNITIES
In addition to our expected durum/semolina cost savings, our management
team has identified a number of manufacturing cost saving initiatives. We expect
to save $2.0 to $2.5 million per year on an ongoing basis after an initial
capital investment of $8.3 million at our Lebanon and Fresno plants. We have
also identified a number of synergies and cost saving initiatives which we
expect will save an additional $3.0 to $4.0 million per year, with minimal
up-front cost. These initiatives include shifting of production between plants,
staffing and other shift adjustments, line upgrades and changes in packaging
procurement. Finally, we believe significant efficiencies and savings can be
realized by having an independent, focused and coordinated organization
dedicated to pasta. We expect to continue to identify and to evaluate such
opportunities.
PASTA INDUSTRY
OVERVIEW. We believe the U.S. dry pasta industry is a $2.6 billion
non-cyclical industry that is both stable and growing. We estimate that total
U.S. pasta consumption has grown about 3% to 4% per year over the last ten years
reaching approximately 5.0 billion pounds in 1997. We believe this growth has
been primarily driven by U.S. per capita consumption, which has, according to
the U.S. Department of Commerce, increased at a compound annual growth rate of
3.9% for the period from 1986 to 1996. Based on industry and trade sources and
our own analysis, we expect national pasta consumption to continue to grow,
driven largely by pasta's attractive product attributes. According to the
American Pasta Report, Americans are eating more pasta today than they did five
years ago. Approximately 77% of Americans eat pasta at least once a week, and
almost one-third consume pasta three or more times a week. Industry analysts
attribute pasta's universal appeal to four main factors: taste, convenience,
nutrition and value. The broad appetite appeal of pasta and its variety of forms
and shapes have made it a favorite diet staple among U.S. consumers. As
consumers have demonstrated a desire for food categories that are easy and quick
to prepare, pasta has held its position as one of the most convenient at-home
food choices, surpassing even restaurant take-out and home delivery. The
increase in pasta consumption can also be explained by its nutritional value and
the increased focus on healthy eating in the 1990s. The low-fat nature of pasta
combined with its content of complex carbohydrates, proteins, vitamins and
minerals is a major attraction and benefit to health-conscious consumers.
Finally, consumers cite pasta's economic value as an important factor in their
purchase decision. Increased pasta consumption has also been
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spurred by its recent addition to the base of the food pyramid by the U.S.
Department of Agriculture, acknowledging pasta as a core food product and a
healthy source of daily nutrition.
ANNUAL PRODUCTION CAPACITY. New World Pasta's competitive environment
depends to a significant extent on the aggregate industry capacity relative to
aggregate demand for pasta products. Our management estimates that the total
U.S. production capacity was 4.0 billion pounds in 1998 and will increase to 4.3
billion pounds in 1999. This increase can be attributed to the recent facility
expansions which we understand were undertaken or completed by several domestic
pasta producers which have increased domestic production capacity. Specifically,
American Italian Pasta Company is rapidly expanding its production capacity with
the completion of its new facility in Kenosha, Wisconsin, and additions to its
Columbia, South Carolina and Excelsior Springs, Missouri plants expected to be
completed in 1999. As a result, American Italian Pasta Company will increase its
production capacity by approximately 260 million pounds. Similarly, Dakota
Growers Pasta Company increased the capacity of its durum/semolina milling
operations in December 1996 and has completed a pasta production capacity
expansion which increased its total annual pasta production capacity to
approximately 270 million pounds. Dakota Growers Pasta Company also recently
acquired Primo Piatta, a Minnesota-based pasta producer with annual production
capacity of approximately 200 million pounds. Part of the increase in production
capacity can also be attributed to foreign producers establishing production
facilities in the United States. Barilla G.E.R.F. LLI S.p.A. built a pasta
production plant in late 1998 near Ames, Iowa with an annual capacity of
approximately 200 million pounds. On the other hand, two major pasta producers
have also reduced their pasta production capacity. Borden Food Holdings
Corporation closed or sold six of its ten North American pasta plants in 1997
and 1998, and Bestfoods Inc. decreased its capacity by approximately 180 million
pounds when it closed its New Jersey facility and began sourcing its production
through American Italian Pasta Company. Management believes that the net effect
of these changes represents an increase of more than 200 million pounds in
annual production capacity. We do not, however, expect this increase to have a
significant impact on our competitive position.
CUSTOMER MARKETS. The pasta industry consists of two primary customer
markets: retail, which includes both branded and private label sales, and
institutional, which is jointly comprised of industrial and foodservice
companies.
- RETAIL. The retail sector includes domestic and imported branded pasta
and private label pasta sold to grocery stores, club stores and mass
merchants, who in turn sell to consumers. In 1997, the retail dry pasta
sector accounted for approximately $1.3 billion, or approximately 50%, of
dry pasta sold in the United States. Hershey Pasta Group, Borden Food
Holdings Corporation and Bestfoods Inc. together account for a majority
of the retail branded sales, while American Italian Pasta Company and
Dakota Growers Pasta Company manufacture most of the pasta sold under
private label brands. For the 52-week period ending February 28, 1999,
Hershey Pasta Group, Borden Food Holdings Corporation and Bestfoods Inc.
represented 26.7%, 18.3% and 9.6%, respectively, of the total dollars of
retail dry pasta. Barilla G.E.R.F. LLI S.p.A. was the leading imported
brand, with a 7.3% market share as of February 28, 1999.
- INDUSTRIAL AND FOODSERVICE. The industrial and foodservice sectors
include food processors that use pasta as a food ingredient as well as
foodservice distributors that supply restaurants, hotels, schools and
hospitals. Opportunities in the industrial
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sector are affected by the number of food processors that elect to
produce pasta internally rather than outsource their production.
Historically, most pasta used by food processors has been manufactured
internally for use in food processors' own products. However, an
increasing number of food processors are expected to discontinue the
internal production of their own pasta and outsource their production to
more efficient producers, which should produce growth in our industrial
business. Large food processors that use pasta as a food ingredient
include Kraft Foods, International Home Foods, Stouffers Corporation,
Campbell Soup Company, ConAgra, Inc., Pillsbury, Lipton and General
Mills. The foodservice sector, which is served by numerous regional and
local food distributors, is highly fragmented and includes both
traditional foodservice customers and chain restaurant customers.
Management believes that in 1997, the industrial and foodservice pasta
sectors accounted for approximately $1.3 billion, or 50% of dry pasta
sold in the United States.
PRODUCTS
OVERVIEW. New World Pasta provides a full range of pasta products to its
customers. Our products can be separated into five broad categories for selling
and marketing purposes: branded pasta, branded noodles, foodservice products,
industrial and miscellaneous products and private label products. In 1998,
approximately 85% of our net sales was derived from branded pasta and noodles,
5% from foodservice products, 6% from industrial and miscellaneous products, and
4% from private label products.
BRANDED PASTA. Branded pasta accounts for the bulk of our revenue and
includes numerous well-known brands such as Ronzoni, San Giorgio, American
Beauty, Skinner, Ideal and P&R. We believe these brands are among the oldest and
most prominent in the pasta industry. Three of these brands are among the
nation's top six brands. Due to our ability to offer a wide selection of pasta
items and well-known brands, we enjoy the highest national share of retail dry
pasta sales. As of February 28, 1999, we led the retail dry pasta market with a
26.7% dollar share as measured by Information Resources, Inc. New World Pasta's
regional brands and representative brand leadership positions as of February 28,
1999 are detailed below:
- RONZONI. The Ronzoni brand is one of the most established pasta brands
in the U.S. with its origins dating back to 1915. Ronzoni is the largest
selling brand in the New York City metropolitan area, the largest
pasta-consumption area in the United States, with a 31% market share.
Aside from New York City, Ronzoni is also popular in the New England,
Mid-Atlantic and Florida markets, and is recognized west of the
Mississippi as a premium brand. Ronzoni also holds brand leadership
positions in the Miami/Ft. Lauderdale and Hartford/Springfield
metropolitan areas, and holds the number two position in Philadelphia.
- SAN GIORGIO. San Giorgio was the first pasta brand acquired by Hershey
Foods Corporation and is presently the sixth most popular pasta brand in
the U.S. San Giorgio is a well-established brand, with its origins dating
back to 1914. The brand has a strong market position on the East Coast
with products primarily being distributed in New York, New Jersey,
Pennsylvania, Maryland, Delaware, Connecticut, Indiana, Illinois,
Michigan, Virginia and Ohio. San Giorgio holds the #1 brand position in
Philadelphia, Baltimore/Washington, Harrisburg/Scranton, Columbus,
Pittsburgh and Cincinnati/Dayton.
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- AMERICAN BEAUTY. Acquired by Hershey Foods Corporation in 1984 from
Pillsbury and originally founded in 1916, American Beauty is the leading
brand in states west of the Mississippi River. American Beauty pasta's
regions of particular strength include Phoenix/Tucson, Wichita and Kansas
City, where American Beauty leads its closest competitors by over 20
points, and Denver and Salt Lake City. American Beauty also holds strong
number two positions in the Oklahoma City and San Antonio/Corpus Christi
markets with 26.1% and 15.5% market shares, respectively.
- SKINNER. Skinner is a leading pasta brand in the Midwestern,
Southwestern and Southeastern parts of the United States. The Skinner
brand has a rich heritage in these areas, having started its operations
in Omaha, Nebraska in 1911. Hershey Pasta Group acquired the Skinner
brand in 1979 and since gaining this foothold has been able to fortify
its leadership position through targeted promotions and advertising in
metropolitan areas such as Dallas, Oklahoma City, Houston and San
Antonio/Corpus Christi, where it has market-leading shares of 36.0%,
36.6%, 34.6% and 24.7%, respectively.
- OTHER BRANDS. Other branded pastas produced by New World Pasta include
Ideal, which holds the number one position in Cleveland with 30.2% market
share, and P&R, with a leading market position in the Syracuse market
(29.1%). In addition, P&R also holds the number one branded position in
the Albany, New York market, with a 22.2% share.
A summary of our branded pasta product tiers is illustrated below:
PRODUCT TIERS
<TABLE>
<CAPTION>
RELATIVE
PROFIT
TIER PRODUCT LEVEL
---- ------- --------
<S> <C> <C> <C>
I Pantry Restock Items Spaghetti, Thin Spaghetti, Elbow Low
(50% of Category) Macaroni, Ziti (in the New York
market), Vermicelli (in western
markets)
II Transition/Continuing Rotini, Rotelle, Mostaccioli, Linguine, Medium
Items (30% of Category) Capellini, Lasagne
III Occasion Items (20% of Manicotti, Jumbo Shells, Fettuccine, High
Category) "Soup" Shapes
</TABLE>
During the last few years, we have increasingly been identifying products
which promote the transition of historical Tier I to Tier II and Tier III
positions. New products enhance brand equity and profitability and help to
maintain retail shelf space. Examples of successful new products developed by
New World Pasta include:
- FORTIFIED PASTA. We were the first branded pasta manufacturer to market
pasta fortified with calcium. The incremental profit provided by
fortified Tier I products allows us to increase the profitability of
otherwise discounted Tier I products.
- FLAVORED PASTA. Responding to trends in home cooking and the foodservice
industry, we introduced flavored pasta to its consumers in the
Information Resources Inc.-defined areas where our brands have leadership
positions. Our pasta flavors include roasted garlic, herb and garlic,
lemon pepper, and roasted garlic and red bell pepper.
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- ADDITIONAL CUTS/SHAPES. New product developments in this area maintain
excitement in the category and often drive industry growth.
These new products provide New World Pasta with multiple benefits, including
increasing the profitability of Tier I products, updating and modernizing brand
images, and addressing important consumer and industrial trends.
EGG NOODLE PRODUCTS. We also manufacture egg noodle products for sale
alongside our pasta brands. New World Pasta's egg noodle brands have the largest
collective market share in the United States and include such famous brand names
as Light 'N Fluffy, American Beauty, Skinner, Ronzoni, Mrs. Weiss and P&R. We
account for approximately 19% of all retail egg noodle sales in the United
States, hold brand leadership positions in 15 market areas and produce seven of
the top 30 brands in the country.
PRIVATE LABEL PRODUCTS. While we have historically sold private label
pasta only to selected accounts in conjunction with a full-line of our branded
products, we believe that there are significant profitable opportunities for
expansion of this activity. We compete with other private label suppliers based
on the ability to provide a broad line of products at a low cost. With our
existing retail relationships and our strategically located plants, we believe
we have a significant competitive advantage.
INDUSTRIAL AND FOODSERVICE PRODUCTS. We also sell products to various
industrial and foodservice clients. In the foodservice sector, the business
dynamics are controlled by a handful of large food distributors that buy on the
basis of price and service reliability.
MISCELLANEOUS PRODUCTS. We sell a range of miscellaneous dry grocery
products as a result of the 1984 acquisition of American Beauty. These items
include instant mashed potatoes, spaghetti sauce mix, dry beans, popcorn and
rice and are generally sold in a very limited geographic area on a very
profitable basis. This activity is virtually self-supporting with little
management attention required. For accounting purposes, miscellaneous products,
which account for less than 1% of our sales, are grouped with industrial sales.
MARKETING
Over its 32-year history, Hershey Pasta Group, through a series of
strategic geographic acquisitions, was successful in executing a business
strategy of maintaining and/or establishing its brands in market leading
positions in high pasta consumption areas. We believe that our planned marketing
strategy leverages and builds upon our competitive strengths and the historical
advantages that have enabled Hershey Pasta Group brands to produce consistent
levels of cash flow and remain one of the country's leading pasta companies.
Prior to the marketing strategy change executed in 1996, Hershey Pasta
Group's trade promotion spending was significantly different. Prior to 1996,
Hershey Pasta Group executed a growth-oriented and balanced trade promotion
strategy.
It was growth-oriented in that it provided trade spending to support new
distribution and consumer trial of Hershey Foods Corporation's products in
markets where its brands did not have the leading share position. Hershey Pasta
Group also invested trade promotion dollars in leading share markets to further
contribute to its consistent growth.
It was a balanced trade promotion strategy from two perspectives. First,
trade spending supported promotional activity in both growth and leadership
markets. Trade spending in growth markets focused on gaining new distribution
and encouraging consumer trial of Hershey Pasta Group's brands that supported
long-term growth objectives. Trade
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spending in leadership markets focused on existing items, volume growth and new
item distribution and consumer trial. Second, trade spending proportionally
supported both Tier I and Tier II items, recognizing the importance of both
product categories in contributing to profitable growth.
Prior to 1996, Hershey Pasta Group had historically developed a mix of
trade promotion spending programs that successfully supported consistent sales
growth. Our trade promotion can be classified into five categories:
- promotion allowances, such as off-invoice allowances, that are offered to
achieve price reductions and some form of promotional support,
- funds offered to secure a variety of merchandising activity,
- volume incentive programs,
- promotional funds to support new distribution and retail item placement,
and
- a variety of other promotional programs that provide flexibility in
supporting customer-specific promotion activities.
We expect to achieve consistent revenue growth through highly-developed
marketing and promotional programs, the introduction of innovative new products
and geographic expansion of our strong regional brands. We believe that we have
a substantial opportunity to expand our sales and market share by increasing
promotional spending. We intend to increase trade promotional spending in 1999
by approximately 15% over 1998 levels, which will be primarily directed at
increasing sales in those markets where we have the #1 position. By increasing
sales of lower-priced Tier I products such as spaghetti and elbow macaroni, we
believe we can earn more shelf space for our higher-priced, higher-margin Tier
II and Tier III products and, therefore, increase overall category sales and the
profitability of our brands. Specialty products including new shapes and cuts
also have a strong correlation to increased product sales. Finally, we intend to
use innovative marketing, advertising and merchandising programs to enhance
brand awareness in regions where we do not have as strong a presence and to
build market share.
Even with a declining marketing budget, Hershey Pasta Group has been able
to maintain its share position due to the strength of its brands. As a result,
we believe there exists significant opportunity to generate both revenue growth
and increased profitability through a refocused sales and marketing strategy
that emphasizes our regional brand names. The combination of these growth
opportunities, our industry marketing expertise and available production
capacity gives us an opportunity to generate incremental margins through
increased volume, thereby generating additional cash flow. For further
discussion of our growth strategy, see "-- Growth Strategy."
SALES
We have a dedicated and focused sales and marketing staff to serve both our
customers and our consumers. Many of the sales and marketing personnel who were
responsible for directing Hershey Pasta Group's earlier growth will once again
be employed exclusively in the interest of New World Pasta's products. We
believe this focused sales team with our network of food brokers and
long-standing trade relationships will provide the resources to increase sales
volume and market share. The sales staff devoted exclusively to branded pasta
consists of a National Sales Director, 8 Zone Sales Managers, 22 Regional Sales
Managers, 13 District Managers and numerous support staff at our headquarters.
In addition, there are 7 sales professionals responsible for our private label,
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foodservice and industrial sales. The overall sales organization is headed by a
vice president with 23 years of pasta sales management experience. The marketing
staff consists of 12 professionals, most of whom have advanced degrees as well
as a number of professionals and administrative personnel who provide marketing
and sales support. We believe that we have both the largest sales staff and the
largest marketing staff in the industry. Our branded products are marketed by 48
retail brokers. In addition to our retail brokers, we have a national network of
28 foodservice brokers. All of these brokers work exclusively for New World
Pasta with respect to pasta products.
Our experienced sales organization understands each sector of the industry
in which we participate. Our sales force knows how to work with and train
brokers. Broker training maximizes profitable product sales, promotes excellent
trade relations and results in better retail execution. For example, our sales
force has an excellent track record for launching new items and achieving
above-average distribution levels. Furthermore, our sales force uses the
highly-efficient electronic data interchange order system for approximately 87%
of its orders and 56% of its invoices, resulting in what we believe to be some
of the highest service levels in the industry.
CUSTOMERS
Our branded and private label products are sold primarily through grocery
store chains and grocery wholesalers. In addition, we sell our products through
wholesale clubs, mass merchandisers, chain drug stores, convenience stores and
food distributors. Mass merchandisers, wholesale clubs and chain drug stores are
growing distribution channels and represent significant revenue enhancement
opportunities for New World Pasta. Our ten largest customers accounted for
approximately 43.4% of 1998 net sales, with no single customer accounting for
more than 7.1%.
PRODUCTION
PASTA PRODUCTION. Semolina and water are the two main ingredients used to
produce a quality pasta product. Egg is the main additional ingredient included
in noodles. Each variety of durum, which is milled into semolina, has its own
unique set of protein, gluten content, moisture, density, color and other
attributes which affect the quality and character of the semolina. In order to
produce pasta, we mix semolina with water and other ingredients and then extrude
or roll the mixture into the desired shapes. Subsequently, it travels through a
series of state-of-the-art dryers before being stabilized at room temperature.
After the stabilization process, the pasta is packaged in a variety of packaging
configurations and forwarded through an automated palletizing and distribution
system. The finished product is then loaded on to trucks for transport to our
distribution centers and/or shipment directly to customers.
PRODUCTION FACILITIES. New World Pasta has a flexible, vertically
integrated manufacturing organization with regional facilities to support our
low delivered-cost strategy. Our suppliers supply semolina from their mills to
our six manufacturing plants strategically located throughout the United States.
The finished products are then shipped to regionally located distribution
centers which allows us to minimize our freight costs and enhance our ability to
efficiently match our raw material supply to our production and delivery
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demands. A map of our nationwide network of plants, distribution centers and our
suppliers' mills appears below:
PRODUCTION AND DISTRIBUTION MAP
Our six modern manufacturing plants, all of which we own, have an annual
aggregate production capacity of 688 million pounds of pasta. With the exception
of the Winchester plant, these plants were acquired as part of the assets
purchased during Hershey Pasta Group's acquisition of regional pasta brands over
the past 32 years. Between 1990-1997, Hershey Foods Corporation spent $140.0
million to modernize and update these plants and construct the Winchester plant.
As a result, each of our plants is equipped with modern pasta making technology
and process controls. Each plant plays a unique role in our processing and
distribution system. Management believes that the Winchester plant, constructed
in 1993 at a cost of approximately $60.0 million, is a state-of-the-art facility
and one of the most cost-efficient pasta plants in North America. The other
plants have been repeatedly refurbished and their infrastructure upgraded to
ensure their cost competitiveness and ability to meet Hershey Pasta Group's high
product-quality standards. Overall plant utilization is approximately 71%, with
utilization being highest at the Winchester, Virginia plant, with 95%
utilization, and lowest at the Lebanon, Pennsylvania plant, with 47%
utilization. A detailed summary of key plant statistics appears below.
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When reviewing the following table, you should be aware that:
- production capacity is measured in thousands of pounds, based on 320
operating days per year;
- utilization is based on 1998 annual production; and
- our Kansas City, Kansas facility is scheduled to be closed in August
1998.
MANUFACTURING FACILITY SUMMARY
<TABLE>
<CAPTION>
PRODUCTION PRODUCTION SQUARE UTILIZATION
FACILITY LOCATION LINES CAPACITY FEET (%)
- ----------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Winchester, VA....................... 7 208,000 180,000 95%
Lebanon, PA.......................... 13 152,000 256,000 47%
Omaha, NE............................ 8 138,000 114,000 72%
Fresno, CA........................... 7 96,000 130,000 62%
Louisville, KY....................... 8 73,000 207,415 68%
Kansas City, KS...................... 5 21,000 130,000 71%
-- ------- --------- --
Total...................... 48 688,000 1,017,415 71%
</TABLE>
In addition, the Winchester plant currently operates seven production lines and
could add two more within its existing facility, which would increase production
capacity by up to approximately 150 million pounds.
COST-SAVINGS OPPORTUNITIES. We believe there exist numerous opportunities
to improve efficiencies or rationalize capacity. Our management team has
identified a number of manufacturing initiatives, primarily at our Lebanon and
Fresno plants, which are expected to save $2.0 to $2.5 million per year after
approximately $8.3 million of capital expenditures. We have also identified a
number of synergies and cost-saving initiatives which we expect will save a
further $3.0 to $4.0 million per year with minimal up-front cost. These
initiatives include shifting of production between plants, staffing and other
shift adjustments, line upgrades and changes in packaging procurement. We expect
to realize the full benefits of these savings beginning in the year 2000.
TRANSPORTATION AND DISTRIBUTION
Our distribution network is an important factor in maintaining New World
Pasta's low delivered-cost structure. In general, it is more cost-efficient to
ship durum wheat than to ship semolina flour, and to ship semolina flour than to
ship finished goods. For this reason, the location of mills, factories and
warehouses relative to the customer base is a critical factor in achieving low
delivered costs to market.
Durum wheat is shipped to milling sites by rail or truck. Semolina flour is
shipped from the mill to our plants by either rail, truck or pneumatic tube
based on location and financial considerations. Finished goods are shipped from
plant sites to distribution centers or customers in truckload quantities. Over
95% of shipments from distribution centers to final customers are shipped in
full truckload quantities. Truck shipments are handled by contract carriers with
annual transportation contracts.
For finished products, New World Pasta utilizes three primary distribution
centers located in Fresno, California, Omaha, Nebraska, and New Kingston,
Pennsylvania, and two secondary warehouses located in Portland, Oregon and
Louisville, Kentucky. With the exception of the Louisville warehouse which is
housed in a portion of the manufacturing facility, the distribution centers and
warehouses are leased facilities, run by professional warehousing companies
under multi-year contracts.
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QUALITY
New World Pasta and its predecessors have an 85-year tradition of producing
high quality products for customers and consumers. We strive to use the finest
raw materials, processed in our modern manufacturing facilities, by an
experienced and highly-trained workforce in order to meet and exceed our
customers' expectations. New World Pasta's quality has been consistently
recognized by leading consumer publications.
New World Pasta's history reflects a commitment to quality. New World Pasta
was one of the first companies to work with the U.S. Food and Drug
Administration in establishing a Cooperative Quality Assurance Program. This
program, later a model for other industries, called for New World Pasta to
establish stringent quality and safety controls and be self-policing in their
enforcement. Today, all products are manufactured using a comprehensive Hazard
Analysis Critical Control Point (HACCP) program to ensure food safety. This
program calls for strict monitoring and control activities in every facet of the
manufacturing operations.
New World Pasta also uses a toll-free number to maintain direct contact
with the public. Printed on all packaging, this direct link to our final
consumers keeps New World Pasta in touch with their concerns and comments.
RAW MATERIALS
Pasta's primary ingredient is semolina flour, which is extracted from durum
wheat through a milling process. Semolina is currently delivered to our
manufacturing plants directly from milling operations. These mills source their
durum directly from farmers and grower-owned co-operatives in North Dakota,
Montana, Arizona, California and Canada. We now source 100% of our
durum/semolina needs through Miller Milling Company, to ensure the availability
of semolina in the quantity and quality required to fulfill our production
requirements.
The cost of semolina over the last five years has typically represented 35%
to 40% of our total cost of sales. This percentage is high relative to
historical trends as average durum prices have been at historically high levels
since 1993. From 1993 to 1997 the average durum price was $5.97 per bushel
versus an average of $4.45 per bushel from 1980 to 1992. We expect to benefit
from a drop in durum prices toward historical norms in 1999 and 2000. The U.S.
Department of Agriculture recently released its 1998 U.S. durum harvest
estimates, which amounted to 141 million bushels, a 60% increase over 1997.
Although durum consumption is also on the rise, ending stocks for 1998 are
expected to have increased by a similar amount, from approximately 26 million to
approximately 69 million bushels. Durum cash prices currently reflect this and
were $4.30 per bushel as of August 1998, far below the August 1997 prices of
$7.25 to $7.75 per bushel. We expect lower durum prices to continue in the near
future as evidenced by current March 1999 futures contracts at $3.97 per bushel
as of January 14, 1999. We believe that the industry in general will not be
subject to the same volatility as it had historically experienced due to
diversified sourcing of durum from different regions, government policies such
as the "freedom to farm" initiative and various incentives under NAFTA. For
example, the industry has had success in developing and growing durum varieties
suitable for regions where durum was not previously grown, such as Virginia,
central California, and Oregon.
Packaging materials represent another significant portion of the cost of
sales. We expect the costs of these materials to remain constant as a percentage
of sales.
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DURUM WHEAT PRICES
(1980-1997)
[CHART]
The data in the table above is based on cash grain prices for hard amber
durum on the Minneapolis Grain Exchange.
MILLER MILLING COMPANY
OVERVIEW. Miller Milling Company was founded in 1985 in response to
consolidation in the pasta industry, rail deregulation and the failure of
various competitors to take advantage of technological innovations. Miller
Milling Company then grew from one mill dedicated to serving Hershey Pasta
Group's Lebanon, Pennsylvania facility into what is now the largest
durum/semolina supplier in North America.
Miller Milling Company provides numerous services beyond those of a wheat
buyer or semolina miller. By providing cost-efficient buying opportunities in
addition to milling, storage and transportation services, Miller Milling Company
effectively manages the entire sourcing process for its customers. Miller
Milling Company maintains fixed-margin contracts with its customers, deriving
its profitability from the volume of the durum/semolina supplied.
Miller Milling Company owns a substantial interest in Miller Pasta, L.L.C.
after investing in excess of $6 million and, as a result, owns indirectly a
10.6% interest in New World Pasta.
RELATIONSHIP WITH NEW WORLD PASTA. In addition to lower durum/semolina
prices, New World Pasta will benefit from the shifting of all procurement
responsibilities from Hershey Foods Corporation to New World Pasta and Miller
Milling Company. While Hershey Foods Corporation had sugar and cocoa traders
sourcing its durum/semolina requirements, in the future, John Miller, Chairman,
President and Chief Executive Officer of Miller Milling Company and President
and Director of New World Pasta, and Mickey Skinner, Chairman and Chief
Executive Officer of New World Pasta, who together have over 60 years experience
in the sourcing of durum/semolina, will jointly head this function for New World
Pasta. Prior to the recapitalization in which our current principals acquired
control of New World Pasta, Hershey Pasta Group sourced up to 67% of its
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durum/semolina through Miller Milling Company. Due to Miller Milling Company's
purchasing expertise, diversified sources of durum/semolina, our advantageous
milling arrangement and low durum/semolina freight costs, we estimate Miller
Milling Company currently saves us approximately $6.0 to $7.0 million annually
versus spot buying. We believe that we will save a commensurate amount by
expanding the Miller Milling Company purchasing and milling arrangements to
procure 100% of our durum/semolina requirements. New World Pasta is Miller
Milling Company's largest customer. Miller Milling Company is a supplier of
durum/semolina to a number of manufacturers of pasta. The advantages Miller
Milling Company brings include:
- MULTINATIONAL PURCHASING. By procuring all of our durum/semolina needs,
Miller Milling Company will be able to expand its multinational
purchasing of durum/semolina as it will control or source approximately
25% of the durum/semolina consumed in the United States, which should
make it the largest buyer of durum/semolina in North America.
Multinational purchasing will enable Miller Milling Company to obtain
more favorable terms and improve its buying through larger contracts,
increased leverage and improved freight rates.
- NEAR OR ON-SITE MILLING. Miller Milling Company has built on-site or
near-site milling operations to support three of New World Pasta's
largest facilities, enabling us to lower our durum/semolina costs,
improve quality standards, lower our durum/semolina freight costs and our
delivered cost of finished product.
- MULTIPLE SOURCES OF SUPPLY. Miller Milling Company can purchase and
supply durum/semolina from multiple locations, including North Dakota,
Canada, California and Virginia, and from its new mill in Mexico which
became operational in March 1999. This dispersion of production allows
New World Pasta to obtain the best pricing and buying opportunities. The
ability to draw durum/semolina from three countries in North America
gives New World Pasta a unique advantage in both pricing and availability
of its primary raw material.
- INCREASED FLEXIBILITY. As the sole procurer of durum/semolina for New
World Pasta, Miller Milling Company can use its capabilities to shift
durum/semolina needs from plant to plant and source from a variety of
locations. These capabilities limit our exposure to changes in a
particular market and improve our lead times, thus lowering the amount of
inventory we may require at any given time and increasing our production
flexibility.
Since the cost of durum/semolina represents a significant share of our
overall cost of production, its price is inversely related to our gross margin.
New World Pasta's management believes that the expertise and capabilities of
Miller Milling Company, the emergence of a futures market for durum/semolina and
the availability of new alternative durum/semolina sources should reduce the
price volatility of our main raw material. We believe that our arrangements with
Miller Milling Company provide us with many benefits. For a more detailed
description of some of the arrangements between New World Pasta and Miller
Milling Company, see "Certain Relationships and Related Transactions."
COMPETITION
We operate in a highly competitive environment and compete against numerous
well-established national, regional and foreign companies, and many smaller
companies. New World Pasta competes with these companies on a regional and
national basis in the sale and marketing of pasta products. Our competitors
include both independent pasta
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producers and pasta divisions and subsidiaries of large food products companies.
Of these, the largest competitors are American Italian Pasta Company, Barilla
G.E.R.F. LLI S.p.A., Bestfoods Inc., Borden Food Holdings Corporation and Dakota
Growers Pasta Company. The competitive dynamics in the pasta industry have
undergone significant change over the last several years as the corporate
parents of the leading brands have underinvested and underpromoted their labels
or shifted out of private label and industrial sectors. Management believes the
current environment leaves substantial opportunity for New World Pasta to
increase its branded market share and its private label business. For example,
over the past five years Borden Food Holdings Corporation and Bestfoods Inc.
have lost market share of 8 points and 1.5 points, respectively, which has been
picked up by imported pasta makers and private label producers.
We compete primarily in the branded sector of the retail consumer market.
Competition in this market generally is based upon product quality and taste,
pricing, packaging and customer service and logistics capabilities. Our branded
competitors include Borden Food Holdings Corporation (Creamette), Bestfoods Inc.
(Muellers), and Barilla G.E.R.F. LLI S.p.A., whose respective national market
shares as of February 28, 1999 were 18.3%, 9.6% and 7.3%. Branded pasta sales
represented 85% of our net sales in 1998. Given the current market dynamics, we
are optimistic that we can increase our national market share with our renewed
emphasis on promotional pricing.
Our private label competitors include American Italian Pasta Company and
Dakota Growers Pasta Company. Competition in this market is based predominantly
on price. Private label sales represented 4.0% of our net sales in 1998.
On a more limited basis, we compete in the foodservice and industrial
sectors. In 1998, these sales represented approximately 11.0% of net sales.
Competition in this market is based primarily on price and secondarily on
reliability. Our main competitor in this market is American Italian Pasta
Company.
TRADEMARKS AND DOMAIN NAMES
We consider our branded specialty products to be of considerable value and
importance to our business, and therefore own many registered trademarks in the
United States and abroad. Of the many trademarks we have registered with the
United States Patent and Trademark Office, our American Beauty, Light 'N Fluffy,
Mrs. Weiss, Ronzoni, San Giorgio and Skinner marks are the only marks that are
material to our business. We also own several U.S. Internet domain names that
incorporate our trademarks. Among these domain names, RONZONI.COM and
SANGIORGIO.COM are the most significant to our business.
REGULATION
We are subject to various laws and regulations administered by federal,
state and other governmental agencies relating to the operation of our
production facilities and the production, packaging, labeling and marketing of
our products and pollution control, including air emissions. Our facilities are
subject to inspections by the U.S. Food and Drug Administration, U.S.
Occupational Safety and Health Administration and various state regulatory
agencies. We believe that we are in material compliance with all federal, state
and local laws and regulations governing our products and facilities.
Various federal, state and local laws and regulations impose liability on
current or previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In
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addition, these laws impose liability for such costs on persons who disposed of
or arranged for the disposal of hazardous substances at third-party sites. This
liability may be imposed without regard to the legality of the original actions
and without regard to whether the person knew of, or was responsible for, the
presence of hazardous or toxic substances, and this liability may be joint and
several with other parties. If the liability is joint and several, a person
could be responsible for payment of the full amount of the liability, whether or
not any other responsible party is also liable.
A number of current and former Hershey Pasta Group facilities have been
operated as manufacturing facilities for some time. Although we do not believe
that we will incur significant liability for environmental matters from these
historical operations, there can be no assurance that we will not incur
liability in the future if evidence of environmental problems is subsequently
discovered.
In addition, our operations are subject to extensive environmental laws and
regulations concerning, among other things, emissions to air, discharges to
water, and the generation, treatment, and disposal of wastes and other
materials. Potential costs and expenses may also be incurred in connection with
the repair or upgrade of facilities to meet existing or new requirements under
environmental laws. In many instances, the ultimate costs and the time period
during which these costs are likely to be incurred are difficult to predict.
EMPLOYEES
New World Pasta has approximately 900 employees in its facilities
throughout the United States. Most of our hourly employees are represented by
unions, with the exception of those at the Winchester plant. In total,
approximately 56% of our employees are currently unionized. The following unions
represent New World Pasta employees: The Bakery, Confectionery, Tobacco Workers
International Union of America, United Foods and Commercial Workers
International Union, International Union of Operating Engineers, and the
Teamsters. Employment contracts with the unions are generally renegotiated every
three years. The only collective bargaining agreement scheduled for
renegotiation in 1999 is with the United Foods and Commercial Workers
International Union, Local # 271, at the Omaha, Nebraska facility, which expires
on July 1, 1999. New World Pasta and the United Foods and Commercial Workers
International Union have agreed to postpone the expiration of this collective
bargaining agreement until October 28, 1999 in order to better evaluate employee
benefits issues related to the agreement. Our management anticipates
renegotiating this agreement on similar terms and conditions as the current
agreement. However, there is no assurance that a satisfactory renegotiation will
be obtained. New World Pasta considers its relationship with both its union and
non-union employees to be good.
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New World Pasta's remaining collective bargaining agreements expire as
follows:
<TABLE>
<CAPTION>
UNION LOCATION CONTRACT EXPIRATION
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
General Drivers, Louisville April 30, 2001
Warehouseman & Helpers
Union, Local # 89
Bakery, Confectionery, Kansas City June 30, 2001
Tobacco Workers'
International Union of
America, Local # 218
Bakery, Confectionery, Fresno March 31, 2000
Tobacco Workers'
International Union of
America, Local # 85
International Union of Omaha June 30, 2000
Operating Engineers,
Local # 571
Bakery, Confectionery, Lebanon April 30, 2001
Tobacco Workers'
International Union of
America, Local # 464
</TABLE>
LEGAL PROCEEDINGS
In the ordinary course of our business, we are a party to litigation
involving our operations and employees. Our management believes that the outcome
of this litigation will not have a material adverse effect upon our business,
financial condition or results of operations.
MARKET DATA
The market data and some of the industry forecasts used throughout this
prospectus were obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information they present has been obtained from sources believed
to be reliable, but that the accuracy and completeness of the information are
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and we make no representation as to the accuracy of this information. All market
share statistics are from Information Resources, Inc., an independent marketing
research firm which provides New World Pasta with information regarding the
pasta industry. Information Resources, Inc. is located at 150 Clinton Street,
Chicago, Illinois 60661 and has no affiliation with New World Pasta or any of
its affiliates. The industry data was compiled by management of New World Pasta
from a series of industry and government reports, including U.S. Department of
Commerce, Business Trends Analysis and Find SVP Research Publications.
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MANAGEMENT
Set forth below is information concerning the executive officers and
directors of New World Pasta.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
C. Mickey Skinner............ 65 Chairman, Chief Executive Officer and Director
John C. Miller............... 48 President and Director
Michael L. Snow.............. 47 Executive Vice President and Director
Clifford K. Larsen........... 59 Executive Vice President, Marketing and Sales
Cecil A. Archbold............ 57 Vice President, Human Resources
James A. Bohenick............ 42 Vice President, Finance and Chief Financial
Officer
Vito M.J. Castelgrande....... 48 Vice President, Sales
Burton R. Freeman............ 50 Vice President, Manufacturing
Mark E. Kimmel............... 40 Vice President, Administration and Development
and General Counsel
Glenn A. Zearfoss............ 44 Vice President, Logistics
Paul S. Levy................. 51 Director
Jeffrey C. Lightcap.......... 40 Director
Brett N. Milgrim............. 30 Director
David Y. Ying................ 44 Director
</TABLE>
MR. SKINNER is Chairman, Chief Executive Officer and a Director of New
World Pasta. Mr. Skinner was President of Hershey Pasta Group from 1984 to 1997.
Mr. Skinner then served as Vice Chairman of Hershey's Pasta and Grocery Group
from 1997 to 1998. Mr. Skinner currently serves on the boards of directors of
Streck Laboratories and Coleman Natural Products, Inc.
MR. MILLER is President and a Director of New World Pasta. He also serves,
and during the last five years has served, as Chairman, President and Chief
Executive Officer of Miller Milling Company, which is responsible for all of New
World Pasta's durum/semolina purchasing functions. Mr. Miller is also a founder,
Director and President of TABLEX-MILLER SA de C.V., a Mexican durum milling
company. He currently serves on the board of directors of the Minneapolis Grain
Exchange, where he is Vice Chairman, and on the executive committee of the North
American Millers' Association, an industry trade organization.
MR. SNOW is Executive Vice President and a Director of New World Pasta and,
during the last five years, also has served as Executive Vice President,
Secretary, Treasurer and a Director of Miller Milling Company. Mr. Snow is of
counsel to, and was a former partner of, the commercial law firm of Maslon
Edelman Borman & Brand LLP. Mr. Snow is also a founder, Director and officer of
TABLEX-MILLER SA de C.V., a Mexican durum milling company. Mr. Snow currently
acts as counsel to and a director of Osmonics, Inc. and as a director of Navarre
Corporation, QuikPages, Inc. and Artesian Management, Inc.
MR. LARSEN is Executive Vice President, Marketing and Sales, of New World
Pasta. From mid-1996 through 1998, Mr. Larsen was retired. Mr. Larsen was Vice
President, Marketing for Hershey Pasta Group from 1979 until his retirement in
mid-1996.
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MR. ARCHBOLD is Vice President, Human Resources of New World Pasta. He was
previously Vice President, Human Resources of Hershey's Pasta and Grocery Group
since 1997 and Vice President, Human Resources of Hershey Pasta Group since
1990.
MR. BOHENICK is Vice President, Finance and Chief Financial Officer of New
World Pasta. He was previously Vice President, Finance of Hershey's Pasta and
Grocery Group since 1996. From 1993 to 1996, he was Director of Corporate
Development at Hershey Foods Corporation.
MR. CASTELGRANDE is Vice President, Sales of New World Pasta. He was
previously Director of Field Sales of Hershey's Pasta and Grocery Group, a
position he held since 1998, and was also Director of Pasta Sales for Hershey
Pasta Group since 1997. Within Hershey Pasta Group, Mr. Castelgrande held the
position of Eastern Sales Director from 1989 to 1997.
MR. FREEMAN is Vice President, Manufacturing of New World Pasta. He was
previously Vice President, Manufacturing of Hershey Pasta Group since 1991. Mr.
Freeman joined Hershey Foods Corporation in 1988 as Director of Engineering.
MR. KIMMEL is Vice President, Administration and Development and General
Counsel of New World Pasta. He was previously Senior Counsel of Hershey Foods
Corporation since October 1994.
MR. ZEARFOSS is Vice President, Logistics of New World Pasta. Mr. Zearfoss
was Manager of Application Consulting at Hershey Foods Corporation from 1997 to
1999, and was Vice President of Technical Services and Quality Assurance at
Hershey Pasta Group from 1991 to 1997.
MR. LEVY is a Director of New World Pasta. Mr. Levy has been a Partner of
Joseph Littlejohn & Levy since its formation in May 1988. Mr. Levy serves on the
boards of directors of Hayes Lemmerz International Inc., BSL Holdings, Inc.,
Jackson Automotive Group, Inc. and Fairfield Manufacturing Company, Inc.
MR. LIGHTCAP is a Director of New World Pasta and a Partner of Joseph
Littlejohn & Levy, which he joined in 1997. From 1993 to 1997, he was a Managing
Director and head of leveraged buyout firm coverage for the mergers and
acquisitions group at Merrill Lynch & Co., Inc. Mr. Lightcap serves on the
boards of directors of Hayes Lemmerz International Inc. and Jackson Automotive
Group, Inc.
MR. MILGRIM is a Director of New World Pasta and a Vice President of Joseph
Littlejohn & Levy, which he joined in 1997. From 1996 through 1997, he was an
Associate in the investment banking group at Donaldson, Lufkin & Jenrette, Inc.
where he worked on a variety of transactions including high yield and merchant
banking projects. From 1993 to 1994, Mr. Milgrim was a financial analyst with
Vrolyk & Company, an investment banking boutique specializing in mergers and
acquisitions and private financings. From 1991 to 1993, Mr. Milgrim was a
Financial Analyst at PaineWebber Incorporated.
MR. YING is a Director of New World Pasta and a Partner of Joseph
Littlejohn & Levy, which he joined in 1997. He was previously a Managing
Director at Donaldson, Lufkin & Jenrette, Inc., which he joined in January 1993,
and the head of its restructuring department. Mr. Ying serves on the boards of
directors of Hayes Lemmerz International Inc. and BSL Holdings, Inc.
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BOARD OF DIRECTORS
GENERAL. The business and affairs of New World Pasta are managed by its
board of directors. Under our amended and restated by-laws, the New World Pasta
board of directors must consist of not less than one nor more than fifteen
members, with the exact number of members being fixed from time to time by our
board of directors. Currently, our board of directors is comprised of seven
members.
TERM OF OFFICE OF DIRECTORS. Directors are elected by a plurality of the
votes cast at New World Pasta's annual meeting of stockholders. Once elected,
each director serves until the next annual meeting of stockholders and until his
or her successor is duly elected and qualified, or until his or her earlier
death, resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS. As permitted by our amended and
restated by-laws, New World Pasta's board of directors has three standing
committees: the Audit Committee, the Corporate Governance Committee and the
Compensation Committee.
The Audit Committee currently consists of Messrs. Miller, Ying and Milgrim.
The primary purpose of the Audit Committee is to provide objective oversight of
the accounting functions and internal controls of New World Pasta, its
subsidiaries and affiliates and to ensure the quality and objectivity of our
financial statements.
The Corporate Governance Committee currently consists of Messrs. Skinner,
Ying and Milgrim. The primary purpose of the Corporate Governance Committee is
to provide counsel to our board of directors with respect to board organization
and function, committee membership and structure and corporate governance
matters.
The Compensation Committee currently consists of Messrs. Snow, Ying and
Milgrim. The primary purpose of the Compensation Committee is to oversee and
maintain the compensation practices of New World Pasta, to establish appropriate
incentives to motivate and reward key management employees and oversee the
competency and qualification of key management personnel. The Compensation
Committee also administers our 1999 Stock Option Plan.
DIRECTOR COMPENSATION. Directors of New World Pasta do not receive any
compensation for their services. They are, however, reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with attendance at
board of directors and committee meetings. None of the directors of New World
Pasta received any compensation from New World Pasta relating to any period
prior to January 28, 1999.
EXECUTIVE COMPENSATION
GENERAL. Our current principals acquired control of New World Pasta from
Hershey Foods Corporation in a recapitalization which was completed on January
28, 1999. Prior to that time, New World Pasta was a wholly owned division of
Hershey Foods Corporation which was operated by a management team comprised of
Hershey Foods Corporation appointees. None of the executive officers of New
World Pasta received any compensation directly from New World Pasta relating to
any period prior to January 28, 1999. During the period from January 1, 1999
through January 28, 1999, however, Messrs. Skinner, Snow, Miller and Zearfoss
were compensated by Miller Milling Company in the amounts of $20,312, $5,078,
$10,157 and $9,242, respectively. Miller Milling Company was later reimbursed by
New World Pasta for the compensation paid to these executive officers.
THE 1999 STOCK OPTION PLAN. Following the recapitalization, New World
Pasta adopted the 1999 Stock Option Plan which provides for the grant of
equity-based
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compensation to our key employees and consultants. Participants in the 1999
Stock Option Plan can receive incentive stock options and nonqualified stock
options, in either case, to acquire shares of our common stock. The 1999 Stock
Option Plan provides for the issuance of options to acquire up to an aggregate
of 910,166 shares of our common stock, or 15.4% of the common stock on a
fully-diluted basis, of which options to purchase 170,213 shares, 200,936
shares, 141,832 shares, 70,934 shares, 42,553 shares and 838,948 shares have
been granted to Messrs. Skinner, Miller, Snow, Bohenick and Larsen and all
executive officers as a group, respectively. Approximately two-thirds of the
options granted to the executives have an exercise price of $10 per share, which
is the per share price paid by New World Pasta, LLC and Miller Pasta, LLC in
connection with the recapitalization, and the exercise price of the balance of
the options is $73.50 per share. Each of New World Pasta, LLC and Miller Pasta,
LLC have agreed with each optionholder to make payments to each optionholder
based upon the value of New World Pasta's equity.
The 1999 Stock Option Plan and the arrangements described above are
intended to assist New World Pasta in attracting and retaining employees of
outstanding ability. These options were granted to give senior management a
financial stake in the future performance of New World Pasta. All options
currently authorized under the 1999 Stock Option Plan have been distributed to
management personnel. The Compensation Committee administers the 1999 Stock
Option Plan.
OTHER INCENTIVE ARRANGEMENTS. In addition to equity-based compensation,
bonuses are offered to a select group of management employees. Annual bonus
payments are based on a percentage of the participating employee's base salary.
Bonus percentages are established by the Compensation Committee or in some
instances by the individual's employment agreement. Bonuses are paid out only if
specified performance criteria are satisfied. The criteria to be used in any
particular year are determined by the Compensation Committee, but may include
earnings before interest, taxes, depreciation and amortization, cash flow,
sales, market share and other similar company performance-based objectives. In
addition to these objectives, individuals will also have specific objectives
related to their job function.
EMPLOYMENT AGREEMENTS
On January 28, 1999, New World Pasta entered into employment agreements
with each of Mr. Skinner, Mr. Miller and Mr. Snow. The employment agreement with
Mr. Skinner provides for his full-time employment as Chairman of the Board of
Directors and Chief Executive Officer of New World Pasta for an initial term of
three years, with an option to renew the term for an additional two years on
either a full-time basis, in which case Mr. Skinner will remain Chairman and CEO
during the renewal term, or on a part time basis, in which case Mr. Skinner will
function as Chairman during the renewal term. Mr. Skinner's agreement provides
for a base salary of $400,000 to be paid during the term -- unless Mr. Skinner
elects to work on a part-time basis during the renewal term, in which case his
base salary during the renewal term will be $250,000 -- and a maximum annual
bonus opportunity equal to 50% of his base salary. Mr. Skinner's salary is also
subject to adjustments for merit-based increases. In addition, Mr. Skinner's
agreement provides for a grant of options to purchase an aggregate of 170,213
shares of our common stock under the 1999 Stock Option Plan described below. The
exercise price of options to purchase 111,111 shares is equal to $10 per share
and the exercise price of options to purchase 59,102 shares is equal to $73.50
per share. Pursuant to Mr. Skinner's agreement, Mr. Skinner is also entitled to
health, welfare and pension benefits no less favorable in the aggregate than
those provided to senior executives of the Hershey Pasta Group, and is
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entitled to the reimbursement of expenses up to $12,000 per year incurred for
country club membership, income tax return preparation of up to $2,000 per year,
car allowance of up to $1,200 per month and business expenses, including first
class travel for Mr. Skinner and, where appropriate, travel expenses for his
spouse.
In the event Mr. Skinner's employment is terminated by New World Pasta
without cause, as defined in Mr. Skinner's agreement, or by Mr. Skinner with
good reason, as defined in Mr. Skinner's agreement, Mr. Skinner will be entitled
to receive his then-current base salary and benefits under his agreement for the
remainder of the term. However, if the termination occurs during the initial
term, Mr. Skinner will be entitled to receive his then-current base salary
during the remainder of the initial term and $250,000 per year for the two-year
period following the end of the initial term. Upon the occurrence of a change in
control of New World Pasta, as defined in Mr. Skinner's agreement, Mr. Skinner's
agreement will automatically terminate, unless Mr. Skinner does not have the
right to receive cash or marketable securities with respect to his equity
investment in New World Pasta or with respect to the options then held by him,
in which event, his agreement will not automatically terminate, but will become
terminable by Mr. Skinner at any time during the 60-day period following the
change in control of New World Pasta.
Mr. Skinner's agreement provides that he will be subject to specified
non-competition and non-solicitation provisions following the termination of his
employment during any period that he is receiving payments from New World Pasta
thereunder. However, upon the termination of Mr. Skinner's employment following
a change in control of New World Pasta, the non-competition and non-solicitation
provisions will remain in effect for two years following the termination of his
employment.
The employment agreement with Mr. Miller provides for his part-time
employment as Co-Chairman of the Board of Directors and President of New World
Pasta for an initial term of three years, with an option to renew the term for
an additional two years. Mr. Miller's agreement provides for a base salary of
$200,000 to be paid during the term -- increased annually by an amount equal to
the percentage increase in the Consumer Price Index for the Minneapolis
area -- and a maximum annual bonus opportunity equal to 50% of his base salary.
In addition, Mr. Miller's agreement provides for a grant of options to purchase
an aggregate of 200,936 shares of our common stock under New World Pasta's 1999
Stock Option Plan. The exercise price of options to purchase 92,778 shares is
equal to $10 per share and the exercise price of options to purchase 108,158
shares is equal to $73.50 per share. Pursuant to Mr. Miller's agreement, Mr.
Miller is also entitled to receive the welfare and pension benefits generally
available to senior executives of New World Pasta.
In the event Mr. Miller's employment is terminated by New World Pasta
without cause, as defined in Mr. Miller's agreement, or by Mr. Miller with good
reason, as defined in Mr. Miller's agreement, Mr. Miller will be entitled to
receive his then-current base salary and benefits under his agreement for the
remainder of the term. However, if the termination occurs during the initial
term, Mr. Miller will be entitled to receive his then-current base salary during
the remainder of the term. Upon the occurrence of a change in control of New
World Pasta, as defined in Mr. Miller's agreement, Mr. Miller's agreement will
automatically terminate, unless Mr. Miller does not have the right to receive
cash or marketable securities with respect to his equity investment in New World
Pasta or with respect to the options then held by him, in which event, his
agreement will not automatically terminate, but will become terminable by Mr.
Miller at any time during the 60-day period following the change in control of
New World Pasta.
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Mr. Miller's agreement provides that he will be subject to non-competition
and non-solicitation provisions following the termination of his employment
during any period that he is receiving payments from New World Pasta thereunder.
However, upon the termination of Mr. Miller's employment following a change in
control of New World Pasta, the non-competition and non-solicitation provisions
will remain in effect for two years following the termination of his employment.
The employment agreement with Mr. Snow provides for his part-time
employment as Executive Vice President of New World Pasta for an initial term of
three years, with an option to renew the term for an additional two years. Mr.
Snow's agreement provides for a base salary of $100,000 to be paid during the
term--increased annually by an amount equal to the percentage increase in the
Consumer Price Index for the Minneapolis area--and a maximum annual bonus
opportunity equal to 50% of his base salary. In addition, Mr. Snow's agreement
provides for a grant of options to purchase an aggregate of 141,832 shares of
our common stock under New World Pasta's 1999 Stock Option Plan. The exercise
price of options to purchase 92,778 shares is equal to $10 per share and the
exercise price of options to purchase 49,054 shares is equal to $73.50 per
share. Pursuant to Mr. Snow's agreement, Mr. Snow is also entitled to receive
the welfare and pension benefits generally available to senior executives of New
World Pasta.
In the event Mr. Snow's employment is terminated by New World Pasta without
cause, as defined in Mr. Snow's agreement, or by Mr. Snow with good reason, as
defined in Mr. Snow's agreement, Mr. Snow will be entitled to receive his
then-current base salary and benefits under his agreement for the remainder of
the term. However, if the termination occurs during the initial term, Mr. Snow
will be entitled to receive his then-current base salary during the remainder of
the term. Upon the occurrence of a change in control of New World Pasta, as
defined in Mr. Snow's agreement, Mr. Snow's agreement will automatically
terminate, unless Mr. Snow does not have the right to receive cash or marketable
securities with respect to his equity investment in New World Pasta or with
respect to the options then held by him, in which event, his agreement will not
automatically terminate, but will become terminable by Mr. Snow at any time
during the 60-day period following the change in control of New World Pasta.
Mr. Snow's agreement provides that he will be subject to non-competition
and non-solicitation provisions following the termination of his employment
during any period that he is receiving payments from New World Pasta thereunder.
However, upon the termination of Mr. Snow's employment following a change in
control of New World Pasta, the non-competition and non-solicitation provisions
will remain in effect for two years following the termination of his employment.
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STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding ownership of shares of
our common stock and preferred stock, as of June 17, 1999, by each person known
to be the owner of 5% or more of the common stock, by each person who is a
director or executive officer of New World Pasta and by all directors and
executive officers of New World Pasta as a group. Unless otherwise indicated,
the address of each person listed below is 85 Shannon Road, Harrisburg,
Pennsylvania 17112.
When reviewing the following table, you should be aware that:
- The amounts and percentages of New World Pasta's common stock and
preferred stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or to direct the voting
of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no economic interest.
- Through its interest in New World Pasta, LLC, Joseph Littlejohn & Levy
Fund III, L.P. is deemed to beneficially own all of the shares of New
World Pasta common stock and preferred stock owned by New World Pasta,
LLC.
- Miller Pasta, LLC is owned by a group of investors, including Messrs.
Skinner, Miller and Snow. Through their interests in Miller Pasta, LLC,
Messrs. Skinner, Miller and Snow are deemed to beneficially own all of
the shares of New World Pasta common stock and preferred stock owned by
Miller Pasta, LLC.
- Messrs. Skinner, Miller and Snow all own membership interests in Miller
Pasta, LLC, which owns 10.6% of the New World Pasta common stock and
11.3% of the New World Pasta preferred stock. Through their interests in
Miller Pasta, LLC, Messrs. Skinner, Miller and Snow are deemed to
beneficially own all of the shares of New World Pasta common stock and
New World Pasta preferred stock owned by Miller Pasta, LLC.
- Messrs. Levy, Lightcap and Ying are general partners of JLL Associates
III, LLC, the general partner of Joseph Littlejohn & Levy Fund III, L.P.,
which owns membership interests in New World Pasta, LLC. As a result,
each may be deemed to beneficially own all of the shares of New World
Pasta common stock and New World Pasta preferred stock owned by New World
Pasta, LLC.
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<TABLE>
<CAPTION>
COMMON STOCK OF PREFERRED STOCK OF
NEW WORLD PASTA NEW WORLD PASTA
---------------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
OF SHARES OF CLASS OF SHARES OF CLASS
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
New World Pasta, LLC.............. 4,167,869 83.4% 100,636.31 88.7%
Miller Pasta, LLC................. 532,131 10.6 12,848.69 11.3
Hershey Foods Corporation......... 300,000 6.0 -- --
C. Mickey Skinner................. 532,131 10.6 12,848.69 11.3
John C. Miller.................... 532,131 10.6 12,848.69 11.3
Michael L. Snow................... 532,131 10.6 12,848.69 11.3
Clifford K. Larsen................ -- -- -- --
Cecil A. Archbold................. -- -- -- --
James A. Bohenick................. -- -- -- --
Vito M.J. Castelgrande............ -- -- -- --
Burton R. Freeman................. -- -- -- --
Mark E. Kimmel.................... -- -- -- --
Glenn A. Zearfoss................. -- -- -- --
Paul S. Levy...................... 4,167,869 83.4 100,636.31 88.7
Jeffrey C. Lightcap............... 4,167,869 83.4 100,636.31 88.7
Brett N. Milgrim.................. -- -- -- --
David Y. Ying..................... 4,167,869 83.4 100,636.31 88.7
All directors and executive
officers as a group (14
persons)........................ 4,700,000 94.0 113,485 100.0
</TABLE>
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
New World Pasta, L.L.C., which beneficially owns 83.4% of our common stock,
is controlled by Joseph Littlejohn & Levy Fund III, L.P., which is controlled by
Joseph Littlejohn & Levy. Miller Pasta, LLC, which beneficially owns 10.6% of
our common stock, is controlled by a group of investors, including C. Mickey
Skinner, John Miller, Michael Snow and Miller Milling Company. Messrs. Skinner,
Miller and Snow are executive officers and directors of New World Pasta, and
Messrs. Miller and Snow are principals of Miller Milling Company. Some of these
entities and individuals are parties to material agreements with New World
Pasta, as described below. See also "Management" for a discussion of the
employment agreements between New World Pasta and Messrs. Skinner, Miller and
Snow.
STOCKHOLDERS' AGREEMENT
In connection with the recapitalization in which our current principals
acquired control of New World Pasta, New World Pasta, New World Pasta, LLC,
Miller Pasta, LLC, Hershey Foods Corporation and some of the members of Miller
Pasta, LLC entered into a Stockholders' Agreement, dated January 28, 1999, which
provides, among other things, that New World Pasta, LLC and Miller Pasta, LLC
will vote their shares of our common stock so that our board of directors will
be comprised of seven directors consisting of the Chief Executive Officer, four
designees of New World Pasta, LLC and two designees of Miller Milling Company.
The current Chief Executive Officer of New World Pasta is Mr. Skinner, the
current board of directors designees of New World Pasta, LLC are Messrs. Levy,
Lightcap, Milgrim and Ying and the current board of directors designees of
Miller Milling Company are Messrs. Miller and Snow. Under the Stockholders'
Agreement, Mr. Skinner has the right to continue to serve on our board of
directors through January 28, 2004 and New World Pasta, LLC has, at all times,
the right to elect a majority of our board of directors.
Under the Stockholders' Agreement, Miller Pasta, LLC and Hershey Foods
Corporation agreed not to transfer any securities of New World Pasta, except to
permitted transferees. As defined in the Stockholders' Agreement, permitted
transferees include:
- any descendants of the transferring stockholder;
- New World Pasta;
- in the case of any stockholder that is an entity, the stockholders,
members, beneficiaries or partners of the entity or any successor to the
entity;
- any transferee by testamentary or intestate disposition;
- any transferee by lifetime transfer to the transferring stockholder's
relatives or any trusts, limited partnerships or other entities
established for their benefit;
- any successor nominee or trustee for the beneficial owner for which the
stockholder acts as nominee or trustee, as the case may be;
- the lenders -- or any agent acting on their behalf -- under New World
Pasta's revolving credit facility pursuant to a pledge of the
stockholder's shares to secure New World Pasta's obligations in
connection with the revolving credit facility and, in the event of
foreclosure by the lenders or their agent, any transferee or transferees
of the lenders or their agent; or
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- subject to New World Pasta's consent, which may not be unreasonably
withheld or delayed, any affiliate of the transferring stockholder which
the transferring stockholder controls.
Under the Stockholders' Agreement, the members of Miller Pasta, LLC also agreed
not to transfer any of their interests in Miller Pasta, LLC, except that:
- the members of Miller Pasta, LLC may transfer their membership interests
to permitted transferees, as described above;
- Miller Pasta, LLC may issue up to $1.4 million of membership interests to
the employees of Miller Milling Company and
- Messrs. Miller, Skinner and Snow and Miller Milling Company may transfer
their membership interests with New World Pasta's consent, which may not
be unreasonably withheld or delayed.
The securities of New World Pasta held by Miller Pasta, LLC and Hershey Foods
Corporation are subject to "tag-along" and "drag-along" rights upon the transfer
of any securities of New World Pasta by New World Pasta, LLC The "tag-along"
rights allow Miller Pasta, LLC and Hershey Foods Corporation to participate, in
proportion to their respective ownership interests in New World Pasta, in any
sale by New World Pasta, LLC of its New World Pasta securities to a third party.
"Drag-along" rights allow New World Pasta, LLC to cause Miller Pasta, LLC and
Hershey Foods Corporation to participate, in proportion to their respective
ownership interests in New World Pasta, in any sale by New World Pasta, LLC of
its New World Pasta securities to a third party.
After 180 days following the completion of an initial public offering of
our common stock:
- Hershey Foods Corporation and all of the members of Miller Pasta, LLC,
other than Miller Milling Company and Messrs. Skinner, Miller and Snow,
will be able to sell their shares of common stock without restriction;
- Miller Milling Company and Messrs. Skinner, Miller and Snow will be able
to sell up to 75% of their shares of our common stock during specified
time periods; and
- each of New World Pasta, LLC and Miller Pasta, LLC will have the right,
under some circumstances and subject to some conditions, to require New
World Pasta to register their shares of our common stock under the
Securities Act.
The Stockholders' Agreement provides, among other things, that New World
Pasta will pay all expenses in connection with the first three demand
registrations requested by each of New World Pasta, LLC and Miller Pasta, LLC
and in connection with any registration commenced by New World Pasta as a
primary offering in which New World Pasta, LLC and Miller Pasta, LLC participate
through piggyback registration rights granted under that agreement. New World
Pasta will also be required to pay all expenses in connection with any
registration we commence as a primary offering in which Hershey Foods
Corporation participates through piggyback registration rights granted to
Hershey Foods Corporation under the Stockholders' Agreement. New World Pasta,
LLC, Miller Pasta, LLC and Hershey Foods Corporation also are granted preemptive
rights under the Stockholders' Agreement to participate in future private equity
offerings. Some of the rights under the Stockholders' Agreement terminate when
either New World Pasta, LLC or Miller Pasta, LLC ceases to own at least 25% of
its initial investment in New World Pasta. Unless terminated earlier pursuant to
its terms, the Stockholders' Agreement will terminate on January 28, 2009.
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PROCUREMENT AGREEMENT
New World Pasta is a party to a long-term Procurement Agreement, dated
January 28, 1999, with Miller Milling Company, pursuant to which Miller Milling
Company has agreed to procure
- all of our requirements for semolina and other specified products, and
- contracts for the milling of durum and other related services, including
quality testing, execution of futures and hedging contracts,
transportation and storage, other than those contract goods and contract
services supplied under the Fresno Mill Agreement and the Winchester Mill
Agreement, each as described below.
Miller Milling Company has agreed to use reasonable commercial efforts to
procure the contract goods and contract services under the Procurement Agreement
on terms we believe are commercially favorable. In return for its services under
the Procurement Agreement, Miller Milling Company is entitled to a minimum fee
per year, subject to adjustment. The Procurement Agreement may be terminated by
either party if the other defaults and the default is not cured within a
specified period of its receiving written notice thereof. New World Pasta has
the right under the Procurement Agreement to inspect Miller Milling Company's
purchase and manufacturing records. In addition, the Procurement Agreement
contains customary indemnification provisions for both parties.
FRESNO MILL AGREEMENT
Pursuant to a multi-year Amended and Restated Mill Agreement, dated March
1, 1998, as amended, between Miller Milling Company and New World Pasta, we have
agreed to purchase from Miller Milling Company a substantial portion of the
semolina needs of our Fresno, California plant. We will purchase semolina milled
at Miller Milling Company's Fresno, California mill at a price which we believe
is commercially favorable.
The Fresno Mill Agreement may be terminated by either party if the other
defaults and the default is not cured within a specified period. In addition, we
have the right to inspect Miller Milling Company's Fresno mill.
WINCHESTER MILL AGREEMENT
Pursuant to a multi-year Mill Agreement, dated January 28, 1999, among
Miller Milling Company, Winchester Pasta, L.L.C., a wholly owned subsidiary of
New World Pasta, and New World Pasta, we have agreed to purchase from Miller
Milling Company substantially all of the semolina needs of our Winchester,
Virginia plant. Under some circumstances, we will purchase from Miller Milling
Company a significant portion of our semolina requirements for our Lebanon,
Pennsylvania plant. We will purchase semolina from Miller Milling Company's
Winchester mill at a price which we believe is commercially favorable.
We may inspect Miller Milling Company's Winchester mill and Miller Milling
Company's books and records on request. The Winchester Mill Agreement may be
terminated by either party if the other defaults and the default is not cured
within a specified period.
WINCHESTER LEASE
Miller Milling Company's Winchester mill is located on real property owned
by Winchester Pasta, L.L.C. and leased to Miller Milling Company pursuant to an
Amended
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and Restated Ground Lease, dated July 29, 1998, between Winchester Pasta, L.L.C.
f/k/a Hershey Pasta Group Winchester, Inc. and Miller Milling Company. The rent
under the Winchester Lease has been prepaid in full through the end of the term,
including the extension terms. In consideration of this prepayment, we have
agreed to transfer the land underlying Miller Milling Company's Winchester Mill
to Miller Milling Company for nominal consideration.
TRANSITIONAL SERVICES AGREEMENT
New World Pasta is a party to a Transitional Services Agreement, dated as
of January 28, 1999, with Hershey Foods Corporation, pursuant to which, for a
period generally not to exceed six months from January 28, 1999, Hershey Foods
Corporation has agreed to provide specified services, including leased office
space and office services, systems technology services, transition support for
open positions, telephone, copier and fax services, consumer relations services,
benefits administration and international pasta sales to New World Pasta, and we
have agreed to provide crisp rice manufacturing services to Hershey Foods
Corporation, in each case approximately at the service provider's cost plus a
nominal profit. As of June 1, 1999, we have assumed responsibility for leased
office space, office services, transition support for open positions, and
telephone, copier and fax services, and the portions of the Transitional
Services Agreement related to these services have been terminated.
EMPLOYMENT AGREEMENTS
New World Pasta is party to employment agreements with Messrs. Skinner,
Miller and Snow, each of whom is an executive officer and director of New World
Pasta. For further information regarding the terms of these employment
agreements, see "Management -- Employment Agreements."
TAX SHARING AGREEMENT
New World Pasta and its current subsidiaries are included in New World
Pasta, LLC's consolidated group for U.S. federal income tax purposes as well as
in some consolidated, combined or unitary groups which include New World Pasta,
LLC for state, local and foreign income tax purposes. New World Pasta and New
World Pasta, LLC have entered into a Tax Sharing Agreement in connection with
the recapitalization in which our current principals acquired control of New
World Pasta. Pursuant to the Tax Sharing Agreement, we generally will make
payments to New World Pasta, LLC such that, with respect to tax returns for any
taxable period in which we or any of our subsidiaries is included in the
consolidated group or any combined group, the amount of taxes to be paid by New
World Pasta will be determined, subject to specified adjustments, as if New
World Pasta and each of its subsidiaries included in the consolidated group or
combined group filed their own consolidated, combined or unitary tax return. New
World Pasta and New World Pasta, LLC will prepare pro forma tax returns with
respect to any tax return filed with respect to the consolidated group or any
combined group in order to determine the amount of tax sharing payments under
the Tax Sharing Agreement. The Tax Sharing Agreement does not alter our general
responsibility for any taxes with respect to tax returns that include only New
World Pasta and its subsidiaries.
New World Pasta, LLC will be responsible for filing any tax return with
respect to the consolidated group or any combined group. Pursuant to the Tax
Sharing Agreement, we will be responsible for preparing these tax returns. The
Tax Sharing Agreement does
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not alter our general responsibility for preparing and filing any tax returns
that include only New World Pasta and its subsidiaries.
New World Pasta, LLC will be primarily responsible for controlling and
contesting any audit or other tax proceeding with respect to the consolidated
group or any combined group. Pursuant to the Tax Sharing Agreement, we will
conduct the contest of any audit or tax proceeding that relates to any tax
return which New World Pasta is responsible for preparing. However, the entering
into of any settlement or agreement or any decision in connection with any
judicial or administrative tax proceeding will be subject to the control of New
World Pasta, LLC.
Each member of a consolidated group for U.S. federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. Accordingly, although the Tax Sharing
Agreement allocates tax liabilities between New World Pasta and New World Pasta,
LLC, for any period in which New World Pasta was included in the consolidated
group, we could be liable in the event that any federal tax liability was
incurred, but not discharged, by any other member of the consolidated group.
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DESCRIPTION OF THE NOTES
The old notes were issued and the new notes will be issued under the
indenture, dated as of February 19, 1999, by and among New World Pasta, New
World Pasta's wholly owned subsidiaries, Pasta Group, L.L.C. and Winchester
Pasta, L.L.C. as guarantors, and The Bank of New York, as trustee. The following
summary of the indenture does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Trust Indenture Act and to all
of the provisions of the indenture, including the definitions of various terms
in the indenture and those terms made a part of the indenture by reference to
the Trust Indenture Act as in effect on the date of the indenture.
The indenture is attached as an exhibit to the registration statement of
which this prospectus forms a part and is incorporated by reference in this
prospectus in its entirety. A copy of the indenture may be obtained from New
World Pasta by any holder of the notes upon request. Please refer to the section
below captioned "-- Definitions" for the definitions of capitalized terms used
in this section of the prospectus and not otherwise defined. Review of the
defined terms found in that section is necessary to an understanding of the
restrictions and limitations imposed on New World Pasta by the notes and the
indenture. For purposes of this description, references to "New World Pasta"
include only New World Pasta Company and not its subsidiaries.
GENERAL
The notes are general unsecured obligations of New World Pasta, ranking
subordinate in right of payment to all Senior Indebtedness of New World Pasta,
equal in right of payment with all senior subordinated Indebtedness of New World
Pasta and senior in right of payment to all junior subordinated Indebtedness of
New World Pasta. The notes are effectively subordinated to all Indebtedness of
New World Pasta's subsidiaries, other than Restricted Subsidiaries that are
parties to the subsidiary guarantees described below.
The notes are guaranteed by
(x) each subsidiary of New World Pasta on the date of original
issuance of the old notes and
(y) each Restricted Subsidiary of New World Pasta which becomes a
subsidiary guarantor after the date of original issuance of the old notes
in accordance with the provisions of the indenture as described below.
The subsidiary guarantees of the notes are general unsecured obligations of the
respective subsidiary guarantor, ranking subordinate in right of payment to all
Guarantor Senior Indebtedness of the respective subsidiary guarantor, equal in
right of payment with all senior subordinated Indebtedness of the respective
subsidiary guarantor and senior in right of payment to all junior subordinated
Indebtedness of the respective subsidiary guarantor. Not all subsidiaries of New
World Pasta will be required to guarantee the notes. Furthermore, if a
subsidiary of New World Pasta is, or becomes, a subsidiary guarantor, such
subsidiary guarantor may be released from its obligations pursuant to the
respective subsidiary guarantee as described below under "-- Covenants --
Limitation of Guarantees by Restricted Subsidiaries."
At the date of this prospectus, all subsidiaries of New World Pasta are
Restricted Subsidiaries. However, in accordance with the definition of
Unrestricted Subsidiary, some Subsidiaries of New World Pasta may in the future
be designated as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive
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covenants contained in the indenture. Unrestricted Subsidiaries will not
guarantee the notes.
The old notes were, and the new notes will be, issued in fully registered
form only, without coupons, in denominations of $1,000 and integral multiples
thereof. Initially, the trustee will act as paying agent and registrar for the
new notes. The new notes may be presented for registration or transfer and
exchange at the offices of the registrar, which initially will be the trustee's
corporate trust office. New World Pasta may change any paying agent and
registrar without notice to holders of the notes. New World Pasta will pay
principal -- and premium, if any -- on the notes at the trustee's corporate
trust office in New York, New York. At New World Pasta's option, interest may be
paid at the trustee's principal corporate trust office or by check mailed to the
registered addresses of the holders. Any old notes that remain outstanding after
the completion of the exchange offer, together with the new notes issued in
connection with the exchange offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The notes in an aggregate principal amount of $160.0 million will mature on
February 15, 2009. Additional notes may be issued from time to time, subject to
the limitations set forth under "-- Covenants -- Limitation on Incurrence of
Indebtedness." Interest on the notes will accrue at the rate of 9 1/4% per annum
and will be payable semiannually in cash on each August 15 and February 15,
commencing on August 15, 1999, to the persons who are registered holders at the
close of business on the August 1 and February 1 immediately preceding the
applicable interest payment date. Interest on the notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from and including the date of issuance. In addition to interest payable
as described above, additional amounts may be payable from time to time as
liquidated damages in the amounts, and in the circumstances, described above
under the caption "Exchange Offer -- Registration Rights."
MANDATORY REDEMPTION
New World Pasta is not required to make mandatory redemption or sinking
fund payment with respect to the notes.
OPTIONAL REDEMPTION
GENERAL. The notes are redeemable, at New World Pasta's option, in whole
at any time or in part from time to time, on and after February 15, 2004, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices -- expressed as percentages of the principal amount thereof -- if
redeemed during the twelve-month period commencing on February 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon and
liquidated damages, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004................................................ 104.6250%
2005................................................ 103.0833%
2006................................................ 101.5417%
2007 and thereafter................................. 100.0000%
</TABLE>
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. At any time, or from time to
time, on or prior to February 15, 2002, New World Pasta may, at its option, use
the net cash
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proceeds of one or more Equity Offerings, as defined below, to redeem up to 35%
of the sum of:
(1) the initial aggregate principal amount of old notes issued in the
original offering and
(2) the respective initial aggregate principal amounts of notes issued
under the indenture after the date of original issuance of the old notes,
at a redemption price equal to 109.25% of the principal amount thereof plus
accrued and unpaid interest thereon and liquidated damages, if any, to the date
of redemption. However, at least 65% of the sum of:
(1) the initial aggregate principal amount of old notes issued in the
original offering, and
(2) the respective initial aggregate principal amounts of notes issued
under the indenture after the date of original issuance of the old notes remains
outstanding immediately after any such redemption.
In order to effect the foregoing redemption with the proceeds of any Equity
Offering, New World Pasta must make such redemption not more than 120 days after
the completion of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any issuance or
sale after the date of original issuance of the old notes by New World Pasta of
Qualified Capital Stock.
SELECTION AND NOTICE OF REDEMPTION. In the event that less than all of the
notes are to be redeemed at any time, selection of such notes for redemption
will be made by the trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the notes are listed or, if the
notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by any method as the trustee deems fair and appropriate.
However, no notes of a principal amount of $1,000 or less may be redeemed in
part. Notice of redemption must be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. If any note is to be redeemed in part only,
the notice of redemption that relates to the note must state the portion of the
principal amount thereof to be redeemed. A substitute note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on notes or portions thereof called for
redemption as long as New World Pasta has deposited with the paying agent funds
in satisfaction of the applicable redemption price under the indenture.
REPURCHASES AT THE OPTION OF HOLDERS
In the circumstances, and to the extent, provided below under:
(1) "-- Repurchase of Notes upon a Change of Control;" and
(2) "-- Covenants -- Limitation on Asset Sales;"
notes or portions thereof may be required to be purchased by New World Pasta at
the option of the holders of the notes.
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SUBORDINATION
The payment of all Obligations on the notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Indebtedness, whether outstanding on the date of original
issuance of the old notes or thereafter incurred, including, without limitation,
New World Pasta's obligations under its revolving credit facility. Except with
respect to the money, securities or proceeds held under any defeasance trust
established in accordance with the indenture, upon any payment or distribution
of assets of New World Pasta of any kind or character, whether in cash, property
or securities, to creditors upon any total or partial liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors or
marshaling of assets of New World Pasta or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to New World Pasta
or its property, whether voluntary or involuntary, all Obligations due or to
become due upon all Senior Indebtedness -- including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness, whether or not such interest is an allowed claim in such
proceeding -- shall first be paid in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of Senior
Indebtedness, before any payment or distribution of any kind or character is
made on account of any Obligations on the notes, or for the acquisition of any
of the notes for cash or property or otherwise.
If any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Designated Senior Indebtedness, no
payment of any kind or character -- other than with the money, securities or
proceeds held under any defeasance trust established in accordance with the
indenture -- must be made by or on behalf of New World Pasta or any other Person
on its or their behalf with respect to any obligations on the notes or to
acquire any of the notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders -- without any notice or lapse of time,
except any required notice of acceleration -- of such Designated Senior
Indebtedness then outstanding to accelerate the maturity thereof and if the
representative for the respective issue of Designated Senior Indebtedness gives
written notice of the event of default to the trustee, then, unless and until
all events of default specified in the default notice have been cured or waived
or have ceased to exist or the trustee receives notice from the representative
for the respective issue of Designated Senior Indebtedness terminating the
Blockage Period (as defined below), during the 179 days after the delivery of
such default notice (the "Blockage Period"), neither New World Pasta nor any
other Person on its behalf shall -- other than with the money, securities or
proceeds held under any defeasance trust established in accordance with the
indenture --
(1) make any payment of any kind or character with respect to any
Obligations on the notes or
(2) acquire any of the notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 179 days from the date the payment on the notes was due,
and only one such Blockage Period may be commenced within any 360 consecutive
days. No event of default which existed or was continuing on the date of the
commencement of any Blockage Period
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with respect to the Designated Senior Indebtedness shall be, or be made, the
basis for commencement of a second Blockage Period by the representative of such
Designated Senior Indebtedness whether or not within a period of 360 consecutive
days, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days -- it being acknowledged that any
subsequent action, or any breach of any financial covenants for a period
commencing after the date of commencement of such Blockage Period that, in
either case, would give rise to an event of default pursuant to any provisions
under which an event of default previously existed or was continuing shall
constitute a new event of default for this purpose.
By reason of such subordination, in the event of the insolvency of New
World Pasta, creditors of New World Pasta who are not holders of Senior
Indebtedness, including the holders of the notes, may recover less, ratably,
than holders of Senior Indebtedness.
As of April 4, 1999, after giving effect to the offering of the old notes
and the recapitalization in which our current principals acquired control of New
World Pasta, New World Pasta would have had approximately $150.0 million of
Senior Indebtedness outstanding, and unused and available commitments of $50.0
million under its revolving credit facility, and the subsidiary guarantors would
have had no Guarantor Senior Indebtedness outstanding, other than guarantees of
Senior Indebtedness.
SUBSIDIARY GUARANTEES
Each subsidiary guarantor unconditionally guarantees, on an unsecured
senior subordinated basis, jointly and severally, to each holder and the
trustee, the full and prompt performance of New World Pasta's obligations under
the indenture and the notes, including the payment of principal of and interest
on -- and liquidated damages with respect to -- the notes. The subsidiary
guarantees are subordinated to Guarantor Senior Indebtedness on the same basis
as the notes are subordinated to Senior Indebtedness.
The obligations of each subsidiary guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of the subsidiary guarantor and after giving effect to any collections from or
payments made by or on behalf of any other subsidiary guarantor in respect of
the obligations of such other subsidiary guarantor under its subsidiary
guarantee or pursuant to its contribution obligations under the indenture, will
result in the obligations of such subsidiary guarantor under the subsidiary
guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each subsidiary guarantor that makes a payment or
distribution under a subsidiary guarantee is entitled to a contribution from
each other subsidiary guarantor in an amount pro rata, based on the net assets
of each subsidiary guarantor, determined in accordance with GAAP. For further
information regarding the risk that the subsidiary guarantees may be deemed to
be fraudulent conveyances, see "Risk Factors -- Our Subsidiaries' Guarantees
Could Be Void If They are Found by a Court To Be Fraudulent Conveyances."
Each subsidiary guarantor may consolidate with or merge into or sell its
assets to New World Pasta or another subsidiary that is a Restricted Subsidiary
of New World Pasta without limitation, or with other Persons upon the terms and
conditions set forth in the indenture. For further information regarding mergers
and consolidations of the subsidiary guarantors, please refer to the section of
this prospectus entitled "-- Covenants -- Merger, Consolidation and Sale of
Assets." Under some circumstances a subsidiary guarantor's subsidiary guarantee
will be released. For further information regarding the release of
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subsidiary guarantors, please refer to the section of this prospectus entitled
"-- Covenants -- Limitation of Guarantees by Restricted Subsidiaries."
Separate financial statements of the subsidiary guarantors are not included
herein because such subsidiary guarantors are jointly and severally liable with
respect to New World Pasta's obligations pursuant to the notes, and the
aggregate net assets, earnings and equity of the subsidiary guarantors and New
World Pasta are substantially equivalent to the net assets, earnings and equity
of New World Pasta on a consolidated basis. However, summarized financial
information of the subsidiary guarantors has been included in note 9 to the
historical combined financial statements of New World Pasta included elsewhere
in this prospectus.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
New World Pasta must commence, within 30 days of the occurrence of a Change
of Control, and complete an Offer to Purchase for all notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest and liquidated damages, if any, to the payment date. As defined below
under "-- Definitions," a Change of Control will be deemed to have occurred,
among other things, in the event that New World Pasta engages in a sale of all
or substantially all of its assets and those of its Restricted Subsidiaries.
Under New York law, which is the law that governs the indenture, the term "all
or substantially all" has no clearly established meaning and has been the
subject of limited judicial interpretation in only a few jurisdictions.
Accordingly, there may be a degree of uncertainty in determining whether any
particular transaction involves a sale of "all or substantially all" of the
assets of New World Pasta and its Restricted Subsidiaries and that uncertainty
should be taken into account by holders of old notes in deciding whether to
tender in the exchange offer.
In the event that New World Pasta commences an Offer to Purchase following
the occurrence of a Change of Control, New World Pasta will comply with the
provisions of Rule 14e-1 under the Exchange Act. Accordingly, any such Offer to
Purchase will remain open for a minimum of twenty business days and will
generally comply with the other provisions of Rule 14e-1 applicable to
transactions of this kind.
There can be no assurance that New World Pasta will have sufficient funds
available at the time of any Change of Control to make any debt
payment -- including repurchases of notes -- required by the foregoing covenant,
as well as any covenants that may be contained in other Indebtedness of New
World Pasta which might be outstanding at the time. The above covenant requiring
New World Pasta to repurchase the notes will, unless consents are obtained,
require New World Pasta to repay all Indebtedness then outstanding which by its
terms would prohibit such note repurchase, including, without limitation, the
revolving credit facility, either prior to or concurrently with such note
repurchase.
COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF INDEBTEDNESS. New World Pasta will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
incur any Indebtedness. However, New World Pasta may incur
Indebtedness -- including, without limitation, Acquired Indebtedness incurred by
New World Pasta, if in each case on the date of the incurrence of such
Indebtedness and after giving effect thereto, the Consolidated Fixed Charge
Coverage Ratio is greater than 2.0 to 1.0.
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The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted
Indebtedness"):
(1) Indebtedness under the old notes issued in the initial offering
and the new notes issued in exchange therefor in an aggregate principal
amount of $160,000,000 and the related subsidiary guarantees;
(2) Indebtedness of New World Pasta incurred pursuant to one or more
credit facilities in an aggregate principal amount at any time outstanding
not to exceed the sum of:
(a) $200,000,000 and
(b) the greater of (x) $50,000,000 and (y) 60% of inventory plus
85% of accounts receivable, each as determined in accordance with GAAP,
but excluding accounts receivable that are past due by more than 60
days, of New World Pasta and its Restricted Subsidiaries determined on a
consolidated basis as of the end of the last fiscal quarter for which
financial statements have been prepared.
In making the foregoing calculation, the amount of all principal payments
and commitment reductions under one or more Credit Facilities made with the
Net Cash Proceeds of one or more Asset Sales pursuant to the covenant
described under the caption "-- Covenants -- Limitation on Asset Sales" may
be applied, at the option of New World Pasta, to reduce the amounts
specified in clause (a) and/or (b) above. In the case of any application to
reduce clause (b) above, the amount so applied shall reduce both the
amounts specified in sub-clauses (x) and (y) thereof, so long as the
aggregate amount so applied to the amounts of Indebtedness permitted
pursuant to preceding clauses (a) and (b) equals the amount of the
principal payments and commitment reductions so made to the Credit
Facilities, until such time as the aggregate amount of Indebtedness
permitted under this clause (2) has been reduced to $0;
(3) Indebtedness arising from any agreement entered into by New World
Pasta or any of its Restricted Subsidiaries providing for indemnification,
purchase price adjustment or similar obligations -- other than guarantees
of Indebtedness incurred by any Person acquiring all or any portion of the
assets disposed of pursuant to the respective Asset Sale -- in each case
incurred or assumed in connection with any Asset Sale;
(4) Indebtedness under Interest Rate Agreements of New World Pasta or
any of its Restricted Subsidiaries; provided, however, that such Interest
Rate Agreements are entered into to protect New World Pasta and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the indenture to the extent the notional
principal amount of such Indebtedness under Interest Rate Agreements does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Agreements relate;
(5) Indebtedness under Currency Agreements designed to protect New
World Pasta or its Restricted Subsidiaries against fluctuations in foreign
currency exchange rates and not for speculative purposes;
(6) Indebtedness of a Restricted Subsidiary of New World Pasta to New
World Pasta or to a wholly owned Restricted Subsidiary of New World Pasta
for so long as such Indebtedness is held by New World Pasta, a wholly owned
Restricted Subsidiary of New World Pasta or the lenders or collateral agent
under one or more Credit
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Facilities in each case subject to no Lien held by a Person other than New
World Pasta, a wholly owned Restricted Subsidiary of New World Pasta or
such other lenders or collateral agent; provided that if as of any date any
Person other than New World Pasta, a wholly owned Restricted Subsidiary of
New World Pasta or the lenders or collateral agent under one or more Credit
Facilities owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness pursuant to this clause (6);
(7) Indebtedness of New World Pasta to a wholly owned Restricted
Subsidiary of New World Pasta for so long as such Indebtedness is held by a
wholly owned Restricted Subsidiary of New World Pasta or the lenders or
collateral agent under the Credit Facilities, in each case subject to no
Lien held by a Person other than a wholly owned Restricted Subsidiary or
such other lenders or collateral agent; provided that (a) any Indebtedness
of New World Pasta to any wholly owned Restricted Subsidiary of New World
Pasta which is not a subsidiary guarantor is unsecured and subordinated on
substantially the same terms as New World Pasta's obligations under the
indenture and the notes are subordinated to the Senior Indebtedness,
pursuant to a written agreement, to New World Pasta's obligations under the
indenture and the notes and (b) if as of any date any Person other than a
wholly owned Restricted Subsidiary of New World Pasta or such lenders or
collateral agent owns or holds any such Indebtedness or any Person holds a
Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by New
World Pasta pursuant to this clause (7);
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently -- except in the case of daylight overdrafts -- drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within ten business days of
incurrence;
(9) Indebtedness of New World Pasta or any of its Restricted
Subsidiaries represented by letters of credit for the account of New World
Pasta or such Restricted Subsidiary, as the case may be, issued in the
ordinary course of business of New World Pasta or such Restricted
Subsidiary, including, without limitation, in order to provide security for
workers' compensation claims or payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business
and other Indebtedness with respect to workers' compensation claims, self-
insurance obligations, performance, surety and similar bonds and completion
guarantees provided by New World Pasta or any Restricted Subsidiary in the
ordinary course of business;
(10) Indebtedness (A) consisting of Capitalized Lease Obligations and
(B) consisting of Purchase Money Indebtedness of New World Pasta and its
Restricted Subsidiaries or under purchase money mortgages or secured by
purchase money security interests, in the case of (A) or (B) incurred for
the purpose of leasing or financing or refinancing all or any part of the
purchase price or cost of construction or improvement of any property, real
or personal, or other assets that are used or useful in the business or New
World Pasta or such Restricted Subsidiary, whether through the direct
purchase of assets or the Capital Stock of any Person owning such assets
and whether such Indebtedness is owed to the seller or Person carrying out
such construction or improvement or to any third party, so long as (x) such
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Indebtedness is not secured by any property or assets of New World Pasta or
any Restricted Subsidiary other than the property or assets so leased,
acquired, directly or indirectly, constructed or improved and (y) such
Indebtedness is created within 90 days of the acquisition or completion of
construction or improvement of the related property or asset; provided that
the aggregate principal amount of Indebtedness at any time outstanding
pursuant to this clause (10), when added to the aggregate principal amount
of any Refinancing Indebtedness incurred in respect of Indebtedness
originally incurred pursuant to this clause (10) or subsequent refinancings
thereof, shall at no time exceed the greater of (x) $25,000,000 and (y) 10%
of Total Assets, at the time of any incurrence thereof;
(11) Refinancing Indebtedness;
(12) Guarantees of Indebtedness otherwise permitted under the
indenture; provided that the guarantee of such Indebtedness is permitted by
and made in accordance with the "Limitation of Guarantees by Restricted
Subsidiaries" covenant described below;
(13) Acquired Indebtedness of Restricted Subsidiaries acquired by New
World Pasta after the date of original issuance of the old notes, or
resulting from the merger of one or more persons into one or more
Restricted Subsidiaries of New World Pasta after the date of original
issuance of the old notes; provided that the respective Acquired
Indebtedness is not incurred in contemplation of the respective acquisition
or merger; and, provided further, that after giving effect to any
Indebtedness incurred, acquired or assumed pursuant to this clause (13),
New World Pasta would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of this "Limitation of
Incurrence of Indebtedness" covenant;
(14) Obligations in respect of performance and surety bonds and
completion guarantees provided by New World Pasta or any Restricted
Subsidiary in the ordinary course of business;
(15) Indebtedness consisting of deferred payment obligations under
Section 2.7 of the Recapitalization Agreement; and
(16) additional Indebtedness of New World Pasta and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $40,000,000 at
any one time outstanding, which amount may, but need not, be incurred in
whole or in part under New World Pasta's revolving credit facility.
Notwithstanding any other provision of the "Limitation on Incurrence of
Indebtedness" covenant,
(x) all Indebtedness of New World Pasta and its Restricted
Subsidiaries outstanding on the date of original issuance of the old notes
was deemed incurred on the date of original issuance of the old notes and
was only permitted to be outstanding on such date if same would be
permitted to be incurred on such date pursuant to the provisions of the
covenant and
(y) the maximum amount of Indebtedness that New World Pasta or a
Restricted Subsidiary may incur pursuant to the "Limitation on Incurrence
of Indebtedness" covenant was not deemed to be exceeded, with respect to
any outstanding Indebtedness, due solely to the result of fluctuations in
the exchange rates of currencies.
For the purposes of determining compliance with this covenant,
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(x) Indebtedness incurred under New World Pasta's revolving credit
facility on or prior to the date of original issuance of the old notes was
treated as incurred pursuant to clause (2) of the immediately preceding
paragraph and
(y) subject to the provisions of preceding clause (x), in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness or is otherwise entitled to be
incurred pursuant to this covenant, New World Pasta shall, in its sole
discretion, classify -- or reclassify -- such item of Indebtedness in any
manner that complies with this covenant and such items of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph thereof.
Accrual of interest or accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant. Accruals of dividends
or the payment of dividends through the issuance of additional shares of the
same class of Capital Stock in accordance with the provisions thereof permitting
such pay-in-kind dividends will not be deemed an issuance of Capital Stock for
purposes of this covenant.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. Neither New World
Pasta nor the subsidiary guarantors will incur or allow to exist Indebtedness
that is senior in right of payment to the notes or the subsidiary guarantees, as
the case may be, and subordinate in right of payment to any other Indebtedness
of New World Pasta or the subsidiary guarantors, as the case may be.
LIMITATION ON LIENS. Neither New World Pasta nor any subsidiary guarantor
shall incur or allow to exist any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, unless contemporaneously therewith effective
provision is made to secure the notes or the subsidiary guarantee, as the case
may be, equally and ratably with -- or, if the Secured Indebtedness is
subordinated in right of payment to the notes, or the subsidiary guarantee, as
the case may be, prior to -- such Secured Indebtedness for so long as such
Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. New World Pasta will not, and will not
permit any Restricted Subsidiary to, directly or indirectly,
(1) declare or pay any dividend or make any distribution on or with respect
to its Capital Stock held by Persons other than New World Pasta or any of its
Restricted Subsidiaries, other than
(a) dividends or distributions payable solely in shares of its
Qualified Capital Stock or in options, warrants or other rights to acquire
shares of such Qualified Capital Stock, so long as, in the case of any
Restricted Subsidiary, the Qualified Capital Stock is issued in accordance
with the other relevant requirements of the indenture, and
(b) pro rata dividends or distributions on common stock of Restricted
Subsidiaries held by minority stockholders,
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of
(a) New World Pasta or an Unrestricted Subsidiary, including options,
warrants or other rights to acquire such shares of Capital Stock, held by
any Person, other than New World Pasta or a wholly owned Restricted
Subsidiary, or
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(b) a Restricted Subsidiary -- including options, warrants or other
rights to acquire such shares of Capital Stock, held by any affiliate of
New World Pasta, other than a wholly owned Restricted Subsidiary, or any
holder, or any affiliate of such holder, of 5% or more of the Capital Stock
of New World Pasta,
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or retirement
for value, of Indebtedness of New World Pasta or any subsidiary guarantor that
is subordinated in right of payment to the notes or a subsidiary guarantee or
(4) make any Investment -- including, without limitation, any Investment
deemed made upon
(a) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary or
(b) any Restricted Subsidiary ceasing to constitute a Restricted
Subsidiary, in each case in accordance with the definition of Investment
below -- other than a Permitted Investment, in any Person -- such payments
or any other actions described in clauses (1) through (4) above being
collectively "Restricted Payments" -- if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing,
(B) New World Pasta could not incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Incurrence of
Indebtedness" covenant, or
(C) the aggregate amount of all Restricted Payments -- the amount,
if other than in cash, to be determined in good faith by the board of
directors, whose determination shall be conclusive and evidenced by a
resolution of the board of directors -- made after the Closing Date
shall exceed the sum of:
(1) 50% of the aggregate amount of the Adjusted Consolidated
Net Income -- or, if the Adjusted Consolidated Net Income is a
loss, minus 100% of the amount of such loss, determined by
excluding income resulting from transfers of assets by New World
Pasta or a Restricted Subsidiary to an Unrestricted Subsidiary,
accrued on a cumulative basis during the period, taken as one
accounting period beginning on the date of original issuance of the
old notes and ending on the last day of the last fiscal quarter
preceding the date of the respective Restricted Payment for which
annual or quarterly financial statements, as the case may be, are
available; plus
(2) the aggregate Net Cash Proceeds received by New World
Pasta after the date of original issuance of the old notes from the
issuance and sale permitted by the indenture of its Qualified
Capital Stock to -- or, without duplication, from the receipt of
capital contributions, so long as the equity in respect of which
the capital contributions are made constitutes Qualified Capital
Stock of New World Pasta, from -- a Person who is not a subsidiary
of New World Pasta, including an issuance or sale permitted by the
indenture of Indebtedness of New World Pasta for cash subsequent to
the date of original issuance of the old notes upon the conversion
of such Indebtedness into Qualified Capital Stock of New World
Pasta and including any additional proceeds received by New World
Pasta upon such conversion, or from the issuance to a Person who is
not a subsidiary of New World Pasta of any options, warrants or
other rights to acquire Qualified
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Capital Stock of New World Pasta -- in each case, exclusive of any
options, warrants or other rights that are redeemable at the option
of the holder, or are required to be redeemed, prior to the Stated
Maturity of the notes; provided that there shall not be included
pursuant to this clause (2) any Net Cash Proceeds (a) of any
issuance of Designated Preferred Stock -- or options, warrants or
other rights to acquire same, (b) which are, or will be, used to
make Permitted Investments pursuant to clause (13) of the
definition of Permitted Investment below; plus
(3) an amount equal to the net reduction in Investments made
after the date of original issuance of the old notes -- other than
reductions in Permitted Investments -- in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to
New World Pasta or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment -- except, in each
case, to the extent any such payment or proceeds are included in
the calculation of Adjusted Consolidated Net Income, or from
redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries, valued in each case as provided in the definition of
"Investments," not to exceed, in each case, the amount of
Investments previously made by New World Pasta or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, subordinated
Refinancing Indebtedness incurred under clause (11) of the second paragraph
of the "Limitation on Incurrence of Indebtedness" covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock
of New World Pasta, an Unrestricted Subsidiary or a Restricted
Subsidiary -- or options, warrants or other rights to acquire such Capital
Stock -- in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of Qualified Capital Stock of New World
Pasta or options, warrants or other rights to acquire such Qualified
Capital Stock;
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of
New World Pasta which is subordinated in right of payment to the notes in
exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of the Qualified Capital Stock of New World Pasta or
options, warrants or other rights to acquire such Qualified Capital Stock;
(5) distributions made by New World Pasta on the date of original
issuance of the old notes that were utilized solely to consummate the
recapitalization in which New World Pasta's current principals acquired
control of New World Pasta and distributions made subsequent to the date of
original issuance of the old notes in order to make payments pursuant to
the recapitalization agreement, as in effect on the date
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of original issuance of the old notes and as amended from time to time so
long as any such amendment or modification is, in the good faith judgment
of the board of directors, not more disadvantageous to the holders of notes
in any material respect than the Recapitalization Agreement as in effect on
the date of original issuance of the old notes;
(6) repurchases by New World Pasta Capital Stock, or options therefor,
of New World Pasta from directors, officers or employees of New World Pasta
or any of its Restricted Subsidiaries or their authorized representatives
upon the death, disability or termination of employment of such officers or
employees, in an aggregate amount not to exceed, in any calendar year,
$2,000,000; provided that unused amounts in any calendar year -- beginning
with calendar year 1999 -- may be carried forward and used to make
repurchases as described above in this clause (6) in any succeeding
calendar year; provided further, that the aggregate amount spent pursuant
to this clause (6) in any calendar year -- both pursuant to the immediately
preceding proviso and the portion of this clause (6) which precedes said
proviso -- does not exceed $4,000,000 in any calendar year;
(7) the declaration and payment of regularly accruing dividends to
holders of any class or series of Disqualified Capital Stock of New World
Pasta or its Restricted Subsidiaries or the declaration and payment of
regularly accruing dividends to holders of preferred stock of Restricted
Subsidiaries, in each case, issued after the date of original issuance of
the old notes in accordance with the "Limitation on Incurrence of
Indebtedness" covenant;
(8) the declaration and payment of regularly accruing dividends to
holders of any class or series of Designated Preferred Stock of New World
Pasta issued after the date of original issuance of the old notes; provided
that at the time of such issuance, and after giving effect to such issuance
on a pro forma basis -- for purposes of making determinations on a pro
forma basis pursuant to this clause (8), treating all dividends which will
accrue on such Designated Preferred Stock, as well as all other Designated
Preferred Stock then outstanding, as if same will in fact be, or have in
fact been, paid in cash -- New World Pasta would have been able to incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of
the "Limitation on Incurrence of Indebtedness" covenant; and
(9) Restricted Payments in an aggregate amount not to exceed
$15,000,000;
provided that, except in the case of clauses (1), (3) and (5), no Default or
Event of Default shall have occurred and be continuing or occur as a consequence
of the actions or payments set forth therein.
Except as set forth in the next sentence, each Restricted Payment and
issuance of Capital Stock described in the preceding paragraph shall be included
in calculating whether the conditions of clause (C) of the first paragraph of
this "Limitation on Restricted Payments" covenant have been met with respect to
any subsequent Restricted Payments. The following Restricted Payments described
in the preceding paragraph shall not be included in such calculation:
(x) Restricted Payments described in clauses (2), (5), (8) and (9);
and
(y) an exchange of Capital Stock for Capital Stock or Indebtedness
described in clause (3) or (4).
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In the event the proceeds of an issuance of Capital Stock of New World
Pasta are used for the redemption, repurchase or other acquisition of the notes,
or Indebtedness that is ranked equally with the notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness. For purposes of determining compliance with this "Limitation on
Restricted Payments" covenant, in the event that a Restricted Payment meets the
criteria of more than one of the types of Restricted Payments described in the
above clauses, New World Pasta, in its sole discretion, may order and classify,
and from time to time may reclassify, such Restricted Payment if it would have
been permitted at the time such Restricted Payment was made and at the time of
such reclassification.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. New World Pasta will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or allow to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
New World Pasta or any other Restricted Subsidiary;
(2) pay any Indebtedness owed to New World Pasta or any other
Restricted Subsidiary;
(3) make loans or advances to New World Pasta or any other Restricted
Subsidiary; or
(4) transfer any of its property or assets to New World Pasta or any
other Restricted Subsidiary.
However, the foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the date of original issuance of the old notes in New
World Pasta's revolving credit facility, the indenture or any other
agreements in effect on the date of original issuance of the old notes, and
any extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced;
(2) existing under or by reason of applicable law;
(3) existing with respect to any Person or the property or assets of
such Person acquired by New World Pasta or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired;
(4) in the case of clause (4) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of New World
Pasta or any Restricted Subsidiary not otherwise prohibited by the
indenture or (C) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness, and that
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do not, individually or in the aggregate, detract from the value of
property or assets of New World Pasta or any Restricted Subsidiary in any
manner material to New World Pasta or any Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary, pending such sale or disposition;
(6) existing under purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature
discussed in clause (4) above on the property so acquired;
(7) existing under applicable law or any applicable rule, regulation
or order;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such subsidiary;
(9) existing under Secured Indebtedness otherwise permitted to be
incurred pursuant to the "Limitation on Incurrence of Indebtedness" and
"Limitation on Liens" covenants that limit the right of the debtor to
dispose of the assets securing such Indebtedness;
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts -- not evidencing or relating to
Indebtedness -- entered into in the ordinary course of business; and
(11) existing under customary provisions in joint venture agreements
and other similar agreements -- in each case relating solely to the
respective joint venture or similar entity or the equity interests
therein -- entered into in the ordinary course of business.
Nothing contained in the "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent New World
Pasta or any Restricted Subsidiary from
(1) creating, incurring, assuming or suffering to exist any Liens
otherwise permitted in the "Limitation on Liens" covenant or
(2) restricting the sale or other disposition of property or assets of
New World Pasta or any of its Restricted Subsidiaries that secure
Indebtedness of New World Pasta or any of its Restricted Subsidiaries.
LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES. New World Pasta will
not permit any of its Restricted Subsidiaries directly or indirectly to
guarantee any Indebtedness of New World Pasta or any other Restricted
Subsidiary -- excluding any guarantee of a Restricted Subsidiary which
constitutes Acquired Indebtedness of such subsidiary, so long as such guarantee
does not apply to Indebtedness pursuant to New World Pasta's revolving credit
facility or any other Indebtedness of New World Pasta and its Restricted
Subsidiaries not acquired pursuant to the respective acquisition or merger --
unless, in any such case,
(a) such Restricted Subsidiary executes and delivers a supplemental
indenture to the indenture providing a subsidiary guarantee by such
Restricted Subsidiary and
(b) if any such guarantee of such Restricted Subsidiary is provided in
respect of Indebtedness that is expressly subordinated to the notes, such
guarantee or other instrument provided by such Restricted Subsidiary in
respect of such subordinated
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Indebtedness shall be subordinated to the subsidiary guarantee pursuant to
subordination provisions no less favorable to the holders of the notes than
those contained in the indenture.
Notwithstanding the foregoing, any such subsidiary guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be automatically
and unconditionally released and discharged, without any further action required
on the part of the trustee or any holder, upon:
(1) the release and discharge of the guarantee which resulted in the
creation of such subsidiary guarantee -- as well as the release or
discharge of any subsequently created guarantees which would have resulted
in the creation of such subsidiary guarantee if same did not already exist,
in each case except a discharge or release by or as a result of payment
under such guarantee;
(2) any sale or other disposition, by merger or otherwise, to any
Person which is not a Restricted Subsidiary of New World Pasta of all of
New World Pasta's and its other Restricted Subsidiaries' Capital Stock in
such Restricted Subsidiary; provided that such sale or disposition of such
Capital Stock or assets is otherwise in compliance with the terms of the
indenture;
(3) the designation of such subsidiary as an Unrestricted Subsidiary
in accordance with the provisions of the indenture; or
(4) the sale or other disposition of shares of Capital Stock of such
subsidiary to a Person other than New World Pasta or a Restricted
Subsidiary such that such subsidiary ceases to constitute a subsidiary of
New World Pasta, provided such disposition is otherwise in accordance with
the provisions of the indenture.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. New World
Pasta will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction -- including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service -- with any holder, or any affiliate of such holder, of
5% or more of any class of Capital Stock of New World Pasta or with any
affiliate of New World Pasta or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to New World Pasta or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's length transaction with
a Person that is not such a holder or an affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the disinterested
members of the board of directors or (B) for which New World Pasta or a
Restricted Subsidiary delivers to the trustee a written opinion of a
nationally recognized accounting, valuation or investment banking firm
stating that the transaction is fair to New World Pasta or such Restricted
Subsidiary from a financial point of view;
(2) any transaction solely between New World Pasta and any of its
wholly owned Restricted Subsidiaries or solely between wholly owned
Restricted Subsidiaries;
(3) management and administrative services provided by New World Pasta
or any Restricted Subsidiary to any Restricted Subsidiary or any Person in
which New World Pasta or any Restricted Subsidiary has an Investment;
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(4) the payment of reasonable and customary regular fees to directors
of New World Pasta;
(5) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(6) issuances of Qualified Capital Stock of New World Pasta, to the
extent otherwise permitted under the indenture, to the Principals and the
Management Investor and its equity holders;
(7) customary investment banking, underwriting, placement agent or
financial advisory fees paid in connection with services rendered to New
World Pasta or its subsidiaries;
(8) management fees (x) paid to the Management Investor in amounts not
to exceed $400,000 in any calendar year and (y) to JLL Fund III in amounts
not to exceed $500,000 in any calendar year;
(9) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, employee stock options and employee stock ownership plans
approved by the board of directors;
(10) loans or advances to employees in the ordinary course of business
of New World Pasta or any of its Restricted Subsidiaries consistent with
past practices;
(11) the existence of, or the performance by New World Pasta or any of
its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement -- including any registration rights agreement or
purchase agreement related thereto -- to which it is a party as of the date
of original issuance of the old notes and any similar agreements which it
may enter into thereafter, in each case subject to compliance with the
other provisions of the indenture; provided, however, that the existence,
or the performance by New World Pasta or any of its Restricted Subsidiaries
of obligations under any future amendment to any such existing agreement or
under any similar agreement entered into after the date of original
issuance of the old notes shall only be permitted by this clause (11) to
the extent that the terms, taken as a whole, of any such amendment or new
agreement are not otherwise disadvantageous to the holders in any material
respect;
(12) arrangements with Miller Milling Company relating to the
procurement of raw materials on behalf of New World Pasta and its
Restricted Subsidiaries, so long as the respective arrangements are
pursuant to terms which have been approved by the majority of the
disinterested members of the board of directors;
(13) any Permitted Investment made pursuant to clause (12) of the
definition of Permitted Investment contained herein;
(14) Mr. Miller Real Property Transactions;
(15) the entering into of agreements with lenders to Miller Milling
Company, pursuant to which New World Pasta and its subsidiaries (a) consent
to such lenders' liens on Miller Milling Company's assets, and (b) agree to
subordinate any rights of first refusal they may have against such assets;
and
(16) payments made pursuant to the following conditions: if New World
Pasta is to file consolidated federal income tax returns with New World
Pasta, L.L.C. or combined or unitary state income tax returns with New
World Pasta, L.L.C., New
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World Pasta may enter into a tax sharing agreement with New World Pasta,
L.L.C. and may pay to New World Pasta, L.L.C. amounts when due and payable
pursuant to such tax sharing agreement in respect of amounts of tax due
with respect to such consolidated, combined or unitary returns, as the case
may be, in each case in an amount not to exceed the amount of tax that New
World Pasta would have been obligated to pay to the appropriate taxing
authority if New World Pasta and its subsidiaries had filed a hypothetical
separate consolidated, combined or unitary return for the then current year
and all prior years ending after the date of original issuance of the old
notes.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of the "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by clauses (2)
through (16) thereof (a) the aggregate amount of which exceeds $5,000,000 in
value, must be approved or determined to be fair in the manner provided for in
clause (1)(A) or (B) above and (b) the aggregate amount of which exceeds
$10,000,000 in value, must be determined to be fair in the manner provided for
in clause (1)(B) above.
LIMITATION ON ASSET SALES. New World Pasta will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless
(1) the consideration received by New World Pasta or such Restricted
Subsidiary is at least equal to the fair market value, as determined in
good faith by the board of directors, of the assets sold or disposed of and
(2) at least 75% of the consideration received consists of cash or
Cash Equivalents;
provided that for purposes of the preceding clause (2), each of the following
shall be deemed to constitute cash:
(a) the outstanding principal amount of Indebtedness of New World
Pasta or any Restricted Subsidiary -- other than (x) Capital Stock which
constitutes Indebtedness and (y) Indebtedness to New World Pasta or any
Restricted Subsidiary -- assumed by the transferee, which shall not
constitute New World Pasta or a Restricted Subsidiary, pursuant to the
respective Asset Sale, so long as New World Pasta or such Restricted
Subsidiary is irrevocably and unconditionally released from all liability
under such Indebtedness;
(b) any notes or other obligations received by New World Pasta or any
Restricted Subsidiary from such transferee that are, within 180 days after
the date of the respective Asset Sale, converted by New World Pasta or such
Restricted Subsidiary into cash, to the extent of the cash received in that
conversion; and
(c) any Designated Noncash Consideration received by New World Pasta
or any of its Restricted Subsidiaries in such Asset Sale having an
aggregate fair market value, taken together with all other Designated
Noncash Consideration received since the date of the indenture pursuant to
this clause (c) that is at that time outstanding, not to exceed the greater
of (x) $30,000,000 and (y) 10% of Total Assets at the time of the receipt
of such Designated Noncash Consideration, with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to any subsequent changes in value.
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Within 365 days after the receipt of any Net Cash Proceeds from an
Asset Sale, New World Pasta shall or shall cause the relevant Restricted
Subsidiary to:
(i) (A) apply an amount equal to 100% of such Net Cash Proceeds to
permanently repay Senior Indebtedness of New World Pasta, or Guarantor
Senior Indebtedness of any Restricted Subsidiary providing a subsidiary
guarantee or Indebtedness of any other Restricted Subsidiary, in each
case owing to a Person other than New World Pasta or any of its
Restricted Subsidiaries; or
(B) invest an equal amount, or the amount not so applied pursuant
to clause (A), or enter into a definitive agreement committing to so
invest within 365 days after the date of such agreement, in property or
assets -- other than current assets -- of a nature or type or that are
used in a business, or in the Capital Stock of a company, which company
shall become a Restricted Subsidiary upon the making of such investment,
having property and assets of a nature or type, or engaged in a
business -- similar or related to the nature or type of the property and
assets of, or the business of, New World Pasta and its Restricted
Subsidiaries existing on the date of such investment; and
(ii) apply, no later than the end of the 365-day period following
the receipt of such Net Cash Proceeds, such excess Net Cash Proceeds, to
the extent not applied pursuant to clause (i), as provided in the
following paragraph of this "Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied -- or to
be committed to be applied -- during a 365-day period as set forth in clause (i)
of the preceding paragraph and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10,000,000, New World
Pasta must commence, not later than the fifteenth Business Day of such month,
and consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the notes, plus, in
each case, accrued interest and liquidated damages, if any, to the Payment Date.
MERGER, CONSOLIDATION AND SALE OF ASSETS. New World Pasta will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person or sell, assign, transfer, lease, convey or otherwise dispose
of, or cause or permit any Restricted Subsidiary of New World Pasta to sell,
assign, transfer, lease, convey or otherwise dispose of, all or substantially
all of New World Pasta's assets, determined on a consolidated basis for New
World Pasta and New World Pasta's Restricted Subsidiaries, whether as an
entirety or substantially as an entirety to any Person unless:
(1) either (a) New World Pasta shall be the surviving or continuing
corporation or (b) the Person, if other than New World Pasta, formed by
such consolidation or into which New World Pasta is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of New World Pasta and of New World
Pasta's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly
existing under the laws of the United States or any State thereof or the
District of Columbia and (y) shall expressly assume by supplemental
indenture, in form and
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substance satisfactory to the trustee, executed and delivered to the
trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the notes and the performance of every covenant
of the notes, the indenture and the Registration Rights Agreement on the
part of New World Pasta to be performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b) above, including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction, New World
Pasta or such Surviving Entity, as the case may be, shall be able to incur
at least $1.00 of additional Indebtedness, other than Permitted
Indebtedness, pursuant to the "Limitation on Incurrence of Indebtedness"
covenant;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b) above,
including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction, no Default or
Event of Default shall have occurred or be continuing; and
(4) New World Pasta or the Surviving Entity shall have delivered to
the trustee an officer's certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
complies with the applicable provisions of the indenture and that all
conditions precedent in the indenture relating to such transaction have
been satisfied.
Notwithstanding the foregoing clauses (2), (3) and (4), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
property and assets to New World Pasta or any other Restricted Subsidiary and
(b) New World Pasta may merge with an affiliate incorporated solely for the
purpose of reincorporating New World Pasta in another jurisdiction.
For purposes of the foregoing, the transfer -- by lease, assignment, sale
or otherwise, in a single transaction or series of transactions -- of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of New World Pasta, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
New World Pasta.
The indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of New World Pasta in
accordance with the foregoing, in which New World Pasta is not the continuing
corporation, the successor Person formed by such consolidation or into which New
World Pasta is merged or to which such conveyance, lease or transfer is made
shall, succeed to, and be substituted for, and may exercise every right and
power of, New World Pasta under the indenture and the notes with the same effect
as if such surviving entity had been named as such.
Each subsidiary guarantor -- other than any subsidiary guarantor whose
subsidiary guarantee is to be released in accordance with the terms of the
Guarantee and the indenture in connection with any transaction complying with
the provisions of "-- Limitation on Asset Sales" -- will not, and New World
Pasta will not cause or permit any
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subsidiary guarantor to, consolidate with or merge with or into any Person other
than New World Pasta or any other subsidiary guarantor unless:
(1) the entity formed by or surviving any such consolidation or
merger, if other than the subsidiary guarantor, is a corporation organized
and existing under the laws of the United States or any State thereof or
the District of Columbia;
(2) such entity assumes by supplemental indenture all of the
obligations of the subsidiary guarantor on the subsidiary guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, New World Pasta could
satisfy the provisions of clause (2) of the first paragraph of this
covenant.
Notwithstanding the foregoing clause (4), (a) any subsidiary guarantor may
consolidate with, merge into or transfer all or part of its property and assets
to New World Pasta or any other subsidiary guarantor and (b) any subsidiary
guarantor formed solely for the purpose of merging with and into any other
Person, may merge with or into such Person.
CONDUCT OF BUSINESS. New World Pasta and its Restricted Subsidiaries will
not engage in any businesses which are not the same, similar or reasonably
related or complementary to the businesses in which New World Pasta and its
Restricted Subsidiaries are engaged on the date of original issuance of the old
notes, as determined in good faith by the board of directors of New World Pasta.
REPORTS TO HOLDERS. Whether or not required by the SEC, so long as any
notes are outstanding, New World Pasta will furnish to the holders of notes,
within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
New World Pasta were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by New World Pasta's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if New World Pasta were required to file such reports.
If New World Pasta has designated any of its subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of New World
Pasta and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of New World Pasta.
In addition, whether or not required by the SEC, New World Pasta will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC's rules and regulations, unless the SEC will not accept such a filing,
and make such information available to
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securities analysts and prospective investors upon request. Moreover, New World
Pasta has agreed, and each subsidiary guarantor will agree, that, for so long as
any notes remain outstanding, it will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(1) default in the payment of principal of -- or premium, if any,
on -- any note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, including the failure to make a
payment to purchase notes tendered pursuant to an Offer to Purchase,
whether or not such payment is prohibited by the subordination provisions
of the indenture;
(2) default in the payment of interest on, or liquidated damages with
respect to, any note when the same becomes due and payable, and such
default continues for a period of 30 days, whether or not such payment is
prohibited by the subordination provisions of the indenture;
(3) New World Pasta defaults in the performance of or breaches any
other covenant or agreement of New World Pasta in the indenture or under
the notes -- other than a default specified in clause (1) or (2)
above -- and such default or breach continues for a period of 30
consecutive days after written notice by the trustee or the holders of 25%
or more in aggregate outstanding principal amount of the notes;
(4) there occurs with respect to any issue or issues of Indebtedness
of New World Pasta or any Restricted Subsidiary having an outstanding
principal amount of $10,000,000 or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (a) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 10 days of such
acceleration and/or (b) the failure to make a principal payment at the
final -- but not any interim -- fixed maturity and such defaulted payment
shall not have been made, waived or extended within 10 days of such payment
default;
(5) there shall be any period of 60 consecutive days following entry
of one or more final judgments or orders, not covered by insurance, for the
payment of money in excess of $10,000,000 in the aggregate -- treating any
deductibles, self-insurance or retention as not so covered -- against New
World Pasta and/or one or more Significant Restricted Subsidiaries, during
which a stay of enforcement of such final judgment or order, by reason of
pending appeal or otherwise shall not be in effect or such judgments or
orders shall not be paid;
(6) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of New World Pasta or any Significant
Restricted Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of New World Pasta or any Significant
Restricted Subsidiary or for all or substantially all of the property and
assets of New World Pasta or any Significant Restricted Subsidiary or (C)
the winding up or liquidation of the affairs of New World Pasta or any
Significant
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Restricted Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days;
(7) New World Pasta or any Significant Restricted Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of
an order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of New World
Pasta or any Significant Restricted Subsidiary or for all or substantially
all of the property and assets of New World Pasta or any Significant
Restricted Subsidiary or (C) effects any general assignment for the benefit
of creditors; or
(8) any subsidiary guarantee of any subsidiary guarantor that is a
Significant Restricted Subsidiary ceases to be in full force and effect or
any such subsidiary guarantee is declared to be null, void or unenforceable
or any such subsidiary guarantee is found to be invalid or any such
subsidiary guarantor denies its liability under its subsidiary guarantee,
other than by reason of a release of a subsidiary guarantor in accordance
with the terms of the indenture.
If an Event of Default, other than an Event of Default specified in clause
(6) or (7) above that occurs with respect to New World Pasta, occurs and is
continuing under the indenture, the trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding, by written notice to
New World Pasta -- and to the trustee if such notice is given by the
holders -- may, and the trustee at the request of such holders shall, declare
the principal of, premium, if any, and accrued interest on the notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable.
If an Event of Default specified in clause (6) or (7) above occurs with respect
to New World Pasta, the principal of, premium, if any, and accrued interest on
the notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the trustee or any
holder. The holders of at least a majority in principal amount of the
outstanding notes by written notice to New World Pasta and to the trustee, may
waive all past defaults and rescind and annul a declaration of acceleration and
its consequences if (a) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and interest on the notes that
have become due solely by such declaration of acceleration, have been cured or
waived and (b) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction. For information as to the waiver of defaults,
see "-- Amendments, Modifications and Waivers."
The holders of at least a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the indenture, that may subject the trustee
to personal liability, or that the trustee determines in good faith may be
unduly prejudicial to the rights of holders of notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from holders of notes. A holder
may not pursue any remedy with respect to the indenture or the notes unless:
(1) the holder gives the trustee written notice of a continuing Event
of Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the trustee to pursue the
remedy;
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(3) such holder or holders offer the trustee indemnity satisfactory to
the trustee against any costs, liability or expense;
(4) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding notes do not give the trustee a
direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of a note
to receive payment of the principal of, premium, if any, or interest on, such
note or to bring suit for the enforcement of any such payment, on or after the
due date expressed in the notes, which right shall not be impaired or affected
without the consent of the holder.
The indenture requires specified officers of New World Pasta to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of New World Pasta and its
Restricted Subsidiaries and New World Pasta's and its Restricted Subsidiaries'
performance under the indenture and that New World Pasta has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. New World Pasta is also obligated to notify the trustee of any default
or defaults in the performance of any covenants or agreements under the
indenture.
DEFEASANCE
LEGAL DEFEASANCE. New World Pasta may, at its option and at any time,
elect to have its obligations and the obligations of the subsidiary guarantors,
except as described below, discharged with respect to the outstanding notes, the
indenture and the subsidiary guarantees ("Legal Defeasance"). Such Legal
Defeasance means that New World Pasta and, if it so elects, each of the
subsidiary guarantors, shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding notes and cured all then existing
Defaults and Events of Default, except for
(1) the rights of holders to receive payments in respect of the
principal of, premium, if any, and interest on the notes when such payments
are due,
(2) New World Pasta's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes, and the maintenance of an office or agency for payments,
(3) the rights, powers, trust, duties and immunities of the trustee
and New World Pasta's obligations in connection therewith and,
(4) the Legal Defeasance provisions of the indenture.
Any such Legal Defeasances will be effective on the 91st day after the deposit
referred to below, if, among other things:
(A) New World Pasta has deposited with the trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the notes on the Stated Maturity of such
payments in accordance with the terms of the indenture and the notes,
(B) New World Pasta has delivered to the trustee (a) either (x) an
Opinion of Counsel to the effect that holders will not recognize income,
gain or
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loss for federal income tax purposes as a result of New World Pasta's
exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must
be based upon, and accompanied by a copy of, a ruling of the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (b) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 91 days
following the deposit, the trust fund will not be subject to the effect
of Section 547 of the United States Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 91st day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which New World
Pasta or any of its subsidiaries is a party or by which New World Pasta
or any of its subsidiaries is bound,
(D) New World Pasta is not prohibited from making payments in
respect of the notes by the provisions described under
"-- Subordination," and
(E) if at such time the notes are listed on a national securities
exchange, New World Pasta has delivered to the trustee an Opinion of
Counsel to the effect that the notes will not be delisted as a result of
such deposit, defeasance and discharge.
DEFEASANCE OF COVENANTS AND EVENTS OF DEFAULT. The indenture further
provides that the provisions of the indenture will no longer be in effect with
respect to clause (2) under the first paragraph, and clause (4) of the last
paragraph, of the "Merger, Consolidation and Sale of Assets" covenant and all
other covenants described herein under " -- Covenants," clause (3) under
"-- Events of Default" with respect to such other covenants, or portions
thereof, and clauses (4) and (5) under "-- Events of Default" shall be deemed
not to be Events of Default upon, among other things, the deposit with the
trustee, in trust, of money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the notes on the Stated Maturity of
such payments in accordance with the terms of the indenture and the notes, the
satisfaction of the provisions described in clauses (B)(ii), (C), (D) and (E) of
the preceding paragraph and the delivery by New World Pasta to the trustee of an
Opinion of Counsel to the effect that, among other things, the holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of covenants and Events of Default and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred.
DEFEASANCE AND OTHER EVENTS OF DEFAULT. In the event New World Pasta
exercises its option to omit compliance with the covenants and provisions of the
indenture with respect
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to the notes as described in the immediately preceding paragraph and the notes
are declared due and payable because of the occurrence of an Event of Default
that remains applicable, the amount of money and/or U.S. Government Obligations
on deposit with the Trustee will be sufficient to pay amounts due on the notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on the notes at the time of the acceleration resulting from such Event of
Default. However, New World Pasta will remain liable for such payments.
AMENDMENTS, MODIFICATIONS AND WAIVERS
Except as provided in the two succeeding paragraphs, the indenture and the
notes may be amended or supplemented with the consent of the holders of at least
the majority in principal amount of the notes then outstanding, including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes, and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes, including, without limitation, consents obtained in
connection with the purchase of, or tender or exchange offer for, notes.
From time to time, New World Pasta, the subsidiary guarantors and the
trustee, without the consent of the holders, may amend the indenture for any of
the following purposes:
(1) to evidence the succession of another person to New World Pasta or
any subsidiary guarantor and the assumption by any such successor of the
covenants of New World Pasta or any subsidiary guarantor in the indenture
and in the notes; or
(2) to add to the covenants of New World Pasta or any subsidiary
guarantor for the benefit of the holders, or to surrender any right or
power herein conferred upon New World Pasta or any subsidiary guarantor; or
(3) to add additional Events of Default; or
(4) to provide for uncertificated notes in addition to or in place of
the certificated notes; or
(5) to evidence and provide for the acceptance of appointment under
the indenture by a successor trustee; or
(6) to secure the notes or any subsidiary guarantee; or
(7) to cure any ambiguity, to correct or supplement any provision in
the indenture that may be defective or inconsistent with any other
provisions in the indenture or to make any other provisions with respect to
matters or questions arising under the indenture, provided that such
actions taken pursuant to this clause (7) do not, in the opinion of the
trustee, adversely affect the interests of the holders in any material
respect; or
(8) to comply with any requirements of the SEC in order to effect and
maintain the qualification of the indenture under the Trust Indenture Act;
or
(9) to add any subsidiary as a subsidiary guarantor in accordance with
the provisions of the indenture; or
(10) to release any subsidiary guarantor from its guarantee in
accordance with the provisions of the indenture, including in connection
with a sale of all of the Capital Stock or all or substantially all of the
assets of such subsidiary guarantor.
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In formulating its opinion on the matters in clause (7), the trustee will
be entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel.
Notwithstanding anything to the contrary contained above, without the
consent of each holder affected thereby, no amendment, modification or waiver
may:
(1) reduce the amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any notes;
(3) reduce the principal of or change the fixed maturity of any notes,
or change the scheduled date on which any notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price
therefor;
(4) make any notes payable in money other than that stated in the
notes;
(5) make any change in the express provisions of the indenture
protecting the right of each holder to receive payment of principal of and
interest on such note on or after the due date thereof or to bring suit to
enforce such payment, or permitting holders of a majority in principal
amount of notes to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
New World Pasta to make and consummate an Offer to Purchase in the event of
a Change of Control or make and consummate an Offer to Purchase with
respect to any Asset Sale, or modify any of the provisions or definitions
with respect thereto;
(7) modify or change any provision of the indenture or the related
definitions affecting the ranking or subordination of the notes; or
(8) release any subsidiary guarantor from any of its obligations under
its guarantee or the indenture otherwise than in accordance with the terms
of the indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of New World Pasta in the indenture, or in any
of the notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of New World Pasta or of any successor Person thereof.
Each holder, by accepting the notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will not be liable except for the performance of such
duties as are specifically set forth in such indenture. If an Event of Default
has occurred and is continuing, the trustee will use the same degree of care and
skill in its exercise of the rights and powers vested in it under the indenture
as a prudent person would exercise under the circumstances in the conduct of
such person's own affairs.
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The indenture and provisions of the Trust Indenture Act incorporated by
reference in the indenture contain limitations on the rights of the trustee,
should it become a creditor of New World Pasta, to obtain payment of claims in
some cases or to realize on some property received by it in respect of any such
claims, as security or otherwise. The trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
SATISFACTION AND DISCHARGE
The indenture, the notes and the guarantees will be discharged and will
cease to be of further effect -- except as to surviving rights or registration
of transfer or exchange of the notes, as expressly provided for in the
indenture -- as to all outstanding notes when
(1) either (a) all the notes theretofore authenticated and
delivered -- except lost, stolen or destroyed notes which have been
replaced or paid and notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by New World Pasta and
thereafter repaid to New World Pasta or discharged from such trust -- have
been delivered to the trustee for cancellation or (b) all notes not
theretofore delivered to the trustee for cancellation have become due and
payable and New World Pasta has irrevocably deposited or caused to be
deposited with the trustee funds in an amount sufficient to pay and
discharge the entire indebtedness on the notes not theretofore delivered to
the trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the date of deposit together with irrevocable
instructions from New World Pasta directing the trustee to apply such funds
to the payment thereof at maturity or redemption, as the case may be;
(2) New World Pasta has paid all other sums payable under the
indenture by New World Pasta; and
(3) New World Pasta has delivered to the trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the indenture relating to the satisfaction and discharge of the
indenture have been complied with.
GOVERNING LAW
The indenture provides that it, the notes and the guarantees are governed
by, and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
DEFINITIONS
Set forth below is a summary of some of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
New World Pasta or at the time it merges or consolidates with New World Pasta or
any of its subsidiaries or assumed in connection with the acquisition of assets
from such Person and in each case not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of New World Pasta or such acquisition, merger or consolidation;
provided that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of
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the transaction by which such Person becomes a Restricted Subsidiary or at the
time of such merger or consolidation or acquisition of assets shall not be
Acquired Indebtedness.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of New World Pasta and its Restricted Subsidiaries for such
period determined in conformity with GAAP and before any reduction in respect of
preferred stock dividends; provided that (x) there shall be added to such
aggregate net income (or loss) the amount of any decrease in the deferred tax
asset for such period relating to the actual cash tax benefit realized by New
World Pasta -- or the consolidated tax group of which New World Pasta is a
member -- resulting from the election under Section 338(h)(10) of the Code in
respect of the recapitalization in which New World Pasta's current principals
acquired control of New World Pasta so long as the aggregate amounts added back
in determining Adjusted Consolidated Net Income pursuant to this clause (x) at
no time exceed the actual amount of tax savings realized by New World Pasta and
its Restricted Subsidiaries as a result of the Section 338(h)(10) election
referenced above and (y) the following items shall be excluded in computing
Adjusted Consolidated Net Income, without duplication:
(1) the net income of any Person that is not a Restricted Subsidiary,
except to the extent of the amount of dividends or other distributions
actually paid to New World Pasta or any of its Restricted Subsidiaries by
such Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described above -- and in
such case, except to the extent includable pursuant to clause (1)
above -- the net income (or loss) of any Person accrued prior to the date
it becomes a Restricted Subsidiary or is merged into or consolidated with
New World Pasta or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by
New World Pasta or any of its Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(4) any gains or losses, on an after-tax basis, attributable to Asset
Sales;
(5) all extraordinary, non-recurring and unusual gains and losses on
an after-tax basis and, without duplication, all restructuring charges on
an after-tax basis;
(6) write-offs of intangible assets, including research and
development, relating to assets acquired by New World Pasta and its
Restricted Subsidiaries if such write-offs are done at the time of, or
within three months after, such acquisition;
(7) any non-cash compensation expense incurred in connection with the
exercise of or paid or payable solely with Qualified Capital Stock of New
World Pasta or any options, warrants or other rights to acquire Qualified
Capital Stock of New World Pasta;
(8) in the case of any successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets;
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(9) the fees, expenses or other costs incurred in connection with the
recapitalization in which New World Pasta's current principals acquired
control of New World Pasta;
(10) any net after-tax earnings (or losses) from discontinued
operations and any net after-tax gains or losses on any disposal of
discontinued operations; and
(11) the cumulative effect of changes in accounting principles after
the Issue Date.
"ASSET ACQUISITION" means:
(a) an Investment by New World Pasta or any Restricted Subsidiary of
New World Pasta in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of New World Pasta or any Restricted
Subsidiary of New World Pasta, or shall be merged with or into New World
Pasta or any Restricted Subsidiary of New World Pasta, or
(b) the acquisition by New World Pasta or any Restricted Subsidiary of
New World Pasta of the assets of any Person -- other than a Restricted
Subsidiary of New World Pasta -- which constitute all or substantially all
of the assets of such Person or comprise any division or line of business
of such Person.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by New World Pasta or any
of its Restricted Subsidiaries, including any Sale and Leaseback Transaction, to
any Person other than New World Pasta or a wholly owned Restricted Subsidiary of
New World Pasta of
(a) any Capital Stock of any Restricted Subsidiary of New World Pasta
or
(b) any other property or assets of New World Pasta or any Restricted
Subsidiary of New World Pasta other than in the ordinary course of
business;
provided, however, that Asset Sales shall not include:
(1) a transaction or series of related transactions for which New
World Pasta or its Restricted Subsidiaries receive aggregate consideration
of less than $1,000,000,
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of New World Pasta, or the consolidation
or merger of the Company with any other Person, in each case as permitted
under "-- Merger, Consolidation and Sale of Assets",
(3) any disposition of property of New World Pasta or any of its
Restricted Subsidiaries that, in the reasonable judgment of New World
Pasta, has become uneconomic, damaged, obsolete or worn out,
(4) the sale of inventory in the ordinary course of business,
(5) the sale or discount, in each case without recourse -- other than
recourse for a breach of a representation or warranty -- of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof,
(6) sales of Cash Equivalents,
(7) surrender or waiver of contract rights or the settlement, release
or surrender of contract, tort or other claims of any kind,
(8) granting of Liens not prohibited by the indenture,
(9) the licensing of intellectual property,
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(10) the sale, lease, conveyance, disposition or other transfer of
Permitted Investments or the Capital Stock of or any Investment in any
Unrestricted Subsidiary,
(11) leases or subleases to third persons not interfering in any
material respect with the business of New World Pasta or any of its
Restricted Subsidiaries,
(12) the Miller Real Property Transactions and
(13) the making of any Permitted Investments or other Restricted
Payments permitted by the covenant described under the caption
"-- Covenants -- Limitation on Restricted Payments."
"CAPITAL STOCK" means
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents -- however
designated and whether or not voting -- of corporate stock, including each
class of common stock and preferred stock of such Person and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from S&P or Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above;
(6) investments in money market funds with assets of $5,000,000 or
greater; and
(7) Indebtedness, issued by Persons other than New World Pasta and its
Subsidiaries, which Indebtedness matures within one year from the date of
the acquisition thereof and has a rating of "A" or higher from S&P or "A2"
or higher from Moody's.
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"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer -- in one transaction
or a series of related transactions -- of all or substantially all of the
assets of New World Pasta and its Restricted Subsidiaries, taken as a
whole, to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any affiliates
thereof -- whether or not otherwise in compliance with the provisions of
the indenture -- other than to a subsidiary of New World Pasta, the
Principals and their Related Parties;
(2) the liquidation or dissolution of New World Pasta -- whether or
not otherwise in compliance with the provisions of the indenture;
(3) any Person or Group -- other than the Principals and their Related
Parties -- shall become the owner, directly or indirectly, beneficially or
of record, of shares representing more than 50% of the aggregate ordinary
voting power represented by the issued and outstanding Capital Stock of New
World Pasta; or
(4) the replacement of a majority of the board of directors of New
World Pasta over a two-year period from the directors who constituted the
board of directors of New World Pasta at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the board of directors of New World Pasta then still in office
who either were members of such board of directors at the beginning of such
period or whose election as a member of such board of directors was
previously so approved.
"CONSOLIDATED EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus
(1) to the extent such amount was deducted in calculating such
Adjusted Consolidated Net Income:
(a) consolidated interest expense,
(b) income taxes -- other than income taxes or income tax effects,
either positive or negative, attributable to extraordinary, unusual and
non-recurring gains or losses or sales of assets and all restructuring
charges,
(c) depreciation expense,
(d) amortization expense,
(e) any out-of-pocket costs and transaction expenses relating to
any issuance of Capital Stock or incurrence of Indebtedness or Asset
Acquisition or Permitted Investment and
(f) all other non-cash items reducing Adjusted Consolidated Net
Income, less
(2) (a) all non-cash items increasing Adjusted Consolidated Net
Income -- excluding reversals of accruals or reserves referred to in the
following clause (b) and (b) the amount of all reversals of accruals or
reversals of reserves established in the ordinary course of business, and
all amortizations of prepaid cash expenses from prior periods, occurring
during the respective period, all as determined on a consolidated basis for
New World Pasta and its Restricted Subsidiaries in conformity with GAAP;
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provided that, if any Restricted Subsidiary is not a wholly owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced -- to the extent not otherwise
reduced in accordance with GAAP -- by an amount equal to
(1) the amount of the Consolidated EBITDA attributable to such
Restricted Subsidiary multiplied by
(2) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by New World Pasta or
any of its Restricted Subsidiaries.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means the ratio of
(1) Consolidated EBITDA during the four full fiscal quarters (the
"Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") for which financial statements are available
to
(2) Consolidated Fixed Charges of such Person for the Four Quarter
Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries -- and the application of the proceeds
thereof -- giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness or preferred stock -- and the
application of the proceeds thereof -- other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working
capital purposes pursuant to working capital facilities, occurring during
the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be -- and the application of the
proceeds thereof -- occurred on the first day of the Four Quarter Period
and
(2) any Asset Sales or other dispositions or Asset Acquisitions,
including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries -- including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition -- incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including or
excluding, as the case may be, any Consolidated EBITDA -- including any pro
forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act -- attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale or other disposition
during the Four Quarter Period, occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such Asset Sale or other disposition
or Asset Acquisition, including the incurrence, assumption or liability for
any such Acquired Indebtedness, occurred on the first day of the Four
Quarter Period.
Furthermore, if New World Pasta has categorized any of its subsidiaries or
operations as discontinued operations in accordance with GAAP, and if there is
any Indebtedness or preferred stock relating solely to such discontinued
operations for which no recourse is available, whether pursuant to direct
obligations, guarantees or otherwise, to the non-discontinued operations -- or
related assets -- of New World Pasta and its Restricted
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Subsidiaries, in any event excluding Indebtedness incurred pursuant to New World
Pasta's revolving credit facility or other Indebtedness with direct liability on
the part of New World Pasta which survives such discontinuation, "Consolidated
Fixed Charges" shall be calculated giving pro forma effect to the deemed
retirement of such Indebtedness or preferred stock, as the case may be. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the second preceding sentence shall give effect
to the incurrence of such Guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise assumed
such Guaranteed Indebtedness. If since the beginning of such period any
Person -- that subsequently became a Restricted Subsidiary or was merged with or
into New World Pasta or any Restricted Subsidiary since the beginning of such
period -- shall have made any Asset Acquisition or Asset Sale or other
disposition that would have required adjustment pursuant to this definition,
then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto as if such Asset Acquisition or Asset Sale or other
disposition had occurred at the beginning of the applicable Four Quarter Period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator, but not the numerator, of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the average rate of interest on such Indebtedness in effect
on the 30 business days preceding the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Rate Agreements with a remaining term at
the Transaction Date of at least 12 months, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum, without
duplication, of:
(1) the consolidated interest expense of New World Pasta and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or banker's acceptance financings, and net
payments, if any, pursuant to Interest Rate Agreements or Currency
Agreements, but excluding amortization or write-off debt issuance costs;
plus
(2) the consolidated interest expense of New World Pasta and its
Restricted Subsidiaries that was capitalized during such period; plus
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(3) any interest expense on Indebtedness of another Person that is
guaranteed by New World Pasta or one of its Restricted Subsidiaries or
secured by a Lien on assets of such person or one of its Restricted
Subsidiaries, whether or not such guarantee or Lien is called upon; plus
(4) the product of (a) all dividend accruals, whether or not paid or
payable in cash, during such period on any Disqualified Capital Stock of
New World Pasta or any of its Restricted Subsidiaries, and on any preferred
stock of Restricted Subsidiaries of New World Pasta, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of New
World Pasta, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP; plus
(5) the product of (a) all dividends actually paid, whether paid in
cash or in any other consideration -- but excluding any dividends to the
extent paid through the issuance of additional shares of Qualified Capital
Stock of New World Pasta, during such period with respect to any preferred
stock, not constituting Disqualified Capital Stock, of New World Pasta,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of New World Pasta, expressed as a decimal, in each on a
consolidated basis and in accordance with GAAP.
"CREDIT FACILITIES" means, with respect to New World Pasta and its
Restricted Subsidiaries, one or more debt facilities -- including, without
limitation, New World Pasta's revolving credit facility -- or commercial paper
facilities or indentures providing for revolving credit loans, term loans,
receivables financing -- including through the sale of receivables to lenders or
to special purpose entities formed to borrow from lenders against receivables,
letters of credit or other long-term indebtedness, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any non-cash consideration
received by New World Pasta or one of its Restricted Subsidiaries in connection
with an Asset Sale that is designated as Designated Noncash Consideration
pursuant to an officer's certificate executed by the principal executive officer
or the principal financial officer of New World Pasta. Such officer's
certificate shall state the basis of valuation, and the fair market value of the
Designated Noncash Consideration being received in the respective Asset Sale,
which shall be determined in good faith by the board of directors. A particular
item of Designated Noncash Consideration shall no longer be considered
outstanding when it has been sold for cash or redeemed or paid in full in the
case of non-cash consideration in the form of promissory notes or equity.
"DESIGNATED PREFERRED STOCK" means preferred stock -- not constituting
Disqualified Capital Stock -- of New World Pasta, excluding New World Pasta's
12% Cumulative Redeemable Preferred Stock, any other preferred stock issued on
or prior to the issue date of original issuance of the old notes and any
preferred stock issued in exchange or substitution for any of the foregoing,
that is designated as Designated Preferred Stock pursuant to an officer's
certificate executed by the principal executive officer or the
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principal financial officer of New World Pasta, on the issuance date thereof,
the cash proceeds of which are excluded from the calculation set forth in the
clause (C)(2) of the "Limitation on Restricted Payments" covenant.
"DESIGNATED SENIOR INDEBTEDNESS" means (1) Indebtedness under or in respect
of New World Pasta's revolving credit facility and (2) any other Indebtedness
constituting Senior Indebtedness which, at the time of determination, has an
aggregate principal amount of at least $25,000,000 and is specifically
designated in the instrument evidencing such Senior Indebtedness as "Designated
Senior Indebtedness" by New World Pasta.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms, or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder, or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the Stated Maturity of the notes; provided that any
Capital Stock that would not constitute Disqualified Capital Stock but for
provisions therein giving holders thereof the right to cause the issuer thereof
to repurchase or redeem such Capital Stock upon the occurrence of an "Asset
Sale" or "Change of Control" occurring prior to the final stated maturity of the
Notes will not constitute Disqualified Capital Stock if the "Asset Sale" or
"Change of Control" provisions applicable to such Capital Stock, taken as a
whole, are not materially more favorable to the holders of such Capital Stock
than the provisions described under "-- Covenants -- Change of Control" and
"-- Covenants -- Limitation on Assets Sales"; provided further that if such
Capital Stock is issued pursuant to any plan for the benefit of employees of New
World Pasta or its subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Capital Stock solely because it
may be required to be repurchased by New World Pasta in order to satisfy
applicable statutory or regulatory obligations.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to any subsidiary
guarantor, the principal of, premium, if any, and interest, including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law, on any Indebtedness of a
subsidiary guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the guarantee of such subsidiary guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall also include the principal of, premium, if any, interest,
including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law, on, and
all other amounts owing by the respective subsidiary guarantor in respect of,
(x) all obligations, including guarantees thereof, of every nature
under New World Pasta's revolving credit facility, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities,
(y) all obligations under Interest Rate Agreements, including
guarantees thereof, and
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(z) all obligations, including guarantees thereof, under Currency
Agreements, in each case whether outstanding on the issue date of original
issuance of the old notes or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include
(1) any Indebtedness of such subsidiary guarantor to New World Pasta
or any other subsidiary of New World Pasta or to any affiliate of such
subsidiary guarantor or any of such affiliate's subsidiaries,
(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of such subsidiary guarantor or any Restricted Subsidiary of
such subsidiary guarantor, including, without limitation, amounts owed for
compensation,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, commodities, materials or services,
(4) Indebtedness represented by preferred stock or Disqualified
Capital Stock,
(5) any liability for federal, state, local or other taxes owed or
owing by such subsidiary guarantor,
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "-- Covenants -- Limitation on
Incurrence of Indebtedness",
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to New World Pasta and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such subsidiary guarantor.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination, without duplication:
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such Person in respect of letters of credit,
bankers' acceptances or other similar instruments, including reimbursement
obligations with respect thereto;
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than two months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services;
(5) all Capitalized Lease Obligations;
(6) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of
(A) the fair market value of such asset at such date of
determination and
(B) the amount of such Indebtedness;
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(7) all Indebtedness of other Persons guaranteed by such Person to the
extent such Indebtedness is guaranteed by such Person;
(8) all Disqualified Capital Stock and, in the case of a Restricted
Subsidiary, all preferred stock issued by such Person; and
(9) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (B) that the amount of Indebtedness
at any time of any Disqualified Capital Stock or preferred stock shall be the
greater of its voluntary or involuntary liquidation preference and the maximum
fixed redemption or repurchase price in respect thereof, and (C) that
Indebtedness shall not include (x) trade accounts payable, contingent
liabilities -- excluding contingent liabilities of the types described in
clauses (3), (4), (6), (7) and (9) above -- and accrued liabilities arising in
the ordinary course of business and (y) any liability for federal, state, local
or other taxes.
"INTEREST RATE AGREEMENT" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, interest rate option or interest rate future
contract or other similar agreement or arrangement.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
other extension of credit, including, without limitation, by way of guarantee or
similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of New
World Pasta or its Restricted Subsidiaries, or capital contribution to, by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others, or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person and shall include
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, which shall be deemed to constitute an Investment made on the
date of such designation, and
(2) an amount equal to the fair market value of the Capital Stock, or
any other Investment, held by New World Pasta or any of its Restricted
Subsidiaries, of, or in any Person that was a Restricted Subsidiary and
that has ceased for any reason to be a Restricted Subsidiary, including
without limitation, by reason of any Asset Sale or any other issuance of
Capital Stock by such Restricted Subsidiary, with an Investment in the
amount described above being deemed made on the date the respective Person
ceases to be a Restricted Subsidiary, for any reason.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant described below,
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(1) "Investment" shall include the fair market value of the assets,
net of liabilities, other than liabilities to New World Pasta or any of its
Restricted Subsidiaries, of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary,
(2) the fair market value of the assets, net of liabilities, other
than liabilities to New World Pasta or any of its Restricted Subsidiaries,
of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered a
reduction in outstanding Investments and
(3) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, with
the fair market value of the various items as required to be determined
pursuant to the foregoing provisions of this sentence to be determined, in
each case, in good faith by the board of directors.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind, including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest.
"MANAGEMENT INVESTOR" means Miller Pasta, LLC, a Delaware limited liability
company.
"MILLER REAL PROPERTY TRANSACTIONS" means
(a) the lease by New World Pasta to Miller Milling Company of real
property in Winchester, Virginia underlying Miller Milling Company's flour
milling facility (the "Miller Property"), and
(b) the transfer for $1.00 by New World Pasta to Miller Milling
Company of the Miller Property.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET CASH PROCEEDS" means,
(a) with respect to any Asset Sale, the proceeds of such Asset Sale in
the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations -- to the extent corresponding to the
principal, but not interest, component thereof -- when received in the form
of cash or Cash Equivalents, except to the extent such obligations are
financed or sold with recourse to New World Pasta or any Restricted
Subsidiary, and proceeds from the conversion of other property received
when converted to cash or Cash Equivalents, net of
(1) brokerage commissions and other fees and expenses, including
fees and expenses of counsel and investment bankers, related to such
Asset Sale,
(2) provisions for all taxes, whether or not such taxes will
actually be paid or are payable, as a result of such Asset Sale without
regard to the consolidated results of operations of New World Pasta and
its Restricted Subsidiaries, taken as a whole,
(3) payments made to permanently repay Indebtedness or any other
obligation, excluding Indebtedness and obligations pursuant to the
Credit Facilities, outstanding at the time of such Asset Sale that
either
(A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and
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(4) appropriate amounts to be provided by New World Pasta or any
Restricted Subsidiary as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations -- to the
extent corresponding to the principal, but not interest, component
thereof -- when received in the form of cash or Cash Equivalents, except to
the extent such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary, and proceeds from the conversion of
other property received when converted to cash or Cash Equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"OFFER TO PURCHASE" means an offer to purchase notes by New World Pasta
from the holders commenced by mailing a notice to the trustee and each holder
stating:
(1) the covenant pursuant to which the offer is being made and that
all notes validly tendered will be accepted for payment on a pro rata
basis;
(2) the purchase price and the date of purchase, which shall be a
business day no earlier than 30 days nor later than 60 days from the date
such notice is mailed (the "Payment Date");
(3) that any note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless New World Pasta defaults in the payment of the
purchase price, any note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(5) that holders electing to have a note purchased pursuant to the
Offer to Purchase will be required to surrender the note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the business day immediately
preceding the Payment Date;
(6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
business day immediately preceding the Payment Date, a facsimile
transmission or letter setting forth the name of such holder, the principal
amount of notes delivered for purchase and a statement that such holder is
withdrawing his election to have such notes purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion of
the notes surrendered; provided that each note purchased and each new note
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
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On the Payment Date, New World Pasta shall
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to an Offer to Purchase;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the trustee all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by New World
Pasta.
The Paying Agent shall promptly mail to the holders of notes so accepted payment
in an amount equal to the purchase price, and the trustee shall promptly
authenticate and mail to such holders a substitute note equal in principal
amount to any unpurchased portion of the note surrendered; provided that each
note purchased and each new note issued shall be in a principal amount of $1,000
or integral multiples thereof. The trustee shall act as the Paying Agent for an
Offer to Purchase. New World Pasta will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that New World
Pasta is required to repurchase notes pursuant to an Offer to Purchase.
"PERMITTED INVESTMENTS" means:
(1) Investments by New World Pasta or any Restricted Subsidiary of New
World Pasta in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of New World Pasta or that will merge or
consolidate into New World Pasta or a Restricted Subsidiary of New World
Pasta;
(2) Investments in New World Pasta by any Restricted Subsidiary of New
World Pasta; provided that any Indebtedness evidencing such Investment to
the extent held by a Restricted Subsidiary that is not a subsidiary
guarantor is unsecured and subordinated, pursuant to a written agreement,
to New World Pasta's obligations under the notes and the indenture;
(3) investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of New World Pasta
and its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes;
(5) Currency Agreements and Interest Rate Agreements entered into in
the ordinary course of New World Pasta's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the indenture;
(6) investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good
faith settlement of delinquent obligations of such trade creditors or
customers;
(7) Investments made pursuant to the recapitalization in which New
World Pasta's current principals acquired control of New World Pasta;
(8) guarantees of Indebtedness and other obligations otherwise
permitted under the indenture;
(9) obligations of one or more officers or other employees of New
World Pasta or any of its Restricted Subsidiaries in connection with such
officer's or employee's
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acquisition of shares of common stock of New World Pasta so long as no cash
is paid by New World Pasta or any of its Restricted Subsidiaries to such
officers or employees in connection with the acquisition of any such
obligations;
(10) Investments made by New World Pasta or its Restricted
Subsidiaries as a result of consideration received in connection with an
Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant;
(11) commission, travel, payroll, entertainment, relocation and
similar advances to officers and employees of New World Pasta or any
Restricted Subsidiary made in the ordinary course of business;
(12) advances or payments to individuals in an amount equal to any
income taxes payable by such individuals resulting solely from imputed
income attributable to preferred stock of New World Pasta owned by them or
the Management Investor; provided that the aggregate amount of advances and
payments made pursuant to this clause (12) in any fiscal year of New World
Pasta shall not exceed $775,000;
(13) Investments acquired in exchange for, or out of the Net Cash
Proceeds, which have not, and will not, be included pursuant to clause
(C)(2) of the "Limitation on Restricted Payments" covenant, of a
substantially concurrent offering of, shares of Qualified Capital Stock,
which is not Designated Preferred Stock, of New World Pasta, or options,
warrants or other rights to acquire such Qualified Capital Stock;
(14) Investments in Unrestricted Subsidiaries not to exceed an amount
equal to (a) $10,000,000 plus (b) to the extent not previously reinvested
under this clause (xiv), any cash return of capital -- whether realized as
a result of payments from the respective Unrestricted Subsidiary, the
receipt of Net Cash Proceeds from the sale of the respective Permitted
Investment or otherwise -- realized on a Permitted Investment made after
the date of original issuance of the old notes pursuant to this clause
(14), but with the total return of capital for purposes of this clause (14)
not to exceed the amount Invested pursuant to this clause (14); and
(15) additional Investments not to exceed an amount equal to (a) the
greater of $25,000,000 or 10% of Total Assets, as determined on the date of
the making of each Investment, plus (b) to the extent not previously
reinvested under this clause (xv), any cash return of capital -- whether
realized as a result of payments from the respective Person in which the
Permitted Investment was made, the receipt of Net Cash Proceeds from the
sale of the respective Permitted Investment or otherwise -- realized on a
Permitted Investment made after the date of original issuance of the old
notes pursuant to this clause (15) but with the total return of capital for
purposes of this clause (15) not to exceed the amount Invested pursuant to
this clause (15).
"PERSON" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"PRINCIPALS" means
(1) JLL Fund III and each affiliate of JLL Fund III as of the date of
original issuance of the old notes; and
(2) each officer or employee of JLL Fund III or any such member
referred to in clause (1) as of the date of original issuance of the old
notes.
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"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of New World Pasta and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"RECAPITALIZATION AGREEMENT" shall mean the Recapitalization Agreement,
dated as of December 15, 1998 (as amended, modified or supplemented from time to
time), by and among Hershey Foods Corporation, Hershey Chocolate & Confectionery
Corporation (as the successor in interest to Hershey CRE, Inc.), Homestead,
Inc., the Company, New World LLC, JLL Fund III (with respect to Sections 7.7 and
7.8 only), Pasta Group, L.L.C., and Winchester Pasta, L.L.C.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness -- whose proceeds are applied within 90 days
after the incurrence thereof -- in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by New World Pasta or any
Restricted Subsidiary of New World Pasta of Indebtedness incurred in accordance
with the "Limitation on Incurrence of Indebtedness" covenant, other than
pursuant to clause (2), (3), (4), (5), (6), (7), (8), (9), (12), (14), (15) or
(16) of the definition of Permitted Indebtedness, in each case that does not
(1) result in an increase in the aggregate principal amount, or
accreted value, if applicable, of Indebtedness of such Person as of the
date of such proposed Refinancing: provided that the amount of any
penalties, interest or premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
fees, discounts, commissions and other expenses incurred by New World Pasta
in connection with such Refinancing may also be Refinanced or
(2) create Indebtedness with
(A) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced
or
(B) a Stated Maturity earlier than the Stated Maturity of the
Indebtedness being Refinanced; provided that
(x) if such Indebtedness being Refinanced is solely
Indebtedness of New World Pasta, then such Refinancing Indebtedness
shall be Indebtedness solely of New World Pasta,
(y) if such Indebtedness being Refinanced is subordinate or
junior to the notes or any subsidiary guarantee, then such
Refinancing Indebtedness shall be subordinate or junior to the
notes and/or the respective subsidiary guarantees at least to the
same extent and in substantially the same manner as the
Indebtedness being Refinanced and
(z) if such Indebtedness being Refinanced constitutes
preferred stock of a Restricted Subsidiary or Disqualified Capital
Stock, then the refinancing Indebtedness shall also constitute
Capital Stock of the respective issuer of the Capital Stock being
refinanced.
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"RELATED PARTY" with respect to any Principal means
(A) any controlling stockholder or 80% or more owned subsidiary of
such Principal or
(B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (A).
"RESTRICTED SUBSIDIARY" of any Person means any subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to New World Pasta or a Restricted Subsidiary of any property, whether
owned by New World Pasta or any Restricted Subsidiary at the date of original
issuance of the old notes or later acquired, which has been or is to be sold or
transferred by New World Pasta or such Restricted Subsidiary to such Person or
to any other Person from whom funds have been or are to be advanced by such
Person on the security of such property.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and
interest, including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law,
on any Indebtedness of New World Pasta, whether outstanding on the date of
original issuance of the old notes or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
notes. Without limiting the generality of the foregoing, "Senior Indebtedness"
shall also include the principal of, premium, if any, interest, including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law, on, and all other amounts
owing by New World Pasta in respect of,
(x) all obligations, including guarantees thereof, of every nature
under New World Pasta's revolving credit facility, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities,
(y) all obligations under Interest Rate Agreements, including
guarantees thereof, and
(z) all obligations, including guarantees thereof, under Currency
Agreements, in each case whether outstanding on the date of original
issuance of the old notes or thereafter incurred.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(1) any Indebtedness of New World Pasta to a subsidiary of New World
Pasta or any affiliate of New World Pasta or any of such affiliate's
subsidiaries,
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(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of New World Pasta or any subsidiary of New World Pasta,
including, without limitation, amounts owed for compensation,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, commodities, materials or services,
(4) Indebtedness represented by preferred stock or Disqualified
Capital Stock,
(5) any liability for federal, state, local or other taxes owed or
owing by New World Pasta,
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "-- Covenants -- Limitation on
Incurrence of Indebtedness,"
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to New World Pasta and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of New World Pasta.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of determination,
any Restricted Subsidiary that, together with its subsidiaries,
(1) for the most recent period of four full fiscal quarters or, if
shorter, the period beginning on the date of original issuance of the old
notes and ending on or prior to the date of any determination pursuant to
this definition for which financial statements are available, accounted for
more than 10% of the consolidated revenues of New World Pasta and its
Restricted Subsidiaries for such period, or
(2) as of the end of such fiscal quarter or year, was the owner of
more than 10% of the consolidated assets of New World Pasta and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of New World Pasta for such fiscal
quarter or year.
"STATED MATURITY" means,
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of
such debt security is due and payable and
(2) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security as
the fixed date on which such installment is due and payable.
"SUBSIDIARY" with respect to any Person, means
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person or
(2) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"TOTAL ASSETS" means the total consolidated assets of New World Pasta and
its Restricted Subsidiaries, as set forth on New World Pasta's most recent
consolidated balance sheet.
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"UNRESTRICTED SUBSIDIARY" means
(1) any subsidiary of New World Pasta that at the time of
determination shall be or continue to be designated an Unrestricted
Subsidiary by the board of directors of New World Pasta in the manner
provided below and,
(2) any subsidiary of an Unrestricted Subsidiary.
The board of directors of New World Pasta may at any time and from time to time
after the date of the original issuance of the old notes designate any
subsidiary, including any newly acquired or newly formed subsidiary, to be an
Unrestricted Subsidiary unless such subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, New World Pasta or any other
subsidiary of New World Pasta that is not a subsidiary of the subsidiary to be
so designated; provided that
(x) New World Pasta certifies to the trustee that such designation
complies with the "Limitation on Restricted Payments" covenant and
(y) each subsidiary to be so designated and each of its subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of New World Pasta or any of its Restricted
Subsidiaries.
Any such designation by the board of directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the resolution of the board of
directors giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions. The
board of directors of New World Pasta may at any time and from time to time
after the date of the original issuance of the old notes designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that
(1) no Default or Event of Default shall occur or result from such
designation and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if incurred or issued
at such time, have been permitted to be incurred or issued -- and shall be
deemed to have been incurred or issued -- for all purposes of the
indenture.
Any such designation by the board of directors of New World Pasta shall be
evidenced to the trustee by promptly filing with the trustee a copy of the
resolution of the board of directors giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(a) the then outstanding aggregate principal amount of such
Indebtedness into
(b) the sum of the total of the products obtained by multiplying
(1) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(2) the number of years, calculated to the nearest one-twelfth,
which will elapse between such date and the making of such payment.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described below, the new notes will initially be issued in the
form of one or more registered new notes in global form without coupons. Each
global note will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of Cede & Co., as nominee of The Depository
Trust Company, or will remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between The Depository Trust Company and the
trustee.
The Depository Trust Company has advised New World Pasta that it is
(1) a limited purpose trust company organized under the laws of the
State of New York,
(2) a member of the Federal Reserve System,
(3) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and
(4) a "clearing agency" registered pursuant to Section 17A of the
Exchange Act.
The Depository Trust Company was created to hold securities for its
participating organizations (collectively, the "DTC Participants") and
facilitates the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes to the accounts of the DTC
Participants, thereby eliminating the need for physical transfer and delivery of
certificates. DTC Participants include securities brokers and dealers, including
the placement agents from the original offering of the old notes, banks and
trust companies, clearing corporations and other organizations. Access to The
Depository Trust Company's system is also available to other entities such as
banks, brokers, dealers and trust companies (collectively, the "Indirect DTC
Participants") that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly. Holders who are not DTC
Participants may beneficially own securities held by or on behalf of The
Depository Trust Company only through DTC Participants or Indirect DTC
Participants.
New World Pasta expects, as provided in the procedures established by The
Depository Trust Company, that
(1) upon deposit of the global notes, The Depository Trust Company
will credit the accounts of DTC Participants with an interest in the global
note and
(2) ownership of the new notes will be shown on, and the transfer of
ownership of the new notes will be effected only through, records
maintained by The Depository Trust Company with respect to the interest of
DTC Participants, the DTC Participants and the Indirect DTC Participants.
The laws of some states require that some persons take physical delivery in
definitive form of securities that they own and that a security interest in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer the new
notes or to pledge the new notes as collateral will be limited to this extent.
So long as The Depository Trust Company or its nominee is the registered
owner of a global note, The Depository Trust Company or the nominee, as the case
may be, will be considered the sole owner or holder of the new notes represented
by the global note for all purposes under the indenture. Except as provided
below, owners of beneficial interests in a global note will not be entitled to
have the new notes represented by the global note
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registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities, and will not be considered the owners or
holders of the new notes under the indenture for any purpose, including with
respect to the giving of any directions, instruction or approval to the trustee
under the indenture. As a result, the ability of a person having a beneficial
interest in new notes represented by a global note to pledge or transfer that
interest to persons or entities that do not participate in The Depository Trust
Company's system or to otherwise take action with respect to that interest, may
be affected by the lack of a physical certificate evidencing the interest.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of The Depository Trust Company and, if the holder is not
a DTC Participant or an Indirect DTC Participant, on the procedures of the DTC
Participant through which the holder owns its interest, to exercise any rights
of a holder of new notes under the indenture or the global note. New World Pasta
understands that under existing industry practice, in the event New World Pasta
requests any action of holders of new notes or a holder that is an owner of a
beneficial interest in a global note desires to take any action that The
Depository Trust Company, as the holder of the global note, is entitled to take,
The Depository Trust Company would authorize the DTC Participants to take the
action and the DTC Participants would authorize holders owning through the DTC
Participants to take the action or would otherwise act upon the instruction of
such holders. Neither New World Pasta nor the trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of the new notes by The Depository Trust Company, or
for maintaining, supervising or reviewing any records of The Depository Trust
Company relating to the new notes.
Payments with respect to the principal of, premium on, if any, and interest
on, any new notes represented by a global note registered in the name of The
Depository Trust Company or its nominee on the applicable record date will be
payable by the trustee to or at the direction of The Depository Trust Company or
its nominee in its capacity as the registered holder of the global note
representing the new notes under the indenture. Under the terms of the
indenture, New World Pasta and the trustee may treat the persons in whose names
the new notes, including the global notes, are registered as the owners for the
purpose of receiving payment and for any and all other purposes whatsoever. As a
result, neither New World Pasta nor the trustee has or will have any
responsibility or liability for the payment of amounts due to beneficial owners
of interest in the global note, including principal, premium, if any, and
interest, or to immediately credit the accounts of the relevant DTC Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the global note as shown on the
records of The Depository Trust Company. Payments by the DTC Participants and
the Indirect DTC Participants to the beneficial owners of interests in the
global note will be governed by standing instructions and customary practice and
will be the responsibility of the DTC Participants or the Indirect DTC
Participants and The Depository Trust Company.
CERTIFICATED SECURITIES
(1) If The Depository Trust Company notifies New World Pasta in
writing that it is no longer willing or able to act as a depository or The
Depository Trust Company ceases to be registered as a clearing agency under
the Exchange Act and New World Pasta is unable to locate a qualified
successor within 90 days,
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(2) New World Pasta, at its option, notifies the trustee in writing
that it elects to cause the issuance of new notes in definitive form under
the indenture or
(3) upon the occurrence of other specified events, then, upon
surrender by The Depository Trust Company of its global notes, certificated
securities will be issued to each person that The Depository Trust Company
identifies as the beneficial owner of the new notes represented by the
global notes.
Upon any such issuance, the trustee is required to register the certificated
securities in the name of the persons identified as beneficial owners -- or the
nominee of any thereof -- and cause the same to be delivered to these persons.
NO LIABILITY FOR DELAY IN IDENTIFYING BENEFICIAL OWNERS. Neither New World
Pasta nor the trustee will be liable for any delay by The Depository Trust
Company or any DTC Participant or Indirect DTC Participant in identifying the
beneficial owners of the related new notes and each beneficial owner may
conclusively rely on, and will be protected in relying on, instructions from The
Depository Trust Company for all purposes, including with respect to the
registration and delivery, and the respective principal amounts, of the new
notes to be issued.
REGISTRATION RIGHTS
Holders of the new notes are not entitled to any registration rights with
respect to the new notes. On February 19, 1999, New World Pasta, New World
Pasta's wholly owned subsidiaries, Pasta Group, L.L.C. and Winchester Pasta,
L.L.C., Morgan Stanley & Co. Incorporated and Scotia Capital Markets (USA), Inc.
entered into a Registration Rights Agreement. The Registration Rights Agreement
requires New World Pasta and the subsidiary guarantors to use their reasonable
best efforts to cause a registration statement relating to the exchange of old
notes for registered new notes to be declared effective under the Securities Act
by August 18, 1999. We have also agreed to bear the cost of preparing, filing
and having the registration statement declared effective. The registration
statement of which this prospectus forms a part is the registration statement
required by the Registration Rights Agreement. Upon the registration statement
being declared effective, New World Pasta and the subsidiary guarantors will
offer to all holders of the old notes an opportunity to exchange their
securities for a like principal amount of the new notes and the related
guarantees. New World Pasta and the subsidiary guarantors will keep the exchange
offer open for acceptance for not less than 20 business days -- or longer if
required by applicable law -- after the date notice of the exchange offer is
mailed to the holders of the old notes, subject to customary exceptions. For
each old note accepted for exchange in the exchange offer, the holder of the old
note will receive a new note with a principal amount at maturity equal to that
of the surrendered old note. Interest on the new note will accrue:
(1) from the later of
(a) the last date to which interest was paid on the old note
surrendered in exchange for the new note or
(b) if the old note is surrendered for exchange on a date in a period
which includes the record date for an interest payment date to occur on or
after the date of the exchange and as to which interest will be paid, the
date to which interest will be paid on the interest payment date or
(2) if no interest has been paid on the old note, from and including
February 19, 1999.
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Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that the new notes and the related
guarantees you receive in the exchange offer may be offered for resale, resold
or otherwise transferred without compliance with the registration and prospectus
delivery provisions of the Securities Act. By tendering your old notes, you
represent to us:
- that you are not an "affiliate" of New World Pasta, as defined in Rule
405 under the Securities Act;
- that any new notes you receive in the exchange offer are being acquired
by you in the ordinary course of your business;
- that at the time of the commencement of the exchange offer, neither you
nor, to your knowledge, anyone receiving new notes from you, has any
arrangement or understanding with any person to participate in the
distribution of the new notes in violation of the Securities Act, as
defined in the Securities Act;
- if you are not a participating broker-dealer, that you are not engaged
in, and do not intend to engage in, the distribution of the new notes, as
defined in the Securities Act; and
- if you are a participating broker-dealer, that you will receive the new
notes for your own account in exchange for old notes that were acquired
by you as a result of your market-making or other trading activities and
that you will deliver a prospectus in connection with any resale of the
new notes you receive.
The SEC has taken the position that participating broker-dealers may fulfill
their prospectus delivery requirements with respect to resales of the new
notes -- other than a resale of an unsold allotment from the original sale of
the old notes -- by delivering this prospectus to prospective purchasers. New
World Pasta and the subsidiary guarantors have agreed that for a period of not
less than 90 nor more than 270 days after the date on which the registration
statement of which this prospectus forms a part is declared effective, they will
make this prospectus, as amended or supplemented, available to any participating
broker-dealer for use in connection with any resale of the new notes. For
further information regarding the obligations of participating broker-dealers,
including the prospectus delivery requirement, see "Plan of Distribution."
Under some circumstances, we may be required to file a shelf registration
statement covering resales of the old notes. This requirement will be triggered
if:
- because of any change in currently prevailing interpretations of the
staff of the SEC, we are not permitted to effect the exchange offer;
- the exchange offer is not completed by September 17, 1999;
- under some circumstances, holders of unregistered new notes request that
we do so; or
- upon completion of the exchange offer, a holder who has properly tendered
old notes does not receive in exchange new notes that are freely
transferable under federal and state securities laws -- other than as a
result of the holder's status as an "affiliate" of New World Pasta, as
defined in the Securities Act.
If we are required to file the shelf registration statement, then we will
- promptly deliver to the holders of the old notes and the trustee written
notice of our intention to file the shelf registration statement;
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- as promptly as practicable and at our expense, file the shelf
registration statement with the SEC;
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act; and
- subject to customary exceptions, use our reasonable best efforts to keep
the shelf registration statement effective until the earlier of:
- the date on which, in the written opinion of our counsel, all
outstanding old notes held by persons that are not affiliates of New
World Pasta may be resold without registration under the Securities
Act pursuant to Rule 144(k) under the Securities Act or any successor
provision; and
- such time as all of the old notes have been sold under the shelf
registration statement.
In the event that a shelf registration statement is filed, we will:
- provide a copy of the prospectus that forms a part of the shelf
registration statement to each holder of old notes;
- notify each holder of old notes when the shelf registration statement has
been declared effective; and
- take other actions as are required to permit unrestricted resales of the
old notes.
If you sell old notes under the shelf registration statement:
- you must be named as a selling security holder in the prospectus that
forms a part of the shelf registration statement;
- you must deliver a prospectus to any purchasers of your old notes;
- you will be subject to the civil liability provisions of the Securities
Act in connection with such sales; and
- you will be bound by the provisions of the Registration Rights Agreement
that are applicable to holders who sell their old notes under the shelf
registration statement, including various indemnification rights and
obligations.
If by [the 35th day following effectiveness of the Registration Statement],
1999, neither
(1) the exchange offer is completed nor
(2) the shelf registration statement is declared effective,
the rate per annum at which the old notes bear interest will increase by 0.5%
every 90 days up to a maximum increase of 1.0%, until the earlier of
(1) the completion of the exchange offer and
(2) the effective date of the shelf registration statement.
This summary of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the full text of the Registration Rights Agreement, a copy of which is filed as
an exhibit to the registration statement of which this prospectus forms a part
and is incorporated by reference in this prospectus.
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DESCRIPTION OF OTHER INDEBTEDNESS
In connection with the recapitalization in which our current principals
acquired control of New World Pasta, New World Pasta entered into $250.0 million
of senior credit facilities. The following summary of the material provisions of
the senior credit facilities does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the terms of the senior credit
facilities.
Under the senior credit facilities, a syndicate of lenders led by The Bank
of Nova Scotia made a total of $250.0 million available to New World Pasta in
the form of the $50.0 million term loan, fully drawn on the closing thereof, the
$150.0 million term loan, fully drawn on the closing thereof, and a commitment
to provide a revolving credit facility of up to $50.0 million. To date, New
World Pasta has borrowed $200.0 million under the $50.0 million term loan and
the $150.0 million term loan and has not borrowed any funds under the revolving
credit facility. Proceeds from the senior credit facilities were used by New
World Pasta to finance a portion of the stock purchase price associated with the
recapitalization, to pay fees and expenses associated with the recapitalization
and to provide for the general corporate and working capital needs of New World
Pasta and its subsidiaries. New World Pasta used a portion of the proceeds of
the offering of the old notes to repay the $50.0 million term loan in full. The
loans under the senior credit facilities bear interest at variable rates at a
fixed margin above either The Bank of Nova Scotia's alternate base rate or its
reserve-adjusted LIBO rate. The terms and conditions of the senior credit
facilities with respect to collateral, guarantees, covenants and events of
default are customary for transactions similar to the recapitalization.
The senior credit facilities are secured by a first-priority perfected lien
on a portion of the capital stock of New World Pasta and substantially all of
the capital stock of each of its subsidiaries and all property and assets,
tangible and intangible, of New World Pasta and each of its subsidiaries,
whenever acquired and wherever located, except that no assets of non-U.S.
subsidiaries and not more than 65% of the equity interests of non-U.S.
subsidiaries are required to be pledged as security supported by the pledge by
New World Pasta, LLC and Miller Pasta, LLC of their respective shares of stock
in New World Pasta.
The senior credit facilities are also guaranteed by New World Pasta, LLC
and all direct and indirect subsidiaries of New World Pasta other than non-U.S.
subsidiaries.
New World Pasta may voluntarily prepay some or all of its obligations under
the senior credit facilities. In addition, the loans under the senior credit
facilities are subject to mandatory prepayment under some circumstances,
including if New World Pasta generates excess cash flow, as described above
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
REVOLVING CREDIT FACILITY. Pursuant to the revolving credit facility, up
to $50.0 million may be borrowed, repaid and reborrowed by New World Pasta from
time to time. Letters of credit up to $10,000,000 in the aggregate and swing
line loans up to $5,000,000 in the aggregate are available under the revolving
credit facility. At New World Pasta's option, loans under the revolving credit
facility bear interest at either The Bank of Nova Scotia's alternate base rate
or reserve-adjusted LIBO rate, plus, in each case, an applicable margin. For the
first six months following the closing of the senior credit facilities, the
applicable margin will be 2.75% in the case of LIBO rate loans and 1.75% in the
case of alternate base rate loans. Thereafter, the applicable margin will be
subject to performance based reductions, with the rate determined according to
the results of New World Pasta's
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<PAGE> 151
operations and its financial position. Swing line loans bear interest at The
Bank of Nova Scotia's alternate base rate plus an applicable margin then in
effect for revolving credit loans. The revolving credit facility terminates six
years after the closing date of the senior credit facilities.
$50.0 MILLION TERM LOAN. The $50.0 million term loan was made available in
a single borrowing that occurred on the closing date of the senior credit
facilities, and once repaid, cannot be reborrowed. The $50.0 million term loan
bears interest at the same optional rates as the revolving credit facility and
matures on the sixth anniversary of the closing of the senior credit facilities.
New World Pasta was required to make mandatory repayments of principal on the
$50.0 million term loan on each March 31, June 30, September 30 and December 31,
beginning June 30, 1999 as follows:
- $1,250,000 on each of the first four such dates,
- $1,875,000 on each of the following eight such dates,
- $2,500,000 on each of the following 11 such dates, and
- $2,500,000 -- or the remaining principal amount outstanding on the $50.0
million term loan, if different -- at maturity.
The $50.0 million term loan was repaid with a portion of the proceeds from the
offering of the old notes.
$150.0 MILLION TERM LOAN. The $150.0 million term loan was made available
in a single borrowing that occurred on the closing date of the senior credit
facilities, and once repaid, cannot be reborrowed. At New World Pasta's option,
the $150.0 million term loan bears interest at either The Bank of Nova Scotia's
alternate base rate plus 2.25% or its reserve-adjusted LIBO rate plus 3.25%. The
$150.0 million term loan matures on the seventh anniversary of the closing of
the senior credit facilities. New World Pasta must make mandatory repayments of
principal on the $150.0 million term loan on a quarterly basis as follows:
- $375,000 on each March 31, June 30, September 30 and December 31,
beginning June 30, 1999 through and including March 31, 2005,
- $35,250,000 on June 30, September 30 and December 31, 2005, and
- $35,250,000 -- or the remaining principal amount outstanding on the
$150.0 million term loan, if different -- at maturity.
The senior credit facilities contain restrictive covenants limiting the
ability of New World Pasta to, among other things, incur debt, create liens, pay
dividends, make distributions or stock repurchases, make investments or capital
expenditures, engage in transactions with affiliates, sell assets, and engage in
mergers or acquisitions. Except on terms satisfactory to The Bank of Nova
Scotia, New World Pasta is also restricted from refinancing, defeasing,
repurchasing or prepaying its subordinated debt or redeeming or paying cash
dividends on the preferred stock.
The senior credit facilities require New World Pasta to comply with
specified financial tests and to maintain specified financial ratios relating to
total debt, fixed charge coverage, and interest expense coverage. Failure to
satisfy any of these financial covenants constitutes an event of default under
the senior credit facilities. The senior credit facilities also include other
customary events of default, including, without limitation, a cross-default to
other material indebtedness of New World Pasta -- and its subsidiaries or any
guarantor -- or a change of control of New World Pasta.
145
<PAGE> 152
DESCRIPTION OF PREFERRED STOCK
New World Pasta has one class of preferred stock. A total of 115,000 shares
of preferred stock are authorized and 113,485 shares were outstanding upon
completion of the recapitalization in which our current principals acquired
control of New World Pasta. Holders of the preferred stock are not entitled to
preemptive rights. The preferred stock is mandatorily redeemable by New World
Pasta on January 28, 2010 for $1,000 per share plus all accrued and unpaid
dividends to the redemption date or as soon thereafter as will not be prohibited
by New World Pasta's then-existing debt agreements. The preferred stock has a
liquidation preference over the common stock equal to the redemption price of
$1,000 per share plus all accrued and unpaid dividends.
Dividends on the preferred stock are cumulative and are payable when, as
and if declared by our board of directors, at an annual cash dividend of 12% per
year. No dividends or distributions may be made on the common stock unless all
accrued and unpaid dividends are first paid to the holders of the preferred
stock. Without the consent of the holders of a majority of the outstanding
preferred stock, New World Pasta may not enter into any merger, consolidation or
other business combination, unless and until the preferred stock is repurchased
for an amount equal to $1,000 per share plus all accrued and unpaid dividends
thereon. Except as required by law, the holders of the preferred stock are not
entitled to vote on any matter submitted to a vote of the stockholders. The
redemption of, and payment of cash dividends on, the preferred stock is
generally prohibited by the terms of the senior credit facilities and restricted
by the indenture. For a description of the ownership of the preferred stock, see
"Stock Ownership of Certain Beneficial Owners and Management."
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where the old notes
were acquired as a result of market-making activities or other trading
activities. New World Pasta has agreed that for a period of not less than 90 nor
more than 270 days after the effectiveness of the registration statement of
which this prospectus forms a part, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with resales
of the new notes.
New World Pasta will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any resale of the new notes may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account in the exchange
offer and any broker or dealer that participates in a distribution of the new
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of new notes and any commissions or concessions
received by any persons deemed to be underwriters may be deemed to be
underwriting compensation under the Securities Act.
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<PAGE> 153
The enclosed letter of transmittal states that by acknowledging that it will
deliver and be delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of not less than 90 nor more than 270 days after the
effectiveness of the registration statement of which this prospectus forms a
part, New World Pasta will promptly send additional copies of this prospectus
and any amendment or supplement to this prospectus to any broker-dealer that
requests these documents from the Exchange Agent. New World Pasta has agreed to
pay all expenses incident to the exchange offer -- other than commissions or
concessions of any brokers or dealers -- and will indemnify the holders of the
new notes, including any broker-dealers, against specific liabilities, including
liabilities under the Securities Act.
Following completion of the exchange offer, New World Pasta may, in its
sole discretion, commence one or more additional exchange offers to holders of
old notes who did not exchange their old notes for new notes in the exchange
offer on terms which may differ from those contained in the prospectus and the
enclosed letter of transmittal, as provided in the Registration Rights
Agreement. This prospectus, as it may be amended or supplemented from time to
time, may be used by New World Pasta in connection with any additional exchange
offers. These additional exchange offers may take place from time to time until
all outstanding old notes have been exchanged for new notes, subject to the
terms and conditions contained in the prospectus and letter of transmittal
distributed by New World Pasta in connection with these additional exchange
offers.
LEGAL MATTERS
The legality of the new notes offered hereby is being passed upon for New
World Pasta by Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The combined financial statements of Hershey Pasta Group for the fiscal
years ended December 31, 1998, 1997 and 1996 included in this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as in giving said reports.
AVAILABLE INFORMATION
New World Pasta and the subsidiary guarantors have filed with the SEC a
Registration Statement on Form S-4, of which this prospectus forms a part, under
the Securities Act, in connection with our offering of the new notes. As
permitted by the rules and regulations of the SEC, this prospectus does not
contain all of the information in the registration statement. You will find
additional information about New World Pasta, the subsidiary guarantors and the
new notes in the registration statement. Any statements made in this prospectus
concerning the provisions of legal documents are not necessarily complete and
you should read the documents that are filed as exhibits to the registration
statement.
As a result of the exchange offer, New World Pasta will become subject to
the informational requirements of the Exchange Act and will file periodic
reports, statements and other information with the SEC. We do not expect that
the subsidiary guarantors will
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<PAGE> 154
be subject to the informational requirements of the Exchange Act. You may
inspect and copy the registration statement, including exhibits, and, when
filed, our periodic reports, statements and other information filed with the SEC
at the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, New York, New York 10048 and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies may be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also
maintains a Web site at http://www.sec.gov which will contain, when filed, our
reports, statements and other information filed with the SEC.
If we are not required to be subject to the reporting requirements of the
Exchange Act in the future, we will be required under the indenture for the new
notes and the old notes to continue to file with the SEC and to furnish to
holders of the new notes and the old notes the reports, statements and other
information specified in Sections 13 and 15(d) of the Exchange Act, including
annual reports containing audited consolidated financial statements of New World
Pasta and quarterly reports containing unaudited condensed consolidated
financial data for the first three quarters of each fiscal year.
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<PAGE> 155
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HERSHEY PASTA GROUP:
Report of Independent Public Accountants.................... F-2
Combined Statements of Income and Parent Company's
Investment and Advances for the years ended December 31,
1996, 1997 and 1998 (audited)............................. F-3
Combined Balance Sheets as of December 31, 1997 and 1998
(audited)................................................. F-4
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 (audited)................ F-5
Notes to Combined Financial Statements for the years ended
December 31, 1996, 1997 and 1998 (audited)................ F-6
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NEW WORLD PASTA COMPANY:
Consolidated Statements of Income (unaudited) for the three
months ended April 5, 1998 and April 4, 1999.............. F-19
Consolidated Balance Sheets as of December 31, 1998 and
April 4, 1999 (unaudited)................................. F-20
Consolidated Statements of Cash Flows (unaudited) for the
three months ended April 5, 1998 and April 4, 1999........ F-21
Consolidated Statement of Stockholders' Equity (Deficit) for
the three months ended April 4, 1999 (unaudited).......... F-22
Notes to Consolidated Financial Statements for the three
months ended April 4, 1999 (unaudited).................... F-23
</TABLE>
F-1
<PAGE> 156
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hershey Foods Corporation:
We have audited the accompanying combined balance sheets of the Hershey Pasta
Group (Note 1) as of December 31, 1998 and 1997, and the related combined
statements of income and parent company's investment and advances and cash flows
for the three years in the period then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Hershey Pasta
Group as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the three years in the period then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
February 12, 1999
F-2
<PAGE> 157
HERSHEY PASTA GROUP
COMBINED STATEMENTS OF INCOME AND PARENT COMPANY'S
INVESTMENT AND ADVANCES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales................................................... $407,370 $386,218 $373,096
Cost of Sales............................................... 235,025 210,003 205,773
-------- -------- --------
Gross Profit.............................................. 172,345 176,215 167,323
Marketing Expenses.......................................... 106,121 101,731 92,081
Selling, General and Administrative Expenses................ 35,080 32,764 33,374
-------- -------- --------
Income before Provision for Income Taxes.................. 31,144 41,720 41,868
Provision for Income Taxes.................................. 12,451 16,563 15,954
-------- -------- --------
Net Income................................................ 18,693 25,157 25,914
Parent Company's Investment and Advances, beginning of
period.................................................... 194,155 183,698 162,777
Advances and Withdrawals, net............................... (29,150) (46,078) (21,747)
-------- -------- --------
Parent Company's Investment and Advances, end of period..... $183,698 $162,777 $166,944
======== ======== ========
</TABLE>
The notes to combined financial statements are an integral part of these
combined statements.
F-3
<PAGE> 158
HERSHEY PASTA GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable -- trade........................... $ 15,889 $ 18,447
Inventories............................................ 22,161 22,547
Deferred income taxes.................................. 6,857 3,275
Prepaid expenses and other............................. 1,453 4,793
-------- --------
Total current assets........................... 46,360 49,062
Property, Plant and Equipment, Net....................... 116,078 108,928
Intangible Assets, Net................................... 69,482 67,027
-------- --------
Total assets................................... $231,920 $225,017
======== ========
LIABILITIES AND PARENT COMPANY'S INVESTMENT AND ADVANCES
CURRENT LIABILITIES:
Accounts payable....................................... $ 14,862 $ 9,657
Accrued liabilities.................................... 23,315 18,607
-------- --------
Total current liabilities...................... 38,177 28,264
Other Long-Term Liabilities.............................. 7,678 7,872
Deferred Income Taxes.................................... 23,288 21,937
-------- --------
Total liabilities.............................. 69,143 58,073
Parent Company's Investment and Advances................. 162,777 166,944
-------- --------
Total liabilities and parent company's
investment and advances..................... $231,920 $225,017
======== ========
</TABLE>
The notes to combined financial statements are an integral part of these
combined balance sheets.
F-4
<PAGE> 159
HERSHEY PASTA GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED BY) OPERATING
ACTIVITIES
Net income.................................. $ 18,693 $ 25,157 $ 25,914
Adjustments to reconcile net income to net
cash provided from operations:
Depreciation and amortization............ 15,992 15,437 14,647
Property, plant and equipment
retirements............................ 1,751 1,413 (382)
Deferred income taxes.................... 292 (1,598) 2,231
Changes in assets and liabilities:
Accounts receivable -- trade........... 1,604 1,068 (2,558)
Inventories............................ 3,624 (271) (386)
Accounts payable....................... (3,577) 3,919 (5,205)
Accrued liabilities.................... (1,073) 3,640 (4,708)
Other assets and liabilities........... 724 (1,141) (3,146)
Other, net............................... 26 304 --
-------- -------- --------
Net Cash Provided from Operating Activities... 38,056 47,928 26,407
-------- -------- --------
CASH FLOWS PROVIDED FROM (USED BY) INVESTING
ACTIVITIES
Purchases of property, plant and
equipment................................ (8,906) (1,850) (4,660)
-------- -------- --------
Net Cash (Used by) Investing Activities....... (8,906) (1,850) (4,660)
-------- -------- --------
CASH FLOWS PROVIDED FROM (USED BY) FINANCING
ACTIVITIES
Advances and withdrawals, net............... (29,150) (46,078) (21,747)
-------- -------- --------
Net Cash (Used by) Financing Activities....... (29,150) (46,078) (21,747)
-------- -------- --------
Increase (Decrease) in Cash................... $ -- $ -- $ --
======== ======== ========
</TABLE>
The notes to combined financial statements are an integral part of these
combined statements.
F-5
<PAGE> 160
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The accompanying combined financial statements include the operations of
Hershey Pasta Group (HPG), a division of Hershey Foods Corporation (HFC), which
is a Delaware corporation. HPG is comprised of Hershey Pasta Manufacturing
Company (HPMC), Hershey Pasta Group Winchester, Inc., each of which is an
operating subsidiary of HFC, and certain directly and indirectly owned assets of
HFC.
On January 28, 1999, HFC effected a recapitalization whereby New World LLC
and Miller LLC acquired a controlling interest in HPG while Hershey Chocolate &
Confectionery Corporation (HCCC), a HFC wholly owned subsidiary, retained a
substantive minority ownership interest. Prior to the recapitalization, HFC
completed a reorganization whereby HPMC became a wholly owned subsidiary of HCCC
and the net assets of HPG were transferred into HPMC. HPMC subsequently changed
its name to New World Pasta Company (New World Pasta).
As part of the recapitalization, New World Pasta repurchased $307.7 million
of its common stock from HCCC, and New World LLC directly purchased from HCCC
$100.6 million of mandatorily redeemable non-voting preferred stock and $41.7
million of common stock. New World Pasta issued $12.8 million of mandatorily
redeemable non-voting preferred stock and $5.3 million of common stock directly
to Miller LLC. Upon completion of the recapitalization, HCCC retained 6.0% of
the voting equity of New World Pasta and New World Pasta LLC and Miller LLC held
83.4% and 10.6%, respectively. The historical basis of accounting for New World
Pasta has been maintained.
HPG manufactures and sells quality pasta products in a variety of shapes,
sizes, flavors and packages throughout the United States. HPG markets its
products on a regional basis under several brand names, including AMERICAN
BEAUTY, IDEAL BY SAN GIORGIO, LIGHT 'N FLUFFY, MRS. WEISS', P&R, RONZONI, SAN
GIORGIO and SKINNER, as well as certain private labels.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Retail products........................... $359,222 $341,908 $332,737
Industrial & other........................ 48,148 44,310 40,359
-------- -------- --------
Total..................................... $407,370 $386,218 $373,096
======== ======== ========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies employed by HPG are discussed below and in
other notes to the combined financial statements.
COMBINATION
The accompanying combined financial statements include the accounts of HPG
and its combining entities after elimination of all significant intercompany
accounts and transactions.
F-6
<PAGE> 161
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period with consideration given to materiality. Actual results could
differ from those estimates, particularly for accounts receivable, inventory and
certain current and long-term liabilities.
COMMODITIES FUTURES AND OPTIONS CONTRACTS
In connection with the purchasing of semolina milled from durum wheat for
anticipated manufacturing requirements, HPG began utilizing commodities futures
contracts in 1998 to reduce the effect of price fluctuations. In accordance with
Statement of Financial Accounting Standards No. 80 "Accounting for Futures
Contracts," these futures contracts meet the hedge criteria and are accounted
for as hedges. Accordingly, gains and losses are deferred and recognized in cost
of sales as part of the product cost.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000,
but may be implemented as of the beginning of any fiscal quarter after issuance.
Retroactive application is not permitted. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997. Changes in accounting methods will be required for commodity futures
contracts utilized by HPG to hedge commodity price risks. As of December 31,
1998, approximately $2 million of deferred losses on commodity futures contracts
included in prepaid expenses and other assets would be tax effected and
classified as accumulated other comprehensive income upon adoption of SFAS No.
133.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
buildings, machinery and equipment is computed using the straight-line method
over the estimated useful lives of the various classes of assets ranging from
three to 40 years.
F-7
<PAGE> 162
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangible assets resulting from business acquisitions principally consist
of the excess of the acquisition cost over the fair value of the net assets of
businesses acquired (goodwill). Goodwill, net of accumulated amortization, was
$66.4 million and $64.3 million as of December 31, 1997 and 1998, respectively.
Goodwill is amortized on a straight-line basis over 40 years. Other intangible
assets are amortized on a straight-line basis over their estimated useful lives.
HPG periodically evaluates whether events or circumstances have occurred
indicating that the carrying amount of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, HPG
uses an estimate of the acquired business' undiscounted future cash flows
compared to the related carrying amount of net assets, including goodwill, to
determine if an impairment loss should be recognized. Accumulated amortization
of intangible assets resulting from business acquisitions was $24.0 million and
$26.5 million as of December 31, 1997 and 1998, respectively.
PARENT COMPANY'S INVESTMENT AND ADVANCES
HFC's investment and advances includes the stockholder's equity of HPG. The
equity of HPG represents the original investment by HFC, plus accumulated net
income, allocation of expenses related to services provided by HFC and income
taxes payable. As of December 31, 1998, HPG had no components of accumulated
other comprehensive income under Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income. Cash is swept daily by HFC which funds the
operations of HPG.
RESEARCH AND DEVELOPMENT
HPG expenses research and development costs as incurred. Research and
development expense was $.1 million, $.3 million and $.4 million for the years
ended December 31, 1996, 1997 and 1998, respectively.
ADVERTISING
HPG expenses advertising costs as incurred. Advertising expense was $3.1
million, $2.4 million and $3.1 million for the years ended December 31, 1996,
1997 and 1998, respectively.
3. RENTAL AND LEASE COMMITMENTS
Rent expense was $.7 million, $1.0 million and $1.5 million for the years
ended December 31, 1996, 1997 and 1998, respectively. Rent expense pertains to
all operating leases, which are principally related to certain sales offices,
distribution facilities and transportation equipment. There are no future
minimum rental payments required under non-cancelable operating leases.
4. INCOME TAXES
The operations of HPG are included in the consolidated tax returns of HFC.
The provision for income taxes includes the effect of certain temporary
differences between amounts reported in the external financial statements and
Federal income tax returns of
F-8
<PAGE> 163
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
HFC on a separate return basis. The temporary differences are primarily
attributable to depreciation, allowances for trade promotion accruals and
doubtful accounts. Accordingly, deferred tax assets and liabilities have been
reflected on the balance sheet to account for these temporary differences.
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal................................ $10,761 $15,788 $11,459
State.................................. 1,398 2,373 2,264
------- ------- -------
Current provision for income taxes....... 12,159 18,161 13,723
------- ------- -------
Deferred:
Federal................................ 130 (770) 531
State.................................. 162 (828) 1,700
------- ------- -------
Deferred provision (benefit) for income
taxes.................................. 292 (1,598) 2,231
------- ------- -------
Total provision for income taxes......... $12,451 $16,563 $15,954
======= ======= =======
</TABLE>
F-9
<PAGE> 164
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the significant temporary differences which comprised
the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Post-retirement benefit and other employee
obligations......................................... $ 2,420 $ 2,447
Accrued expenses and other reserves.................... 5,563 3,201
Inventory and packaging................................ 1,008 159
------- -------
Total deferred tax assets...................... 8,991 5,807
------- -------
Deferred tax liabilities:
Depreciation........................................... 23,204 22,907
Acquisition assets and other........................... 2,218 1,562
------- -------
Total deferred tax liabilities................. 25,422 24,469
------- -------
Net deferred tax liabilities............................. $16,431 $18,662
======= =======
Included in:
Current deferred tax assets, net....................... $ 6,857 $ 3,275
Non-current deferred tax liabilities, net.............. 23,288 21,937
------- -------
Net deferred tax liabilities............................. $16,431 $18,662
======= =======
</TABLE>
A reconciliation between the effective tax rate and the Federal statutory
rates is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate......................... 35.0% 35.0% 35.0%
Increase resulting from:
State income taxes, net of Federal income tax
benefits............................................. 2.7 2.1 1.5
Non-deductible acquisition costs........................ 2.0 1.5 1.5
Other, net.............................................. .3 1.1 .1
---- ---- ----
Effective income tax rate................................. 40.0% 39.7% 38.1%
==== ==== ====
</TABLE>
5. RELATED PARTY TRANSACTIONS
Certain HFC general and administrative expenses which are more specifically
allocable to HPG have been included in the accompanying combined statements of
income as allocated by HFC. In 1996, these included building rent and
information technology expenses of $2.0 million. For the years ended December
31, 1997 and 1998, total expenses of $3.8 million and $3.9 million,
respectively, were charged for building rent, information
F-10
<PAGE> 165
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
technology, quality assurance, logistics, packaging and procurement services.
Quality assurance, logistics, packaging and procurement services were directly
charged in 1996. The results of operations for 1998 include incremental
allocated costs relating to accounts receivable accounting and divisional
accounting. These costs were directly charged in 1997. The allocation of these
costs are based on certain methodologies which management believes reasonably
approximate the cost of resources provided or services performed. These
methodologies include a cost per square foot basis for building rent, percentage
of pounds shipped for logistics, and direct costs where indentifiable or as a
percentage of cost of sales for all other services.
HFC charges HPG for its share of group insurance costs for eligible HPG
employees based upon location specific costs, HFC's overall insurance costs and
loss experience incurred during a calendar year. Pension costs are also charged
to HPG based upon eligible employees participating in the plans. In addition,
HFC charges HPG for its share of retiree medical expenses and for its share of
matching contributions to HFC's 401(k) plans.
Various insurance coverages are provided to HPG through HFC's consolidated
programs. Workers compensation, auto, property, product liability and other
insurance coverages are charged directly based on HPG's loss experience.
In 1997, HPG's sales organization was combined with the sales force
responsible for selling HFC's grocery products. During 1997 and 1998, certain
sales management and administrative costs were charged directly or allocated by
HPG to the HFC grocery division. The total of such charges was $14.3 million and
$15.6 million, respectively for the years ended December 31, 1997 and 1998. Such
allocation was based on sales revenue which management believes approximates the
cost of resources provided.
Certain other HFC general and administrative expenses including certain
department costs for: finance, HFC corporate accounting, treasury, legal, tax,
risk management, salaries of corporate officers and staff, human resources and
science and technology costs have been excluded from the accompanying combined
statements of income as they do not benefit HPG operating entities. As such,
costs are not allocated for purposes of these combined statements.
F-11
<PAGE> 166
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the inter-company accounts with Hershey Foods Corporation is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance due from(to) Hershey......... $ (30,569) $ 3,269 $ 55,976
Collections.................................... 341,175 336,445 316,513
Bank account disbursement funding.............. (258,137) (241,393) (238,797)
Employee benefits.............................. (8,418) (7,964) (6,413)
Non-employee insurance......................... (2,853) (2,007) (2,100)
Income taxes................................... (10,209) (13,967) (21,221)
Shared service chargebacks..................... (1,194) (4,325) (7,210)
Payroll and payroll taxes...................... (28,883) (30,543) (28,617)
Grocery selling expense........................ -- 14,312 15,615
Flour future losses............................ -- -- (3,509)
Other.......................................... 2,357 2,149 (2,887)
--------- --------- ---------
Ending balance due from Hershey................ $ 3,269 $ 55,976 $ 77,350
========= ========= =========
Average balance during the period.............. $ (14,937) $ 29,477 $ 68,997
========= ========= =========
</TABLE>
6. EMPLOYEE BENEFITS
HPG participates in several HFC defined benefit plans which provide
retirement benefits to substantially all non-union and certain union employees,
as well as union administered multi-employer plans. Upon completion of the HPG
sale, HPG's salaried employees and all Winchester plant employees will no longer
participate in the HFC Retirement Plan. Hourly employees at the Omaha and
Louisville manufacturing facilities participate in single employer pension plans
administered by HFC. Hourly employees at the Fresno, Kansas City and Lebanon
manufacturing facilities participate in multi-employer plans.
HFC's policy is to fund domestic pension liabilities in accordance with the
minimum and maximum limits imposed by the Employee Retirement Income Security
Act of 1974 and Federal income tax laws, respectively. Plan assets are invested
in a broadly diversified portfolio consisting primarily of domestic and
international common stocks and fixed income securities. Other benefits include
health care and life insurance provided by HPG under a post-retirement benefit
plan.
F-12
<PAGE> 167
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1997 1998 1997 1998
------- ------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year................................ $12,704 $15,868 $ 3,600 $ 4,200
Service cost.......................... 1,001 1,115 200 200
Interest cost......................... 964 1,119 300 300
Amendments............................ -- 24 -- (200)
Actuarial (gain)/loss................. 1,667 1,973 100 (300)
Benefits paid......................... (468) (708) -- --
------- ------- ------- -------
Benefit obligation at end of year..... $15,868 $19,391 $ 4,200 $ 4,200
======= ======= ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year............................. 12,915 16,449 -- --
Actual return on plan assets.......... 3,369 1,982 -- --
Employer contribution................. 633 651 -- --
Benefits paid......................... (468) (708) -- --
------- ------- ------- -------
Fair value of plan assets at end of
year................................ $16,449 $18,374 $ -- $ --
======= ======= ======= =======
FUNDED STATUS......................... 581 (1,017) (4,200) (4,200)
Unrecognized transition obligation.... 143 133 -- --
Unrecognized prior service cost....... 229 229 (400) (500)
Unrecognized net actuarial loss
(gain).............................. (252) 1,436 (1,604) (1,574)
------- ------- ------- -------
Prepaid (accrued) benefit cost........ $ 701 $ 781 $(6,204) $(6,274)
======= ======= ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate......................... 7.00% 6.40% 7.00% 6.40%
Expected long-term rate of return on
assets.............................. 9.50 9.50 N/A N/A
Rate of increase in compensation
levels.............................. 5.00 4.90 N/A N/A
</TABLE>
For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999 and future years.
$5.3 million of accrued other benefit costs are included in other long-term
liabilities at December 31, 1997 and 1998. $701,000 and $781,000 of prepaid
pension benefits are included in prepaid expenses and other at December 31, 1997
and 1998, respectively, and $904,000 and $974,000 of accrued other benefits are
included in accrued liabilities -- current at December 31, 1997 and 1998,
respectively.
F-13
<PAGE> 168
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
--------------------------- ------------------
1996 1997 1998 1996 1997 1998
------- ------- ------- ---- ---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost.................. $ 1,019 $ 1,001 $ 1,115 $181 $200 $200
Interest cost................. 871 964 1,119 243 300 300
Expected return on plan
assets...................... (1,081) (1,172) (1,532) -- -- --
Amortization of prior service
cost........................ 240 23 24 (72) -- (100)
Recognized net actuarial
loss........................ -- 13 33 -- -- --
------- ------- ------- ---- ---- ----
Corporate sponsored plans..... 1,049 829 759 352 500 400
Multi-employer plans.......... 466 448 413 -- -- --
------- ------- ------- ---- ---- ----
Net periodic benefit cost..... $ 1,515 $ 1,277 $ 1,172 $352 $500 $400
======= ======= ======= ==== ==== ====
</TABLE>
HPG has two non-pension post retirement benefit plans. The health care plan
is contributory, with participants' contributions adjusted annually; the life
insurance plan is non-contributory.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan.
A one percentage point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1 PERCENTAGE POINT 1 PERCENTAGE POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total service and
interest cost
components................ $ 23 $ (21)
Effect on post retirement
benefit obligation........ 210 (189)
</TABLE>
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
ACCOUNTS RECEIVABLE -- TRADE
In the normal course of business, HPG extends credit to customers which
satisfy pre-defined credit criteria. Revenues are recognized upon shipment of
goods. HPG operates in a single industry and is not dependent upon any single or
major group of customers for its sales. HPG believes that it has little
concentration of credit risk due to the diversity of its customer base.
Receivables, as shown on the balance sheets, were net of allowances and
anticipated discounts of $2.7 million and $4.2 million as of December 31, 1997
and 1998.
F-14
<PAGE> 169
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes allowances and anticipated discounts and their
related activity:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER FROM AT END
OF PERIOD EXPENSES ACCOUNTS(A) RESERVES OF PERIOD
ALLOWANCES AND DISCOUNTS ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996:.................... $1,229 $ 761 $(41) $ -- $1,949
Year Ended December 31,
1997:.................... 1,949 1,619 10 (850) 2,728
Year Ended December 31,
1998:.................... 2,728 2,468 18 (1,032) 4,182
</TABLE>
- -------------------------
(a) Includes recoveries of amounts previously written off.
INVENTORIES
HPG values much of its inventories under the last-in, first-out (LIFO)
method and the remaining inventories at the lower of first-in, first-out (FIFO)
cost or market. Inventories valued using the LIFO method totaled $7.9 million as
of December 31, 1997 and 1998. All inventories were stated at amounts that did
not exceed realizable values. Total inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials.................................. $ 6,568 $ 5,901
Goods in process............................... 395 320
Finished goods................................. 18,298 17,309
--------- ---------
Inventories at FIFO............................ 25,261 23,530
Adjustment to LIFO............................. (3,100) (983)
--------- ---------
Total inventories.................... $ 22,161 $ 22,547
========= =========
</TABLE>
F-15
<PAGE> 170
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PREPAID EXPENSES AND OTHER
Prepaid expenses and other assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Commodity related transactions................. $ -- $ 2,221
Prepaid pension................................ 701 781
Other.......................................... 752 1,791
--------- ---------
Total prepaid expenses and other..... $ 1,453 $ 4,793
========= =========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances included construction in progress of
$1.1 million and $1.5 million as of December 31, 1997 and 1998, respectively.
Major classes of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Land........................................... $ 3,666 $ 3,666
Buildings...................................... 33,181 33,486
Machinery and equipment........................ 183,554 188,185
--------- ---------
Property, plant and equipment, gross........... 220,401 225,337
Accumulated depreciation....................... (104,323) (116,409)
--------- ---------
Property, plant and equipment, net............. $ 116,078 $ 108,928
========= =========
</TABLE>
ACCRUED LIABILITIES
Accrued liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Payroll and other compensation................. $ 5,603 $ 5,243
Advertising and promotion...................... 15,400 10,932
Accrued insurance.............................. 1,058 1,045
Other.......................................... 1,254 1,387
--------- ---------
Total accrued liabilities............ $ 23,315 $ 18,607
========= =========
</TABLE>
F-16
<PAGE> 171
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Accrued post-retirement benefits............... $ 5,300 $ 5,300
Accrued insurance.............................. 2,378 2,572
--------- ---------
Total other long-term liabilities.... $ 7,678 $ 7,872
========= =========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, HPG is involved in various pending or
threatened litigation claims. Although the outcome of any legal proceeding
cannot be predicted with certainty, management believes that any ultimate
liability arising from such matters in the aggregate will not have a material
adverse effect on the combined financial statements.
In 1992, HPG and Miller Milling entered into a custom milling supplier
arrangement for a portion of its semolina requirements. John Miller, President &
CEO of Miller Milling through Miller Pasta LLC, is a stockholder in New World
Pasta Company. The supplier arrangement will continue until the expiration date
of December 31, 2004 without regard to the change in ownership described in Note
1.
9. SUBSIDIARY FINANCIAL INFORMATION
Effective January 28, 1999, the Company has two wholly owned subsidiaries,
Pasta Group L.L.C. and Winchester Pasta, L.L.C. Set forth below is summarized
financial information attributed to the combined subsidiaries on a historical
basis as if the subsidiaries were combined as of January 1, 1996:
<TABLE>
<CAPTION>
1996* 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net Sales............................. $334,209 $315,653 $303,697
Gross Profit.......................... 155,833 160,289 152,459
Operating income...................... 22,099 32,996 32,973
Net income............................ 11,471 18,191 18,136
Current Assets........................ 42,572 46,719
Non-current assets.................... 150,521 142,402
Current liabilities................... 29,650 18,966
Non-current liabilities............... 23,603 22,937
</TABLE>
* This information is estimated; HPMC (the parent company) was incorporated on
January 1, 1997.
F-17
<PAGE> 172
HERSHEY PASTA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT
In connection with the recapitalization explained in Note 1, a syndicate of
lenders led by The Bank of Nova Scotia provided New World Pasta with the
following financing:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Revolving Credit Facility......................... $ 50,000
Term A Loan....................................... 50,000
Term B Loan....................................... 150,000
</TABLE>
The recapitalization was funded with portions of the financings noted above
and with an equity investment of $18.2 million by Miller LLC and the issuance of
$110.0 million in Senior Subordinated Increasing Rate Notes. In February 1999,
$160 million of 9.25% Senior Subordinated Notes due 2009 were issued. The
proceeds of this issuance were used to satisfy the principle obligations
relating to the Revolving Credit Facility Term A Loan and the Senior
Subordinated Increasing Rate Notes.
F-18
<PAGE> 173
NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
-------------------------
APRIL 5, APRIL 4,
1998 1999
----------- ----------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Net Sales................................................... $108,647 $96,271
Cost of Sales............................................... 59,492 51,613
-------- -------
Gross Profit.............................................. 49,155 44,658
Marketing Expenses.......................................... 29,064 27,222
Selling, General and Administrative Expenses................ 7,934 14,252
-------- -------
Income from operations.................................... 12,157 3,184
Interest expense............................................ -- 5,426
-------- -------
Income (loss) before income taxes......................... 12,157 (2,242)
Income taxes................................................ 4,632 1,162
-------- -------
Net income (loss)........................................... 7,525 (3,404)
Dividends on preferred stock................................ -- $(2,427)
-------- -------
Net income (loss) attributable to common stock.............. $ 7,525 $(5,831)
======== =======
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated statements.
F-19
<PAGE> 174
NEW WORLD PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 4,
1998 1999
------------ -----------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ -- $ 13,330
Accounts receivable -- trade..................... 18,447 16,827
Inventories...................................... 22,547 24,871
Deferred income taxes............................ 3,275 --
Prepaid expenses and other....................... 4,793 3,987
-------- --------
Total current assets..................... 49,062 59,015
Property, Plant and Equipment, Net................. 108,928 106,567
Intangible Assets, Net............................. 67,027 66,412
Deferred income taxes.............................. -- 111,744
Deferred debt costs, net........................... -- 8,238
-------- --------
Total assets............................. $225,017 $351,976
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt................ $ -- $ 1,500
Loans payable.................................... -- 449
Accounts payable................................. 9,657 8,448
Accrued liabilities.............................. 18,607 25,501
-------- --------
Total current liabilities................ 28,264 35,898
Long-term debt, less current maturities............ -- 308,500
Other Long-Term Liabilities........................ 7,872 7,872
Deferred Income Taxes.............................. 21,937 --
-------- --------
Total liabilities........................ 58,073 352,270
Mandatorily redeemable cumulative preferred stock
$1,000 par value, 115,000 shares authorized;
113,485 shares issued and outstanding as of April
4, 1999.......................................... -- 115,912
Stockholders' equity (deficit):
Common stock, $10 par value; 5,000,000 shares
authorized; 5,000,000 shares issued and
outstanding as of April 4, 1999............... -- 50,000
Additional paid-in capital....................... -- 112,906
Retained earnings (deficit)...................... 166,944 (279,112)
-------- --------
Total stockholders' equity (deficit)..... 166,944 (116,206)
Total liabilities and stockholders'
equity (deficit)...................... $225,017 $351,976
======== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated balance sheets.
F-20
<PAGE> 175
NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
APRIL 5, APRIL 4,
1998 1999
---------- -----------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES
Net income (loss)......................................... $ 7,525 $ (3,404)
Adjustments to reconcile net income to net cash provided
from operations:
Depreciation and amortization.......................... 3,703 3,798
Deferred income taxes.................................. -- 1,162
Changes in assets and liabilities:
Accounts receivable -- trade......................... (1,947) 1,620
Inventories.......................................... (3,692) (2,324)
Accounts payable..................................... (2,102) (1,209)
Accrued liabilities.................................. 966 6,894
Prepaid expenses and other........................... (1,135) 1,998
------- ---------
Net Cash Provided from Operating Activities................. 3,318 8,535
------- ---------
CASH FLOWS PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Purchases of property, plant and equipment................ (560) (625)
------- ---------
Net Cash (Used by) Investing Activities..................... (560) (625)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt............................ -- 470,449
Proceeds from issuance of preferred stock................. -- 113,485
Proceeds from issuance of common stock.................... -- 50,000
Repayment of debt......................................... -- (160,000)
Deferred debt costs....................................... -- (9,627)
Advances and withdrawals with former parent prior to
recapitalization, net.................................. (2,758) (5,887)
Repurchase of common stock................................ -- (453,000)
------- ---------
Net cash provided from (used by) financing
activities........................................... (2,758) 5,420
Net increase (decrease) in cash and cash equivalents........ -- 13,330
Cash and cash equivalents at beginning of period............ -- --
------- ---------
Cash and cash equivalents at end of period.................. $ -- $ 13,330
======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIODS FOR:
Interest............................................... $ -- $ 2,072
Income taxes........................................... -- 27
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred tax assets.................................... $ -- $ 112,906
Preferred stock dividend............................... -- 2,427
Deferred tax liabilities............................... -- 18,662
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated statements.
F-21
<PAGE> 176
NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED APRIL 4, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999... -- $ -- $ -- $ 166,944 $ 166,944
Net loss..................... -- -- -- (3,404) (3,404)
Issuance of common stock..... 5,000,000 50,000 -- -- 50,000
Preferred stock dividend..... -- -- -- (2,427) (2,427)
Advances and withdrawals, net
with former parent prior to
recapitalization........... -- -- -- (5,887) (5,887)
Repurchase of stockholders'
common stock and
recapitalization followed
by cancellation of treasury
stock, including income tax
effects.................... -- -- 112,906 (434,338) (321,432)
--------- ------- -------- --------- ---------
Balance at April 4, 1999..... 5,000,000 $50,000 $112,906 $(279,112) $(116,206)
========= ======= ======== ========= =========
</TABLE>
The notes to consolidated financial statements are an integral part of this
consolidated statement.
F-22
<PAGE> 177
NEW WORLD PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended April 4, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These financial statements should be read in conjunction with
the management discussion and analysis and the audited financial statements for
the year ended December 31, 1998 included elsewhere in the Prospectus.
New World Pasta Company (New World Pasta) uses a calendar year annual
reporting period, with interim reporting broken down into 4-4-5 (4 week -- 4
week -- 5 week) monthly periods within each quarterly period. New World Pasta's
quarterly periods in 1999 end on April 4, July 4 and October 3 compared to April
5, July 5 and October 4 during 1998.
2. DESCRIPTION OF BUSINESS
On January 28, 1999, Hershey Foods Corporation (HFC) effected a
recapitalization whereby New World Pasta, LLC (New World LLC) and Miller Pasta,
LLC (Miller LLC) acquired a controlling interest in Hershey Pasta Group (HPG),
the predecessor to New World Pasta, while Hershey Chocolate & Confectionery
Corporation (HCCC), an HFC wholly owned subsidiary, retained a substantial
minority ownership interest. Prior to the recapitalization, HFC completed a
reorganization whereby Hershey Pasta Manufacturing Company (HPMC) became a
wholly owned subsidiary of HCCC and the net assets of HPG were transferred into
HPMC. HPMC subsequently changed its name to New World Pasta.
As part of the recapitalization, New World Pasta repurchased $307.7 million
of its common stock from HCCC, and New World LLC directly purchased from HCCC
$100.6 million of mandatorily redeemable non-voting preferred stock and $41.7
million of common stock. New World Pasta issued $12.8 million of mandatorily
redeemable non-voting preferred stock and $5.3 million of common stock directly
to Miller LLC. Upon completion of the recapitalization, HCCC retained 6.0% of
the voting equity of New World Pasta, and New World Pasta LLC and Miller LLC
held 83.4% and 10.6%, respectively. The historical basis of accounting for New
World Pasta has been maintained.
In connection with the Recapitalization, the historical equity was
recapitalized into stockholders' equity and preferred stock.
The net proceeds from the senior subordinated increasing rate notes, and
the borrowings under the $50.0 million term loan and $150.0 million term loan,
were used by New World Pasta to repay a demand note in the amount of $307.7
million that was used to repurchase a portion of the recapitalized common stock
of New World Pasta from HFC. New World LLC then acquired common stock and
preferred stock of New World Pasta directly from Hershey for $142.3 million as
part of the Recapitalization.
F-23
<PAGE> 178
NEW WORLD PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The total amount paid to HFC for the redemption and purchase of common
stock and preferred stock was $450.0 million. New World Pasta issued common and
preferred stock to Miller LLC for $18.2 million.
HFC's retained interest consists of $3.0 million of common stock of New
World Pasta of the Company based on the implied value.
The implied equity investments in New World Pasta following the
recapitalization by the constituent stockholders are as follows (in thousands):
<TABLE>
<CAPTION>
PREFERRED COMMON EQUITY
STOCK STOCK INVESTMENTS
--------- ------- -----------
<S> <C> <C> <C>
New World LLC (common stock at implied
value)...................................... $100,636 $41,679 $142,315
Miller LLC.................................... 12,849 5,321 18,170
HFC retained interest (implied value)......... -- 3,000 3,000
-------- ------- --------
$113,485 $50,000 $163,485
======== ======= ========
</TABLE>
Proceeds from the offering of the old notes were used to repay the $50.0
million term loan and to refinance the senior subordinated increasing rate
notes.
The adjustments to reflect these transactions are as follows (in
thousands):
<TABLE>
<CAPTION>
STOCKHOLDERS'
EQUITY
-----------------
<S> <C>
Historical book value....................................... $ 166,944
---------
Recapitalization transactions:
Recapitalization of certain historical equity into
preferred stock........................................ (100,636)
Repurchase from HFC of common stock....................... (307,685)
Issuance of common stock to Miller LLC.................... 5,321
Adjustments to establish new deferred tax balances under
Code Section 338(h)(10):
Elimination of historical deferred income tax liability... 21,937
Elimination of historical deferred income tax asset....... (3,275)
Deferred income tax asset arising out of Code Section
338h(10) election (see note 3 below)................... 112,906
---------
$(271,432)
---------
Adjusted book value......................................... $(104,488)
=========
</TABLE>
(3) Deferred Income Taxes
For United States federal and state income tax purposes, the
recapitalization is treated as an asset purchase under Section 338(h)(10) of the
Code. As a result there is a step-up in the tax basis of the assets which will
provide incremental future income tax deductions
F-24
<PAGE> 179
NEW WORLD PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
of $282.3 million over the next 15 years to reduce future taxable income. The
deferred tax asset was determined as follows (in thousands):
<TABLE>
<S> <C>
Recapitalized equity at implied market value................ $ 453,000
Estimated fees and expenses incurred in connection with the
recapitalization.......................................... 14,871
---------
Total Enterprise Value...................................... 467,871
Less stockholders' equity (adjusted for deferred taxes)..... (185,606)
Excess of recapitalization value over historic tax basis of
the net assets acquired................................... 282,265
Estimated corporate tax rate................................ 40.0%
---------
Deferred income tax asset arising out of Code Section
338h(10) election*........................................ $ 112,906
---------
</TABLE>
- ---------------
* A valuation reserve has not been established against the deferred income tax
asset calculated above on the assumption that it is more likely than not the
deferred income tax asset will be fully utilized in future years.
F-25
<PAGE> 180
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY
ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF [ ], 1999.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
Use of Proceeds....................... 23
The Exchange Offer.................... 24
Material United States Federal Income
Tax Consequences.................... 33
The Recapitalization.................. 37
Capitalization........................ 40
Unaudited Pro Forma Combined Financial
Information......................... 41
Selected Historical Combined Financial
Data................................ 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 48
Business.............................. 60
Management............................ 80
Stock Ownership of Certain Beneficial
Owners and Management............... 86
Certain Relationships and Related
Transactions........................ 88
Description of the Notes.............. 93
Description of Other Indebtedness..... 144
Description of Preferred Stock........ 146
Plan of Distribution.................. 146
Legal Matters......................... 147
Experts............................... 147
Available Information................. 147
Index to Financial Statements......... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY REQUIREMENT
UNTIL [90 DAYS AFTER EFFECTIVE DATE], 1999 ALL DEALERS THAT EFFECT TRANSACTIONS
IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$160,000,000
NEW WORLD
PASTA COMPANY
9 1/4% SENIOR SUBORDINATED
EXCHANGE NOTES DUE 2009
------------------------
PROSPECTUS
------------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
Delaware corporation to indemnify any person who was or is a party or witness or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reasons of the
fact that he or she is or was a director, officer, employee or agent of the
corporation) by reasons of the fact that he or she is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. Depending on the character of the proceeding, a
corporation may indemnify against expenses, costs and fees (including attorneys'
fees) judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. If the person indemnified is not wholly successful in
such action, suit or proceeding, but is successful, on the merits or otherwise,
in one or more but less than all claims, issues or matters in such proceeding,
he or she may be indemnified against expenses actually and reasonably incurred
in connection with each successfully resolved claim, issue or matter. In the
case of an action or suit by or in the right of the corporation, no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery of the State of Delaware, or the
court in which such action or suit was brought, shall determine that, despite
the adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
provides that, to the extent a director, officer, employee or agent of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or manner therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
The Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws of New World Pasta Company (the "Company") provide for
indemnification by the Company of its directors and officers to the fullest
extent permitted by the DGCL and such right to indemnification shall continue as
to a person who has ceased to be a director or officer of the Company and shall
inure to the benefit of his or her heirs, executors and administrators. The
Company's Amended and Restated By-laws provide that every person will be
indemnified against any and all judgments, fines, amounts paid in settling or
otherwise disposing of threatened, pending or completed actions, suits or
proceedings (including an action by or in the right of the Company, subject to
certain conditions), whether by fact that he is or was a director or officer of
the Company or is or was serving at the request of the Company as a director or
officer of another corporation, subject in all instances to the requirements
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. While these provisions provide directors
with protection from awards for monetary damages for breaches of their duty of
care, they do
II-1
<PAGE> 182
not eliminate such duty. Accordingly, these provisions will have no effect on
the availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care.
Section 18-108 of the Delaware Limited Liability Act (the "LLC Act")
empowers a Delaware limited liability company to indemnify and hold harmless any
member, manager or other person from and against any and all claims and demands
whatsoever. In accordance with such section, the Limited Liability Company
Agreement of Winchester Pasta, L.L.C. ("Winchester LLC"), dated as of December
17, 1998, as amended by Amendment No. 1 thereto, dated as of January 28, 1999
(as amended, the "Winchester LLC Agreement"), and the Limited Liability Company
Agreement of Pasta Group L.L.C. ("Pasta Group LLC"), dated as December 17, 1998,
as amended by Amendment No. 1 thereto, dated as of January 28, 1999 (as amended,
the "Pasta Group LLC Agreement" and, together with the Winchester LLC Agreement,
the "LLC Agreements"), each provide that the Company shall, to the fullest
extent authorized by the LLC Act, as in effect from time to time, indemnify and
hold harmless any member, manager, officer, employee or agent of Winchester LLC
or Pasta Group LLC, as the case may be, from and against any and all claims and
demands arising by reason of the fact that such person is, or was, a member,
manager, officer, employee or agent of the respective LLC. The LLC Agreements
further provide that expenses incurred by any member, manager, officer, employee
or agent of Winchester LLC or Pasta Group LLC, as the case may be, in defending
a proceeding shall be paid by the respective LLC in advance of such proceeding's
final disposition unless otherwise determined by the manager or the president of
such LLC in the specific case upon receipt of an undertaking by or on behalf of
the member, manager or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the respective
LLC. Such expenses incurred by other employees and agents may be so paid upon
such terms and conditions if any, as the manager or the president of the
Winchester LLC or Pasta Group LLC, as the case may be, deems appropriate.
The Company, Winchester LLC and Pasta Group LLC have each purchased and
maintain insurance to protect persons entitled to indemnification pursuant to
its certificate of incorporation, by-laws or limited liability company
agreement, as the case may be, against liabilities asserted against or incurred
by them in such capacity or arising out of their status as such.
ITEM 21. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Purchase Agreement, dated February 11, 1999, by and among
New World Pasta Company, Winchester Pasta, L.L.C., as
guarantor, Pasta Group, L.L.C., as guarantor, and Morgan
Stanley & Co. Incorporated and Scotia Capital Markets (USA),
Inc., as placement agents.**
2.1 Recapitalization Agreement, dated as of December 15, 1998,
by and among Hershey Foods Corporation, Hershey CRE, Inc.,
Homestead, Inc., New World Pasta Company, New World Pasta,
LLC, Joseph Littlejohn and Levy Fund III, L.P.**
</TABLE>
II-2
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.2 Amendment No. 1 to Recapitalization Agreement, dated as of
January 28, 1999, by and among Hershey Foods Corporation,
Hershey Chocolate & Confectionery Corporation (as successor
to Hershey CRE, Inc.), Homestead, Inc., New World Pasta
Company, New World Pasta, L.L.C., Joseph Littlejohn and Levy
Fund III, L.P.**
3.1 Amended and Restated Certificate of Incorporation of New
World Pasta Company, as filed with the Secretary of State of
the State of Delaware on January 28, 1999.**
3.2 Amended and Restated By-Laws of New World Pasta Company.**
3.3 Certificate of Formation of Winchester Pasta, L.L.C., as
filed with the Secretary of State of the State of Delaware
on December 17, 1998.**
3.4 Limited Liability Company Agreement of Winchester Pasta,
L.L.C., dated as of December 17, 1998, by and between
Hershey Foods Corporation, as the sole member, and
Winchester Pasta, L.L.C.**
3.5 Amendment No. 1 to Limited Liability Company Agreement of
Winchester Pasta L.L.C., dated as of January 28, 1999, among
Hershey Foods Corporation, as the original member, New World
Pasta Company, as the successor member, and Winchester
Pasta, L.L.C.**
3.6 Certificate of Formation of Pasta Group, L.L.C., as filed
with the Secretary of State of the State of Delaware on
December 17, 1998.**
3.7 Limited Liability Company Agreement of Pasta Group L.L.C.,
dated as December 17, 1998, by and between Hershey Foods
Corporation, as the sole member, and Pasta Group, L.L.C.**
3.8 Amendment No. 1 to Limited Liability Company Agreement of
Pasta Group L.L.C., dated as of January 28, 1999, among
Hershey Foods Corporation, as the original member, New World
Pasta Company, as the successor member, and Pasta Group,
L.L.C.**
4.1 Indenture, dated as of February 19, 1999, among New World
Pasta Company, as issuer, Winchester Pasta, L.L.C., as
guarantor, Pasta Group, L.L.C., as guarantor, and The Bank
of New York, as trustee.**
4.2 Senior Subordinated Guarantee, dated February 19, 1999, by
Pasta Group, L.L.C. in favor of (i) the holders of New World
Pasta Company's outstanding 9 1/4% Senior Subordinated Notes
due 2009 and 9 1/4% Senior Subordinated Exchange Notes due
2009 to be issued under this Registration Statement and (ii)
the Bank of New York, as trustee under the indenture
governing the above-referenced notes.**
4.3 Senior Subordinated Guarantee, dated February 19, 1999, by
Winchester Pasta, L.L.C. in favor of (i) the holders of New
World Pasta Company's outstanding 9 1/4% Senior Subordinated
Notes due 2009 and 9 1/4% Senior Subordinated Exchange Notes
due 2009 to be issued under this Registration Statement and
(ii) the Bank of New York, as trustee under the indenture
governing the above-referenced notes.**
4.4 Registration Rights Agreement, dated as of February 19,
1999, by and among New World Pasta Company, Winchester
Pasta, L.L.C., Pasta Group, L.L.C., Morgan Stanley & Co.
Incorporated and Scotia Capital Markets (USA), Inc.
</TABLE>
II-3
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.5 Form of New World Pasta Company 9 1/4% Senior Subordinated
Note due 2009 (included in Exhibit 4.1).**
4.6 Form of New World Pasta Company 9 1/4% Senior Subordinated
Exchange Note due 2009.**
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the legality of the securities being registered
hereby.+
10.1 Stockholders Agreement, dated as of January 28, 1999, among
New World Pasta Company, New World Pasta, L.L.C., Miller
Pasta, L.L.C. and Hershey Foods Corporation.**
10.2 Credit Agreement, dated as of January 28, 1999, among New
World Pasta Company, the various financial institutions
party thereto (the "Lenders"), certain financial
institutions as the Co-Agents for the Lenders, Morgan
Stanley Senior Funding, Inc., as Syndication Agent, and The
Bank of Nova Scotia, as Lead Arranger and as Administrative
Agent for the Lenders.**
10.3 Borrower Security Agreement, dated as of January 28, 1999,
between New World Pasta Company, as grantor, and The Bank of
Nova Scotia, as Administrative Agent.**
10.4 Borrower Pledge Agreement, dated as of January 28, 1999,
between New World Pasta Company, as pledgor, and The Bank of
Nova Scotia, as Administrative Agent.**
10.5 Subsidiary Guaranty, dated as of January 28, 1999, made by
each of Pasta Group, L.L.C. and Winchester Pasta, L.L.C., in
favor of The Bank of Nova Scotia, as Administrative Agent.**
10.6 Subsidiary Security Agreement, dated as of January 28, 1999,
among Pasta Group, L.L.C. and Winchester Pasta, L.L.C. as
grantors, and The Bank of Nova Scotia, as Administrative
Agent.**
10.7 Transitional Services Agreement, dated as of January 28,
1999, between Hershey Foods Corporation and New World Pasta
Company.**
10.8 Procurement Agreement, dated January 28, 1999, between New
World Pasta Company and Miller Milling Company.**++
10.9 Mill Agreement, dated January 28, 1999, between Winchester
Pasta, L.L.C. and Miller Milling Company.**++
10.10 Amended and Restated Mill Agreement, dated March 1, 1998,
between Hershey Pasta and Grocery Group, the predecessor to
New World Pasta Company, and Miller Milling Company.**++
10.11 First Amendment to Amended and Restated Mill Agreement,
dated January 28, 1999, between New World Pasta Company, as
successor to Hershey Pasta and Grocery Group, and Miller
Milling Company.**++
10.12 Tax Sharing Agreement, dated January 28, 1999, between New
World Pasta Company and New World Pasta, L.L.C.**
10.13 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and C. Mickey Skinner.**
10.14 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and John C. Miller.**
</TABLE>
II-4
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.15 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and Michael L. Snow.**
10.16 New World Pasta Company 1999 Stock Option Plan.**
10.17 Form of Qualified Stock Option Agreement for C. Mickey
Skinner, John C. Miller and Michael L. Snow.**
10.18 Form of Qualified Stock Option Agreement for other
personnel.**
10.19 Form of Non-Qualified Stock Option Agreement for C. Mickey
Skinner, John C. Miller and Michael L. Snow.**
10.20 Form of Non-Qualified Stock Option Agreement for other
personnel.**
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges.**
22.1 Subsidiaries of New World Pasta Company**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)+
23.3 Consent of Information Resources, Inc.*
24.1 Powers of Attorney (included in the signature pages to the
Registration Statement).**
25.1 Form T-1 Statement of Eligibility of The Bank of New York,
as trustee.**
27.1 Financial Data Schedule -- First Quarter 1999**
27.2 Financial Data Schedule -- Fiscal Year 1998*
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.**
99.4 Form of Letter to Clients.**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
+ To be filed by an amendment to this Registration Statement.
++ Confidential treatment requested by New World Pasta Company.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
II-5
<PAGE> 186
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by one or more of the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to file an application for the
purposes of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act, as amended (the "TIA"), in
accordance with the rules and regulation prescribed by the Commission under
Section 305(b)(2) of the TIA.
II-6
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in The City of
Harrisburg, Commonwealth of Pennsylvania, on July 16, 1999.
NEW WORLD PASTA COMPANY
By: /s/ MARK E. KIMMEL
----------------------------------------------
Mark E. Kimmel, Esq.
Vice President, Administration and
Development,
and General Counsel and Secretary
WINCHESTER PASTA, L.L.C.
By: NEW WORLD PASTA COMPANY, its sole member
By: /s/ MARK E. KIMMEL
----------------------------------------------
Mark E. Kimmel, Esq.
Vice President, Administration and
Development,
and General Counsel and Secretary
PASTA GROUP, L.L.C.
By: NEW WORLD PASTA COMPANY, its sole member
By: /s/ MARK E. KIMMEL
----------------------------------------------
Mark E. Kimmel, Esq.
Vice President, Administration and
Development,
and General Counsel and Secretary
POWER OF ATTORNEY
Each of the directors and officers of New World Pasta Company, Winchester
Pasta, L.L.C. and Pasta Group, L.L.C. whose signature appears below hereby
authorizes Mark E. Kimmel, Esq. and James A. Bohenick, and each of them, as
attorney-in-fact and agents, with full powers of substitution, to sign on his or
her behalf, individually and in the capacities stated below, and to file any and
all amendments (including post-effective amendments) to this Registration
Statement with the Securities and Exchange Commission, granting to said
attorney-in-fact and agents full power and authority to perform any other act on
behalf of the undersigned required to be done in the premises.
II-7
<PAGE> 188
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement Amendment has been signed by the following persons
in the capacities and on the dates set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, Chief July 16, 1999
- ------------------------------- Executive Officer and Director
C. Mickey Skinner
* President and Director July 16, 1999
- -------------------------------
John C. Miller
* Executive Vice President and July 16, 1999
- ------------------------------- Director
Michael L. Snow
* Vice President, Financial and July 16, 1999
- ------------------------------- Chief Financial Officer
James A. Bohenick
* Director July 16, 1999
- -------------------------------
Paul S. Levy
* Director July 16, 1999
- -------------------------------
Jeffrey C. Lightcap
* Director July 16, 1999
- -------------------------------
Brett N. Milgrim
* Director July 16, 1999
- -------------------------------
David Y. Ying
</TABLE>
*By: /s/ MARK E.
KIMMEL
-------------------
Mark E. Kimmel
Attorney-in-Fact
II-8
<PAGE> 189
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement, dated February 11, 1999, by and among
New World Pasta Company, Winchester Pasta, L.L.C., as
guarantor, Pasta Group, L.L.C., as guarantor, and Morgan
Stanley & Co. Incorporated and Scotia Capital Markets (USA),
Inc., as placement agents.**
2.1 Recapitalization Agreement, dated as of December 15, 1998,
by and among Hershey Foods Corporation, Hershey CRE, Inc.,
Homestead, Inc., New World Pasta Company, New World Pasta,
LLC, Joseph Littlejohn and Levy Fund III, L.P.**
2.2 Amendment No. 1 to Recapitalization Agreement, dated as of
January 28, 1999, by and among Hershey Foods Corporation,
Hershey Chocolate & Confectionery Corporation (as successor
to Hershey CRE, Inc.), Homestead, Inc., New World Pasta
Company, New World Pasta, L.L.C., Joseph Littlejohn and Levy
Fund III, L.P.**
3.1 Amended and Restated Certificate of Incorporation of New
World Pasta Company, as filed with the Secretary of State of
the State of Delaware on January 28, 1999.**
3.2 Amended and Restated By-Laws of New World Pasta Company.**
3.3 Certificate of Formation of Winchester Pasta, L.L.C., as
filed with the Secretary of State of the State of Delaware
on December 17, 1998.**
3.4 Limited Liability Company Agreement of Winchester Pasta,
L.L.C., dated as of December 17, 1998, by and between
Hershey Foods Corporation, as the sole member, and
Winchester Pasta, L.L.C.**
3.5 Amendment No. 1 to Limited Liability Company Agreement of
Winchester Pasta L.L.C., dated as of January 28, 1999, among
Hershey Foods Corporation, as the original member, New World
Pasta Company, as the successor member, and Winchester
Pasta, L.L.C.**
3.6 Certificate of Formation of Pasta Group, L.L.C., as filed
with the Secretary of State of the State of Delaware on
December 17, 1998.**
3.7 Limited Liability Company Agreement of Pasta Group L.L.C.,
dated as December 17, 1998, by and between Hershey Foods
Corporation, as the sole member, and Pasta Group, L.L.C.**
3.8 Amendment No. 1 to Limited Liability Company Agreement of
Pasta Group L.L.C., dated as of January 28, 1999, among
Hershey Foods Corporation, as the original member, New World
Pasta Company, as the successor member, and Pasta Group,
L.L.C.**
4.1 Indenture, dated as of February 19, 1999, among New World
Pasta Company, as issuer, Winchester Pasta, L.L.C., as
guarantor, Pasta Group, L.L.C., as guarantor, and The Bank
of New York, as trustee.**
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.2 Senior Subordinated Guarantee, dated February 19, 1999, by
Pasta Group, L.L.C. in favor of (i) the holders of New World
Pasta Company's outstanding 9 1/4% Senior Subordinated Notes
due 2009 and 9 1/4% Senior Subordinated Exchange Notes due
2009 to be issued under this Registration Statement and (ii)
the Bank of New York, as trustee under the indenture
governing the above-referenced notes.**
4.3 Senior Subordinated Guarantee, dated February 19, 1999, by
Winchester Pasta, L.L.C. in favor of (i) the holders of New
World Pasta Company's outstanding 9 1/4% Senior Subordinated
Notes due 2009 and 9 1/4% Senior Subordinated Exchange Notes
due 2009 to be issued under this Registration Statement and
(ii) the Bank of New York, as trustee under the indenture
governing the above-referenced notes.**
4.4 Registration Rights Agreement, dated as of February 19,
1999, by and among New World Pasta Company, Winchester
Pasta, L.L.C., Pasta Group, L.L.C., Morgan Stanley & Co.
Incorporated and Scotia Capital Markets (USA), Inc.**
4.5 Form of New World Pasta Company 9 1/4% Senior Subordinated
Note due 2009 (included in Exhibit 4.1).**
4.6 Form of New World Pasta Company 9 1/4% Senior Subordinated
Exchange Note due 2009.**
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the legality of the securities being registered
hereby.+
10.1 Stockholders Agreement, dated as of January 28, 1999, among
New World Pasta Company, New World Pasta, L.L.C., Miller
Pasta, L.L.C. and Hershey Foods Corporation.**
10.2 Credit Agreement, dated as of January 28, 1999, among New
World Pasta Company, the various financial institutions
party thereto (the "Lenders"), certain financial
institutions as the Co-Agents for the Lenders, Morgan
Stanley Senior Funding, Inc., as Syndication Agent, and The
Bank of Nova Scotia, as Lead Arranger and as Administrative
Agent for the Lenders.**
10.3 Borrower Security Agreement, dated as of January 28, 1999,
between New World Pasta Company, as grantor, and The Bank of
Nova Scotia, as Administrative Agent.**
10.4 Borrower Pledge Agreement, dated as of January 28, 1999,
between New World Pasta Company, as pledgor, and The Bank of
Nova Scotia, as Administrative Agent.**
10.5 Subsidiary Guaranty, dated as of January 28, 1999, made by
each of Pasta Group, L.L.C. and Winchester Pasta, L.L.C., in
favor of The Bank of Nova Scotia, as Administrative Agent.**
10.6 Subsidiary Security Agreement, dated as of January 28, 1999,
among Pasta Group, L.L.C. and Winchester Pasta, L.L.C. as
grantors, and The Bank of Nova Scotia, as Administrative
Agent.**
10.7 Transitional Services Agreement, dated as of January 28,
1999, between Hershey Foods Corporation and New World Pasta
Company.**
10.8 Procurement Agreement, dated January 28, 1999, between New
World Pasta Company and Miller Milling Company.**++
</TABLE>
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.9 Mill Agreement, dated January 28, 1999, between Winchester
Pasta, L.L.C. and Miller Milling Company.**++
10.10 Amended and Restated Mill Agreement, dated March 1, 1998,
between Hershey Pasta and Grocery Group, the predecessor to
New World Pasta Company, and Miller Milling Company.**++
10.11 First Amendment to Amended and Restated Mill Agreement,
dated January 28, 1999, between New World Pasta Company, as
successor to Hershey Pasta and Grocery Group, and Miller
Milling Company.**++
10.12 Tax Sharing Agreement, dated January 28, 1999, between New
World Pasta Company and New World Pasta, L.L.C.**
10.13 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and C. Mickey Skinner.**
10.14 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and John C. Miller.**
10.15 Employment Agreement, dated as of January 28, 1999, among
New World Pasta Company and Michael L. Snow.**
10.16 New World Pasta Company 1999 Stock Option Plan.**
10.17 Form of Qualified Stock Option Agreement for C. Mickey
Skinner, John C. Miller and Michael L. Snow.**
10.18 Form of Qualified Stock Option Agreement for other
personnel.**
10.19 Form of Non-Qualified Stock Option Agreement for C. Mickey
Skinner, John C. Miller and Michael L. Snow.**
10.20 Form of Non-Qualified Stock Option Agreement for other
personnel.**
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges.**
22.1 Subsidiaries of New World Pasta Company.**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).+
23.3 Consent of Information Resources, Inc.*
24.1 Powers of Attorney (included in the signature pages to the
Registration Statement).**
25.1 Form T-1 Statement of Eligibility of The Bank of New York,
as trustee.**
27.1 Financial Data Schedule -- First Quarter 1999.**
27.2 Financial Data Schedule -- Fiscal Year 1998.*
</TABLE>
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.**
99.4 Form of Letter to Clients.**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
+ To be filed by an amendment to this Registration Statement.
++ Confidential treatment requested by New World Pasta Company.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 12, 1999 (and to all references to our Firm) included in or made
a part of New World Pasta Company's Registration Statement (File No. 333-76763)
on Form S-4 and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
New York, New York
July 15, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INFORMATION RESOURCES, INC.
Information Resources, Inc. ("IRI") hereby consents to the inclusion of the
market information attached hereto as Exhibit A in the form set forth on Exhibit
A (the "Data") provided by IRI to NEW WORLD PASTA COMPANY (the "Company") in the
Company's Form S-4 Registration Statement, Registration No. 333-76763 (the "SEC
Document") including all amendments thereto.
The Company acknowledges that IRI compiles the Data based on data received by it
from supermarkets and other retail outlets. As a result, IRI cannot guarantee
the accuracy or completeness of such Data. IRI MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE DATA OR RESULTS TO BE OBTAINED BY THE COMPANY OR
OTHERS FROM THE USE OF THE DATA.
The Company hereby agrees to indemnify IRI for any third party claims that may
arise out of the use of the Data in the SEC Document. IN NO EVENT SHALL IRI BE
LIABLE TO THE COMPANY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL OR
CONSEQUENTIAL, ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING BY IRI OF THE
DATA TO THE COMPANY AS SET FORTH HEREIN.
INFORMATION RESOURCES, INC.
BY: /s/ Robin L. Bergman
-------------------------
Robin L. Bergman
TITLE: Senior Vice President and
Assistant General Counsel
NEW WORLD PASTA COMPANY
BY: /s/ Mark E. Kimmel
-------------------------------------
Mark E. Kimmel
TITLE: Vice President, Administration and
Development, General Counsel and Secretary
Dated: July 15, 1999
<PAGE> 2
EXHIBIT A
TO
CONSENT OF INFORMATION RESOURCES, INC.
DATED JULY 15, 1999
Exhibit A consists of copies of the following pages from the Registration
Statement on Form S-4: Pages 18, 52, 53, 60, 61, 67 and 79.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0001081878
<NAME> NEW WORLD PASTA CO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,447
<ALLOWANCES> 0
<INVENTORY> 22,547
<CURRENT-ASSETS> 49,062
<PP&E> 225,337
<DEPRECIATION> 116,409
<TOTAL-ASSETS> 225,017
<CURRENT-LIABILITIES> 28,264
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 166,944
<TOTAL-LIABILITY-AND-EQUITY> 225,017
<SALES> 373,096
<TOTAL-REVENUES> 373,096
<CGS> 205,773
<TOTAL-COSTS> 205,773
<OTHER-EXPENSES> 125,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,848
<INCOME-TAX> 15,954
<INCOME-CONTINUING> 25,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,914
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
