<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from xxx to xxx
Commission File Number 333-76763
New World Pasta Company
(Exact name of registrant as specified in its charter)
Delaware 52-2006441
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
85 Shannon Road, Harrisburg, PA 17112
(Address of principal executive office) (zip code)
(717) 526-2200
(Registrant's telephone number, including area code)
100 Crystal A Drive, Hershey, PA 17033
(Former Address of principal executive office) (zip code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
As of April 2, 2000, the registrant had 5,011,714 shares of common stock
outstanding, par value $.01, and 114,236 shares of preferred stock outstanding.
<PAGE>
NEW WORLD PASTA COMPANY
INDEX TO FORM 10-Q
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 2, 2000
(unaudited) and December 31, 1999 1
Consolidated Statements of Operations (unaudited) for
the Three Months Ended April 2, 2000 and April 4, 1999 2
Consolidated Statements of Cash Flows (unaudited) for
the Three Months Ended April 2, 2000 and April 4, 1999 3
Consolidated Statement of Stockholders' Equity (Deficit)
(unaudited) for the Three Months Ended April 2, 2000 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
NEW WORLD PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
As of April 2, 2000 and December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
(unaudited)
April 2, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,687 13,146
Trade and other receivables, net 16,479 17,651
Inventories, net 22,381 19,868
Prepaid expenses and other current assets 2,021 1,391
Deferred income taxes 8,393 8,786
------------- -------------
Total current assets 55,961 60,842
------------- -------------
Property, plant and equipment, net 97,251 99,200
Deferred income taxes 96,688 95,667
Intangible assets, net 63,957 64,571
Deferred debt costs, net 8,237 8,535
------------- -------------
Total assets $ 322,094 328,815
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 1,340 1,340
Loans payable 315 --
Accounts payable:
Trade 7,309 8,133
Related parties 3,014 1,666
Accrued expenses 21,555 28,155
------------- -------------
Total current liabilities 33,533 39,294
------------- -------------
Long-term debt, less current maturities 291,320 291,655
Employee benefit liabilities 7,302 7,302
------------- -------------
Total liabilities 332,155 338,251
------------- -------------
Mandatorily redeemable 12% cumulative preferred stock, $.01 par
value; $1,000 liquidation preference value; 115,000 shares
authorized; 114,236 and 113,485 shares issued and outstanding
as of April 2, 2000 and December 31, 1999, respectively 130,261 126,096
Mandatorily redeemable common stock, $.01 par value; $10
liquidation value; 11,714 and 0 shares issued and outstanding
as of April 2, 2000 and December 31, 1999 respectively 117 --
Unearned compensation (425) --
------------- -------------
129,953 126,096
------------- -------------
Stockholders' equity (deficit):
Common stock, $.01 par value; 35,900,000 shares authorized;
5,000,000 shares issued and outstanding as of
April 2, 2000 and December 31, 1999 50 50
Additional paid-in capital 159,487 162,901
Accumulated deficit (299,551) (298,483)
------------- -------------
Total stockholders' equity (deficit) (140,014) (135,532)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 322,094 328,815
============= =============
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated financial statements.
1
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NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended April 2, 2000 and April 4, 1999
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Net sales $ 81,999 96,271
Cost of sales 45,049 51,613
--------- ---------
Gross profit 36,950 44,658
Selling and marketing expenses 27,751 31,760
General and administrative expenses 3,962 2,604
Non-recurring transaction expenses -- 7,110
--------- ---------
Income from operations 5,237 3,184
Interest expense, net 6,932 5,426
--------- ---------
Loss before income taxes (1,695) (2,242)
Income tax expense (benefit) (627) 1,162
--------- ---------
Net loss (1,068) (3,404)
Dividends on preferred stock 3,414 2,427
--------- ---------
Net loss attributable to common stock $(4,482) (5,831)
========= =========
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated statements.
2
<PAGE>
NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Months Ended April 2, 2000 and April 4, 1999
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,068) (3,404)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,714 3,798
Deferred income taxes (628) 1,162
Compensation expense from issuance of stock 443 --
Changes in assets and liabilities:
Accounts receivable 1,172 1,620
Inventories (2,461) (2,324)
Prepaid expenses and other current assets (630) 1,998
Accounts payable 524 (1,209)
Accrued expenses (6,600) 6,894
---------------- -----------------
Net cash provided by (used in) operating activities (5,534) 8,535
---------------- -----------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (905) (625)
---------------- -----------------
Net cash used in investing activities (905) (625)
---------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of debt 355 470,449
Proceeds from issuance of preferred stock -- 12,849
Proceeds from issuance of common stock -- 5,321
Repayment of debt (375) (160,000)
Deferred debt costs -- (9,627)
Advances and withdrawals with former parent prior to
recapitalization, net -- (5,887)
Repurchase of common stock -- (307,685)
---------------- -----------------
Net cash provided by (used in) financing activities (20) 5,420
---------------- -----------------
Net increase (decrease) in cash and cash equivalents (6,459) 13,330
Cash and cash equivalents at beginning of period 13,146 --
---------------- -----------------
Cash and cash equivalents at end of period $ 6,687 13,330
================ =================
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 10,406 2,072
Income taxes -- 27
Noncash investing and financing activities:
Deferred tax assets from recapitalization -- 106,900
Preferred stock dividend 3,414 2,427
Deferred tax liabilities eliminated in recapitalization -- 18,662
Issuance of common stock 117 44,679
Issuance of preferred stock 317 100,636
</TABLE>
The notes to consolidated financial statements are an integral part of these
consolidated financial statements.
3
<PAGE>
NEW WORLD PASTA COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
for the Three Months Ended April 2, 2000
(in thousands, except share data)
<TABLE>
<CAPTION>
(unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 5,000,000 $ 50 162,901 (298,483) (135,532)
Net loss -- -- -- (1,068) (1,068)
Preferred stock dividend -- -- (3,414) -- (3,414)
--------- --------- -------- -------- --------
Balance at April 2, 2000 5,029,286 $ 50 159,487 (299,551) (140,014)
========= ======== ======= ======== ========
</TABLE>
4
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NEW WORLD PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and 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 quarter ended April 2, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. These financial statements should be read in conjunction with management's
discussion and analysis of financial condition and results of operations
included in Item 2. In addition, for further disclosures, see the audited
financial statements and the footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
New World Pasta Company ("New World Pasta" or "Company") 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. The
Company's quarterly periods in 2000 end on April 2, July 2, and October 1
compared to April 4, July 4, and October 3 during 1999.
2. Description of Business
New World Pasta manufactures and sells quality pasta products in a variety
of shapes, sizes, flavors and packages throughout the United States. New World
Pasta markets its products on a regional basis under several brand names,
including AMERICAN BEAUTY, LIGHT N'FLUFFY, MRS. WEISS', P&R, RONZONI, SAN
GIORGIO and SKINNER. The Company also manufactures certain private label brands
as well as products for industrial and foodservice customers.
On January 28, 1999, Hershey Foods Corporation (HFC) effected a
recapitalization whereby New World Pasta LLC and Miller Pasta LLC acquired a
controlling interest in Hershey Pasta Group (HPG) 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 in which 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
Company.
5
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3. Inventories
New World Pasta values much of the raw material components 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 April 2,
2000 and $7.2 million as of December 31, 1999. All inventories were stated at
amounts that did not exceed realizable values. Total inventories were as
follows:
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials....................................... $ 4,237 4,539
Work in process..................................... 334 250
Finished goods...................................... 18,579 14,483
------------ ------------
Inventories at FIFO................................. 23,150 19,272
Adjustments to LIFO................................. 769 (596)
------------ ------------
Total inventories.............................. $ 22,381 19,868
============ ============
</TABLE>
4. Long-Term Debt
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
--------------- ---------------
(in thousands)
<S> <C> <C>
9 1/4% Senior Subordinated Notes due 2009
("Notes") .................................. $160,000 160,000
Term Loan........................................ 132,660 132,995
--------------- ---------------
292,660 292,995
Less current portion............................. 1,340 1,340
--------------- ---------------
$ 291,320 291,655
=============== ===============
</TABLE>
The Company has entered into a senior Credit Facility (the "Credit
Facility") that currently provides for a term loan that bears interest at either
an alternate base rate or a reserve-adjusted LIBOR rate, both adjusted for the
interest spread under the Credit Facility. On April 2, 2000 the effective
interest rate on the term loan was 9.25%. The term loan matures in 2006. The
term loan is repaid in quarterly payments of $335,000 through March 2005,
$31,490,000 on June 30, September 30 and December 31, 2005, with the balance
paid at maturity. The Company has fixed the interest rate on $50.0 million of
the outstanding debt at a base rate of 5.645%, plus the credit agreement
interest spread, by entering into an interest rate swap agreement. The Credit
Facility provides for a revolving loan of up to $50.0 million. This portion of
the Credit Facility bears interest at variable rates as provided in the terms of
the Credit Facility. No amount has been borrowed under this portion of the
facility at April 2, 2000.
6
<PAGE>
The Credit Facility requires the Company to comply with specified financial
tests, to maintain specified financial ratios and restricts the Company's
ability to undertake certain actions.
The Company entered into an amendment and waiver to its Senior Credit
Facility effective as of May 10, 2000 (as amended, the "Credit Facility")
pursuant to which, among other things: (i) the lenders thereunder waived
compliance by the Company with certain financial covenants contained thereunder
with respect to the quarter ended April 2, 2000; (ii) certain financial
covenants contained therein were revised or eliminated for all periods ending
on or before December 31, 2002; (iii) the revolving credit portion of the
Credit Facility was reduced to $20 million; and (iv) the interest rates on the
Credit Facility were increased.
5. Restructuring Charge
In the second quarter of 1999, the Company recorded a restructuring charge
of $2.7 million. The restructuring involved closure of the Kansas City, Kansas
plant, which was a dedicated facility for industrial business. The major
industrial customer serviced by this facility did not renew its contract,
resulting in the decision to close the facility. The closing of the plant was
announced May 20, 1999, and the plant ceased operations on August 20, 1999, when
61 of the 62 personnel employed at the facility were displaced. The building had
a book value of approximately $840,000 and was sold on April 3, 2000 for
approximately $1.1 million resulting in a gain of approximately $264,000, which
will be reflected in the second quarter.
Included in the restructuring charge is a non-cash charge of approximately
$1.6 million for impairment of equipment and accruals for cash charges for
approximately $1.1 million as follows:
<TABLE>
<CAPTION>
Original Balance as of
Balance Utilized April 2, 2000
------------- ------------- ----------------------
(in thousands)
<S> <C> <C> <C>
Severance and other employee
related costs $ 600 527 73
Other facility exit costs 500 353 147
---------- --------- ---------
Total costs $ 1,100 880 220
========== ========= =========
</TABLE>
This action was contemplated during the time the business was being
recapitalized by HFC and the affected personnel were notified in February of
1999 that this action might be necessary if replacement of the industrial
business was not obtained in the intervening period.
6. Stock-Based Compensation
On February 28, 2000 New World Pasta finalized an employment agreement with
John Denton for the position of Chairman of the Board and Chief Executive
Officer. As a
7
<PAGE>
provision of that agreement, Mr. Denton received 29,286 shares of common stock
and 792 shares of preferred stock. Of those shares, 11,714 shares of common
stock and 317 shares of preferred stock are restricted. The forfeiture
restrictions on these shares lapse over 4 years, in amounts of 2,929 shares of
common stock and 80 shares of preferred stock annually. In addition, tax
withholding on the value of shares to be received will be satisfied through a
reduction in the issuance of unrestricted shares. As a result, 17,572 common
shares and 41 preferred shares were not issued in connection with the agreement.
Compensation expense was recognized upon the date of grant for the
unrestricted shares based on the estimated fair market value of each share and
amounted to approximately $651,000 for the three-month period ended April 2,
2000. Unearned compensation was recorded upon the date of grant for the
restricted shares based on the estimated fair market value of each share and
amounted to approximately $434,000 for the three-month period ended April 2,
2000. Compensation expense is charged to earnings on a straight-line basis over
the four-year restriction period. In addition, the employment agreement has a
provision which permits the repurchase of shares by the Company at those values
should Mr. Denton's employment be terminated due to a number of reasons.
7. Subsidiary Financial Information
The Company has two wholly-owned subsidiaries, Pasta Group L.L.C. and
Winchester Pasta, L.L.C. (collectively, the "Subsidiaries"). Set forth below is
summarized financial information attributed to the combined Subsidiaries.
Summarized financial information is presented for the Subsidiaries because the
Company's management does not believe that the information proposed in separate
financial statements would be material to investors.
8
<PAGE>
<TABLE>
<CAPTION>
(unaudited)
Year Three Months Ended
Ended April 2, April 4,
December 1999 2000 1999
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Net Sales..................... $ 294,361 $ 68,120 $ 77,824
Gross Profit.................. 160,391 35,435 42,293
Operating income.............. 34,244 4,225 8,269
Net income.................... 18,831 4,464 8,269
Current assets................ 60,683 56,648 52,357
Non-current assets............ 204,142 201,535 224,582
Current liabilities........... 26,913 26,805 27,625
Non-current liabilities....... 9,071 9,071 9,481
</TABLE>
These Subsidiaries have, jointly and severally, fully and unconditionally
guaranteed the obligations of the Company with respect to the Notes. The
covenants of the Notes and the Credit Facility do not restrict the ability of
the Subsidiaries to make cash distributions to the Company.
The summarized financial information for the Subsidiaries has been prepared
from the books and records of the Company. The summarized financial information
may not necessarily be indicative of the results of operations or financial
position had the Subsidiaries operated as independent entities.
9
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The discussion set forth below, as well as other portions of this quarterly
report, and other reports and statements filed by the Company from time-to-time
with the Securities and Exchange Commission contain, or may contain, statements
concerning potential future events. Such forward-looking statements are based
upon the beliefs of, and the information currently available to the Company's
management, as well as estimates and assumptions made by the Company's
management, including assumptions about uncertainties and risks. Readers can
identify these forward-looking statements by the use of such verbs as "expects",
"anticipates", "believes", "estimates", "intends", "plans" or similar verbs or
conjugations of such verbs. If circumstances arise, the Company's actual results
could materially differ from those anticipated by such forward-looking
statements. The differences could be caused by a number of factors or a
combination of these factors. The Company currently believes that the most
important of these factors are the Company's high degree of leverage, a
potential increase in the costs of durum/semolina, the intense levels of
competition in the pasta industry and the risks associated with the Company's
marketing initiatives. Other important factors include the following:
. possible conflicts of interest;
. our reliance on a single vendor for our raw material procurement;
. transportation risks;
. declines in retail pasta sales;
. our ability to successfully integrate any future acquisitions;
. labor relations;
. environmental liability;
. product liability;
. dependence on key personnel; and
. changes in laws, government relations or trade policies and regulations.
Readers are strongly encouraged to consider these factors and others
mentioned in the Company's Registration Statement on Form S-4 (Reg. No.
333-76763) declared effective August 3, 1999, when evaluating any such
forward-looking statements in this quarterly report. The Company undertakes no
responsibility to update any forward-looking statements contained in this
report.
General
New World Pasta's primary business is the production of dry pasta, which we
market and sell under regional brands through supermarkets and foodstores. Three
of our four principal brands, RONZONI, SAN GIORGIO and AMERICAN BEAUTY, are
among the top six brands in the United States according to Information
Resources, Inc. Our fourth
10
<PAGE>
largest brand, SKINNER, is a strong brand in the Midwestern and Southwestern
markets. We own several other brands including: P&R, IDEAL and MRS. WEISS'.
On a combined basis, these brands give a market share of approximately 26%,
which is about 45% greater than our closest competitor. Our noodle products have
the largest market share in the United States with a 19% share of the retail egg
noodle market. These noodle products include LIGHT `N FLUFFY, AMERICAN BEAUTY,
SKINNER, MRS. WEISS', P&R, IDEAL and SAN GIORGIO.
Our executive offices are located at 85 Shannon Road, Harrisburg,
Pennsylvania 17112 and our telephone number is (717) 526-2200.
Results of Operations
Three Months Ended April 2, 2000 Compared With Three Months Ended April 4, 1999
- -------------------------------------------------------------------------------
Net Sales
---------
Net sales decreased by $14.3 million, or 14.8% for the first quarter ended
April 2, 2000 compared to the first quarter ended April 4, 1999. The decrease
was the result of both price and volume factors. The net price decline,
principally affected the Company's branded products and was taken during 1999 as
a component of the Company's new marketing strategy. Unit volume was impacted
by several factors. These included a decline in consumers consumption of dry
pasta during the quarter, the loss of the General Mills co-pack business in the
third quarter of 1999, significant competitive pressures within the dry pasta
category and lower effectiveness of promotional activities.
Cost of Sales
-------------
Cost of sales decreased by $6.6 million or 12.7% from the first quarter of
1999, primarily due to the volume decline experienced during the period. Raw
material prices, particularly durum/semolina costs, which rose 11.4% due to
timing of contract deliveries, had a slightly unfavorable impact on cost of
sales. We expect durum/semolina costs to decline over the balance of the year.
Packaging material prices were more favorable than those in the first quarter in
1999 due to film savings, which was only partially offset by increases in the
cost of cartons and cases. Increased freight and warehousing costs also
partially offset the reduction in the gross margin resulting from the volume
decrease. Freight costs increased 1.7% due to increased freight rates tied
partially to fuel surcharges, while warehousing costs increased principally
because of the implementation of a new pallet management system. Depreciation
expense decreased slightly for the current period as compared to the same period
in 1999.
11
<PAGE>
Gross profit decreased by $7.7 million, with the decrease in net sales
being only partially offset by volume-impacted cost of sales reductions. Gross
margin of $37.0 million was 45.1% of net sales for the first quarter of 2000
compared to $44.7 million, or 46.4% of sales for the first quarter of 1999.
Selling and Marketing Expenses
------------------------------
Selling and marketing expenses for the first quarter of 2000 decreased by
$4.0 million or 12.6% from the first quarter of 1999. Selling costs decreased by
$600,000 or 13.0% from the previous year's first quarter due primarily to
reductions in volume sensitive broker and sales incentives for the period.
The remaining decrease was attributable to decreased trade promotion expenses
tied to volume-sensitive promotions and lower advertising expenditures offset by
increased consumer promotion expenditures.
General and Administrative Expenses
-----------------------------------
General and administrative expenses increased by $1.4 million or 52.2% from
the first quarter of 1999, primarily due to incremental executive compensation
costs incurred in the first quarter management transition. Information
technology costs and costs for insurance and professional services were also
greater than the first quarter of 1999, as those costs were incurred for the
full three months of the quarter in 2000 verses being part of a lower
administrative allocation by Hershey to the former HPG during January of 1999.
Income from Operations
----------------------
Income from operations for the first quarter ended April 2, 2000 was $5.2
million, an increase of $2.1 million or 64.5% compared to the first quarter
ended April 4, 1999. The increase was due to decreased cost of sales, decreased
selling and marketing expenses and the absence of the non-recurring transaction
expenses incurred in the reorganization and recapitalization of the Company,
offset by increased general and administrative expenses and decreased net sales.
Interest Expense
----------------
Interest expense of $6.9 million was incurred on the various debt
instruments used to recapitalize the Company on January 29, 1999, notably the
Notes, the term loan (the "Term Loan") issued pursuant to our Credit Facility
and the deferred debt cost amortization. These interest costs were offset
partially by interest income on bank deposits. The increase in interest expense
from the first quarter of 1999 of $1.5 million or 27.8% is the result of the
impact of a full quarter of expense in the first quarter of 2000 versus only two
months in the comparable period in 1999.
12
<PAGE>
Income Taxes
------------
The income tax benefit of $627,000 for the first quarter ended April 2,
2000 reflects the anticipated tax benefit of applying the estimated annual
effective tax rate for the year to date loss before income taxes. The prior year
first quarter tax expense of $1.2 million reflected the effective tax rate
expected to be applicable for the year, adjusted for the tax effect from
non-recurring transaction expenses incurred as part of the recapitalization
effected January 1999 that may not be deductible.
Net Income (Loss)
-----------------
The Company experienced a net loss of $1.1 million for the first quarter of
2000 compared to a $3.4 million net loss in the first quarter of 1999. The
decrease in the reported loss was due to a decrease in the cost of sales, a
decrease in selling and marketing expenses, and the absence of non-recurring
transactional expenses offset by the impact of the decreased net sales and an
increase in general and administrative expenses.
Dividends on Preferred Stock
----------------------------
Dividends on preferred stock are reflective of the dividends on the
mandatorily redeemable cumulative preferred stock of 12% recognized on the
balance sheet date. The annual dividend has been prorated by the number of days
in the period, which is the main reason for the increase from the first quarter
of 1999 to the first quarter of 2000.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided by operations
and borrowings under its Credit Facility. Cash and cash equivalents totaled $6.7
million at April 2, 2000 and $13.1 million as of December 31, 1999; working
capital was $22.6 million as of April 2, 2000 compared to $21.5 million as of
December 31, 1999. The increase in working capital was primarily the result of
decreased accrued liabilities and increased inventory offset partially by
reduced deferred taxes. The current ratio was 1.68 at April 2, 2000 compared to
1.55 at December 31, 1999.
The Company's net cash used in operating activities was $5.5 million for
the three months ended April 2, 2000 compared to net cash provided by operations
of $8.5 million for the three months ended April 4, 1999. This decrease was due
to a decrease in accrued liabilities, an increase in inventory, an increase in
prepaid expenses, a decrease in deferred taxes offset partially by a decrease in
receivables and an increase in accounts payable.
Net cash used in investing activities totaled $905,000 for the three months
ended April 2, 2000 versus $625,000 for the three months ended April 4, 1999
primarily due to higher capital spending levels.
Net cash used in financing activities for 2000 reflects the financing of a
portion of the Company's insurance premiums for 2000, the issuance of preferred
stock and common stock used for executive compensation, and the mandatory debt
repayments in the period.
13
<PAGE>
Net cash used in financing activities for the three months ended April 4, 1999
reflects the payment of debt proceeds received in conjunction with the
recapitalization, the issuance of debt ($470.4 million), the net proceeds from
issuance of the preferred stock ($12.8 million) and the issuance of common stock
($5.3 million), offset primarily by the repurchase of common stock ($307.7
million) and the repayment of debt ($160.0 million).
The covenants of the Notes and the Credit Facility do not restrict the
ability of the Subsidiaries to make cash distributions to the Company.
The Company entered into an amendment and waiver to its Senior Credit
Facility effective as of May 10, 2000 (as amended, the "Credit Facility")
pursuant to which, among other things: (i) the lenders thereunder waived
compliance by the Company with certain financial covenants contained thereunder
with respect to the quarter ended April 2, 2000; (ii) certain financial
covenants contained therein were amended for all periods ending on
or before December 31, 2002; and (iii) the interest rates on the Credit Facility
were increased. The Company believes that cash generated from operations,
together with availability under the amended Credit Facility, which includes a
$20 million revolving loan commitment, will be sufficient to meet its liquidity
needs for the foreseeable future. As of May 15, 2000 the Company had $20 million
of availability under the revolving credit portion of the Credit Facility.
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" (the Standard). The Standard
establishes comprehensive accounting and reporting standards for derivative
instruments and hedging activities that require a company to record the
derivative instrument at fair value in the balance sheet.
Furthermore, the derivative instrument must meet specific criteria or the
change in its fair value must 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. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133." SFAS No. 137 delays the Standard's effective date to the
beginning of the first quarter of the fiscal year beginning after June 15, 2000.
Adoption of SFAS No. 137 is not expected to have a material effect on the
Company's financial statements.
14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
New World Pasta is subject to market risk associated with some commodity
prices and, effective with the revolving credit agreement it entered into in
January 1999, changes in interest rates. 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 notes that bear interest
at a 9.25% fixed rate and are due 2009. New World Pasta's $132.7 million term
loan bears interest at a floating rate. In May 1999, New World Pasta entered
into an interest rate swap agreement that converts $50 million of this floating
interest rate debt to a fixed rate. 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. The market risk associated with
commodity pricing is immaterial since the majority of the commodity purchasing
for the Company is now done by Miller Milling Company pursuant to a procurement
agreement entered into in January 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 10.23 Stock Option Plan, as amended
Exhibit 10.24 Amended and Restated Mill Agreement between
Miller Milling Company, Winchester Pasta,
L.L.C. and Pasta Group L.L.C. dated March 10,
2000.
Exhibit 10.25 Amended and Restated Mill Agreement between
New World Pasta Company and Miller Milling
Company dated March 10, 2000.
Exhibit 27 Financial Data Schedule
b) Form 8-Ks:
The Company filed a Form 8-K on February 4, 2000, announcing that
John Denton was named the Company's new Chairman and Chief
Executive Officer, succeeding C. Mickey Skinner, who retired.
The Company filed a Form 8-K on March 6, 2000, announcing its
results of operations for the fourth quarter and year ended
December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signatures:
NEW WORLD PASTA COMPANY
Date: May 17, 2000 /s/ Mark E. Kimmel
-------------------------------
Mark E. Kimmel
General Counsel, Vice President
Administration and Development
Date: May 17, 2000 /s/ Thomas P. Boran
-------------------------------
Thomas P. Boran
Chief Accounting Officer
16
<PAGE>
NEW WORLD PASTA COMPANY
1999 STOCK OPTION PLAN, AS AMENDED
1. Purpose: Types of Awards.
------------------------
The purposes of the 1999 New World Pasta Company Long-Term Incentive
Plan (the "Plan") are to afford an incentive to selected employees, directors
and consultants of New World Pasta Company (the "Company") or any Subsidiary or
Affiliate that now exists or hereafter is organized or acquired, to continue as
employees, directors or consultants, as the case may be, to increase their
efforts on behalf of the Company and to promote the success of the Company's
business. Pursuant to the Plan, there may be granted stock options (including
"incentive stock options" and "nonqualified stock options"), stock appreciation
rights (either in connection with stock options granted under the Plan or
independently of stock options) and restricted stock.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means an affiliate of the Company, as defined in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(b) "Award" means any Option granted under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficial Owner" means any beneficial owner of securities within
the meaning of Rule 1 3d-3 promulgated under the Exchange Act.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" (i) for any person receiving an Award under the Plan who
also has an employment agreement with the Company, shall have the meaning
set forth in such employment agreement and (ii) for any other person
receiving an Award under the Plan, means the determination, in good faith,
by the Board, after notice to Grantee and a reasonable opportunity to cure,
that one or more of the following events has occurred:
(i) Grantee has failed to perform his material duties for the
Company in a reasonably satisfactory manner;
(ii) any reckless or grossly negligent act by Grantee materially
injuring the interest, business or reputation of the Company, or any
of its parent, Subsidiaries or Affiliates;
<PAGE>
(iii) Grantee's commission of any felony (including entry of a
nolo contendere plea); or
---- ----------
(iv) any misappropriation or embezzlement of the property of the
Company, or any of its parent, Subsidiaries or Affiliates.
(g) "Change in Control" means the occurrence of any of the following
events:
(i) any Person, other than New World Pasta, LLC, a Delaware
limited liability company, or its Affiliates, becomes a Beneficial
Owner of more than fifty percent (50%) of the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors;
(ii) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other Company, other than a merger or consolidation that would result
in the voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof) at least fifty percent
(50%) of the combined voting power of the securities of the Company or
such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation;
(iii) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or
(iv) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who,
as of January 30, 1999, constitute the Board and any new director
(other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was approved
or recommended by a vote of at least a majority of the directors then
still in office who either were directors on January 30, 1999 or whose
appointment, election or nomination for election was previously so
approved or recommended.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(i) "Committee" means the Compensation Committee established by the
Board.
2
<PAGE>
(j) "Company" means New World Pasta Company or any successor
corporation.
(k) "Effective Date" means January 28, 1999, the date that the Plan
was adopted by the Board.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(m) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined
by such methods or procedures as shall be established from time to time by
the Committee. Unless otherwise determined by the Committee in good faith,
the per share Fair Market Value of Stock as of a particular date shall mean
(i) the closing sales price per share of Stock on the national securities
exchange on which the Stock is principally traded, for the last preceding
date on which there was a sale of such Stock on such exchange, or (ii) if
the shares of Stock are then traded in an over-the-counter market, the
average of the closing bid and asked prices for the shares of Stock in such
over-the-counter market for the last preceding date on which there was a
sale of such Stock in such market, or (iii) if the shares of Stock are not
then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its reasonable
discretion, shall determine.
(n) "Grantee" means a person who, as an employee or director of, or
independent contractor with respect to, the Company, a Subsidiary or an
Affiliate, has been granted an Award under the Plan.
(o) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(p) "NQSO" means any Option that is designated as a nonqualified stock
option.
(q) "Option" means a right, granted to a Grantee under Section 6(c),
to purchase shares of Stock. An Option may be either an ISO or an NQSO;
provided that ISOs may be granted only to employees of the Company or a
Subsidiary.
(r) "Person" means any person within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act.
(s) "Plan" means this New World Pasta Company 1999 Long-Term Incentive
Plan, as amended from time to time.
(t) "Stock" means shares of the common stock, par value $.01 per
share, of the Company.
3
<PAGE>
(u) "Stockholders Agreement" means the Stockholders Agreement, dated
as of January 28, 1999, among the Company, New World Pasta LLC, Miller
Pasta LLC, Hershey Foods Corporation and the other signatories thereto.
(v) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an
Award, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
the chain.
(w) "Ten Percent Stockholder" means a Grantee who, at the time an ISO
is granted, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom and
the time or times at which Awards shall be granted; to determine the type and
number of Awards to be granted, the number of shares of Stock to which an Award
may relate and the terms, conditions and restrictions relating to any Award; to
determine whether, to what extent, and under what circumstances an Award may be
settled, cancelled, forfeited, exchanged, or surrendered; to make adjustments in
the terms and conditions applicable to Awards; to designate Affiliates; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the Award Agreements (which need not be identical for each
Grantee); and to make all other determinations deemed necessary or advisable for
the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including, without limitation, the Company, and any Subsidiary, Affiliate or
Grantee (or any person claiming any rights under the Plan from or through any
Grantee) and any stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Award
granted hereunder.
4
<PAGE>
4. Eligibility.
------------
Awards may be granted to selected employees, directors and consultants
of the Company and its present or future Subsidiaries and Affiliates, in the
discretion of the Committee. In determining the persons to whom Awards shall be
granted and the type of any Award (including the number of shares to be covered
by such Award), the Committee shall take into account such factors as the
Committee shall deem relevant in connection with accomplishing the purposes of
the Plan.
5. Stock Subject to the Plan.
--------------------------
(a) Number. The maximum number of shares of Stock reserved
------
for the grant or settlement of Awards under the Plan shall be
1,057,232, subject to adjustment as provided herein. Such shares may,
in whole or in part, be authorized but unissued shares or shares that
shall have been or may be reacquired by the Company in the open market,
in private transactions or otherwise. If any shares subject to an Award
are forfeited, cancelled, exchanged or surrendered or if an Award
otherwise terminates or expires without a distribution of shares to the
Grantee, the shares of stock with respect to such Award shall, to the
extent of any such forfeiture, cancellation, exchange, surrender,
termination or expiration, again be available for Awards under the
Plan. Upon the exercise of any Award granted in tandem with any other
Awards or awards, such related Awards or awards shall be cancelled to
the extent of the number of shares of Stock as to which the Award is
exercised and, notwithstanding the foregoing, such number of shares
shall no longer be available for Awards under the Plan.
(b) Certain Adjustments. In the event that any dividend or
-------------------
other distribution (whether in the form of cash, Stock or other
property), recapitalization, Stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction
or event, affects the Stock such that an adjustment is appropriate
under the Plan, then the Committee shall make such equitable changes or
adjustments as it deems necessary or appropriate in the exercise of its
reasonable discretion to any or all of (i) the number and kind of
shares of Stock or other property (including cash) that may thereafter
be issued in connection with Awards, (ii) the number and kind of shares
of Stock or other property (including cash) issued or issuable in
respect of outstanding Awards, (iii) the exercise price, grant price or
purchase price relating to any Award; provided that, with respect to
ISOs, such adjustment shall be made in accordance with Section 424(h)
of the Code, and (iv) the individual limitations applicable to Awards.
(c) Certain Reduction to Awards. In the event that, at any
---------------------------
time or from time to time, the Company wishes to hire one or more
additional employees after the date hereof and the Committee, with the
concurrence of the Chief Executive officer, believes that such employee
or employees should be granted Awards hereunder, such Awards shall be
made, to the greatest extent possible, with respect to Stock which
remains available for issuance under the Plan as a result of the
forfeiture, cancellation, exchange, surrender,
5
<PAGE>
termination or expiration of Awards previously granted under the Plan.
To the extent that there is not sufficient Stock available to make any
such Award, the number of shares of Stock issuable upon exercise of
all then outstanding Options shall be reduced pro rata among all
holders thereof in order to provide sufficient shares of Stock to
grant such Award(s); provided, however, that in no event shall the
-------- -------
number of shares of Stock initially issuable upon exercise of any
Option be reduced by more than 15% in the aggregate.
Notwithstanding the foregoing, the reduction provided hereby shall not
apply in order to grant Awards to new employees of the Company hired in
connection with any material acquisition by the Company of assets or stock of
one or more companies, whether by merger otherwise.
6. Specific Terms of Awards.
------------------------
(a) General. The term of each Award shall be for such period
-------
as may be determined by the Committee. Subject to the terms of the Plan
and any applicable Award Agreement, payments to be made by the Company
or a Subsidiary or Affiliate upon the grant, maturation or exercise of
an Award may be made in such forms as the Committee shall determine at
the date of grant or thereafter, including, without limitation, cash,
Stock or other property, and may be made in a single payment or
transfer, in installments or on a deferred basis. The Committee may
make rules relating to installment or deferred payments with respect to
Awards, including, without limitation, the rate of interest to be
credited with respect to such payments. In addition to the foregoing,
the Committee may impose on any Award or the exercise thereof, at the
date of grant or thereafter, such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
reasonably determine.
(b) Certain Restrictions. Notwithstanding anything in the Plan
--------------------
to the contrary, the shares of Stock issued to any Grantee that is a
party to the Stockholders' Agreement (or, in the case of Miller Pasta,
LLC, the members of Miller Pasta, LLC who are officers or directors of
the Company) (collectively, "Investor Grantees") upon exercise of each
Option shall, to the extent of the rights, duties and obligations of
such Grantee (or such member) under the Stockholders' Agreement, be
subject to all terms and conditions set forth in the and, with respect
to such persons; the Stockholders' Agreement is, to such extent, hereby
incorporated by reference herein. As a condition to the exercise of any
Option, (i) each Grantee that is not an Investor Grantee shall be
required to execute and deliver to the Company executed copies of such
documents, in form and substance reasonably satisfactory to the
Committee, to the effect set forth in Article W (providing for
substantially the same restrictions on Transfer as the Miller Pasta
Controlling Members (as such terms are defined therein)) and Article V
(but only with respect to Piggyback Registrations, as defined therein)
of the Stockholders' Agreement and (ii) each Grantee shall be required
to execute and deliver to the Company such written representations and
other documents as may be necessary or reasonably desirable, in the
opinion of the Committee, for purposes of compliance with federal or
state securities or other laws. Any certificate or certificates
representing shares of Stock subject to an
6
<PAGE>
Award shall bear a legend substantially to the effect of the legend set
forth in the Stockholders Agreement.
(c) Awards. The Committee is authorized to grant to Grantees
------
the following Awards under the Plan, as deemed by the Committee to be
consistent with the purposes of the Plan. The Committee shall determine
the terms and conditions of such Awards at the date of grant or
thereafter. The Committee is authorized to grant Options to Grantees on
the following terms and conditions:
(i) Type of Award. The Award Agreement evidencing the
-------------
grant of an Option under the Plan shall designate the Option
as an ISO or an NQSO.
(ii) Exercise Price. The exercise price per share of
--------------
Stock purchasable under an Option shall be determined by the
Committee; provided that, of the 1,057,232 shares of Stock
--------
reserved for the grant or settlement of Awards under the Plan,
660,762 shall have an exercise price of $10.00 per share and
396,470 shall have an exercise price of $73.50, and provided
--------
further that in the case of an ISO, such exercise price shall
----
be not less than the Fair Market Value of a share of Common
Stock on the date of grant of such Option. The date as of
which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such Option is
granted. In the Committee' reasonable discretion, following
the Initial Public Offering (as defined in the Stockholders
Agreement), the exercise price for Stock subject to an Option
may be paid in cash or by an exchange of Stock previously
owned by the Grantee, or a combination of both, in an amount
having a combined value equal to such exercise price. In the
Committee's reasonable discretion, a Grantee may elect to pay
all or a portion of the aggregate exercise price by cashless
exercise as provided below by giving notice of such exercise
to the Company. Upon receipt of a notice of cashless exercise,
the Company shall deliver to the Grantee (without payment by
the holder of any exercise price) that number of shares of
Stock that is equal to the quotient obtained by dividing (x)
the value of the Option or portion thereof on the exercise
date (determined by subtracting the aggregate exercise price
for the shares of Stock in effect on the exercise date from
the aggregate Fair Market Value of the shares of Stock by (y)
the Fair Market Value of one share of Company Common Stock. A
notice of "cashless exercise" shall state the number of shares
of Stock as to which the Option is being exercised.
(iii) Term and Exercisability of Options. Options
----------------------------------
shall become exercisable over the exercise period (which shall
not exceed ten years from the date of grant), at such times
and upon such conditions as the Committee may determine, as
reflected in the Award Agreement; provided that, the Committee
--------
shall have the authority to accelerate the exercisability of
any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems
appropriate. An Option may be exercised to the extent of any
or all full shares of Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the
Committee or its designated agent.
7
<PAGE>
(iv) Termination of Employment, etc. An Option may
------------------------------
not be exercised unless the Grantee is then in the employ of,
a director of, or maintains a consulting relationship with,
the Company or a Subsidiary or an Affiliate (or a company or a
parent or subsidiary company of such company issuing or
assuming the Option in a transaction to which Section 424(a)
of the Code applies), and unless the Grantee has remained
continuously so employed, or continuously maintained such
relationship, since the date of grant of the Option; provided
--------
that, unless provided otherwise in the applicable Award
Agreement or otherwise determined by the Committee:
(A) In case of termination of a Grantee's
employment or service with the Company, Affiliate or
a Subsidiary (i) due to the death or disability of
the Grantee, (ii) by the Company, Affiliate or a
Subsidiary without Cause or (iii) by the Grantee for
any reason, such Grantee's Option, only to the extent
then exercisable, shall remain exercisable as to the
number of shares of Stock for which it was
exercisable as of the date of termination for a
period of ninety days immediately following such
termination of employment or service and shall be
cancelled and terminated with respect to the
remainder of the shares of Stock subject thereto as
of the date of termination.
(B) In case of termination of a Grantee's
employment or service with the Company, Affiliate or
a Subsidiary by the Company or a Subsidiary for
Cause, such Grantee's Option, whether or not then
exercisable, shall be cancelled and terminated as of
the date of such termination.
(C) Notwithstanding anything to the contrary
in the Plan or any Award Agreement, in no event may
any Option be exercised after the expiration of the
term of such Option, as set forth in the applicable
Award Agreement.
(v) Other Provisions. Options may be subject to
----------------
such other conditions prescribe in its discretion or as may be
required by applicable law.
(vi) ISOs. Options granted as ISOs shall be subject
----
to the following special terms and conditions, in addition to
the general terms and conditions specified herein.
(A) Value of Shares. The aggregate Fair
---------------
Market Value (determined as of the date ISOs are
granted) of the shares of Common Stock with respect
to which ISOs granted under this Plan and all other
plans of the Company become exercisable for the first
time by each Grantee during any calendar year shall
not exceed $100,000.
8
<PAGE>
(B) Ten Percent Stockholder. In the case of
-----------------------
an ISO granted to a Ten Percent Stockholder, (x) the
exercise price shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the shares
of Common Stock on the date of grant of such ISO, and
(y) the exercise period shall not exceed five (5)
years from the date of grant of such ISO.
(d) Change of Control. Notwithstanding any provision hereof to
-----------------
the contrary, upon the occurrence of a Change of Control prior to the
expiration of the term of any Option, such Option, whether then
exercisable or otherwise, shall become exercisable and shall remain
exercisable for a period of ninety days immediately following such
Change of Control.
7. General Provisions.
------------------
(a) Nontransferability. Unless otherwise provided in an Award
------------------
Agreement, Awards shall not be transferable by a Grantee except by will
or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, and shall
be exercisable during the lifetime of a Grantee only by such Grantee or
his guardian or legal representative.
(b) No Right to Continued Employment, etc. Nothing in the Plan
-------------------------------------
or in any Award granted or any Award Agreement, entered into pursuant
hereto shall confer upon any Grantee the right to continue in the
employ of or to continue as a director or an independent contractor of
the Company, any Subsidiary or any Affiliate or to be entitled to any
remuneration or benefits not set forth in the Plan or such Award
Agreement, or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Grantee's
employment, director or independent contractor relationship.
(c) Taxes. The Company or any Subsidiary or Affiliate is
-----
authorized to withhold from any Award granted, any payment relating to
an Award under the Plan, including from a distribution of Stock, or any
other payment to a Grantee, amounts of withholding and other taxes due
in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company
and Grantees to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority
shall include authority to withhold or receive Stock or other property
and to make cash payments in respect thereof in satisfaction of a
Grantee's tax obligations.
(d) Stockholder Approval: Amendment and Termination. The Plan
-----------------------------------------------
shall take effect on the Effective Date but the Plan (and any grants of
Awards made prior to the stockholder approval mentioned herein) shall
be subject to the requisite approval of the stockholders of the
Company, which approval must occur within twelve (12) months of the
date that the Plan is adopted by the Board. In the event that the
stockholders of the Company do not ratify the Plan at a meeting of the
stockholders at which such issue is
9
<PAGE>
considered and voted upon, then upon such event the Plan and all
rights hereunder shall immediately terminate and no Grantee (or any
permitted transferee thereof) shall have any remaining rights under
the Plan or any Award Agreement entered into in connection herewith.
The Board may at any time and from time to time alter, amend, suspend,
or terminate the Plan in whole or in part. Notwithstanding the
foregoing, no such action shall affect adversely any of the rights of
any Grantee, without such Grantee's consent, under any Award
theretofore granted under the Plan. Unless earlier terminated by the
Board pursuant to the provisions of the Plan, the power to grant
Awards under the Plan will automatically terminate ten years after the
adoption of the Plan by the Board. If the Plan is terminated, any
unexercised Award shall continue to be exercisable in accordance with
its terms and the terms of the Plan in effect immediately prior to
such termination.
(e) No Rights to Awards; No Stockholder Rights. No Grantee
------------------------------------------
shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Grantees. Except as
provided specifically herein, a Grantee or a transferee of an Award
shall have no rights as a stockholder with respect to any shares
covered by the Award until the date of the issuance of a stock
certificate to him for such shares.
(f) Unfunded Status of Awards. The Plan is intended to
-------------------------
constitute an "unfunded" plan for incentive and deferred compensation.
With respect to any payments not yet made to a Grantee pursuant to an
Award, nothing contained in the Plan or any Award shall give any such
Grantee any rights that are greater than those of a general creditor of
the Company.
(g) No Fractional Shares. No fractional shares of Stock shall
--------------------
be issued or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, other Awards, or other property shall be
issued or paid in lieu of such fractional shares.
(h) Regulations and Other Approvals.
-------------------------------
(i) The obligation of the Company to sell or deliver Stock
with respect to any Award granted under the Plan shall be
subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws,
and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the
Committee.
(ii) Each Award is subject to the requirement that, if at
any time the Committee determines, in its absolute discretion,
that the listing, registration or qualification of Stock
issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant
of an Award or the issuance of Stock, no such Award shall be
granted or payment made or Stock issued, in whole or in part,
unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions
not acceptable to the Committee.
10
<PAGE>
(iii) In the event that the disposition of Stock acquired
pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), and is not otherwise exempt
from such registration, such Stock shall be restricted against
transfer to the extent required by the Securities Act or
regulations thereunder, and the Committee may require a
Grantee receiving Stock pursuant to the Plan, as a condition
precedent to receipt of such Stock, to represent to the
Company in writing that the Stock acquired by such Grantee is
acquired for investment only and not with a view to
distribution.
(iv) Promptly after the Initial Sale Date (as defined in
the Stockholders Agreement), the Company shall cause to be
filed with the U.S. Securities and Exchange Commission, a
registration statement on Form S-8 or other applicable form
with respect to the shares of Stock to be issued upon exercise
of Awards. The Company will use all reasonable efforts to
cause such registration statement to become and remain
effective; it being understood that the sale of such shares of
Stock will remain subject to the restrictions referred to in
Section 6(b) hereof.
(i) Governing Law. The Plan and all determinations made
-------------
and actions taken pursuant hereto shall be governed by the laws of the
State of Delaware without giving effect to the conflict of laws
principles thereof.
11
<PAGE>
AMENDED AND RESTATED
MILL AGREEMENT
by and between
MILLER MILLING COMPANY,
WINCHESTER PASTA, L.L.C.
and
PASTA GROUP, L.L.C.
March 10, 2000
Winchester, Virginia
<PAGE>
TABLE OF CONTENTS
Page
GENERAL BACKGROUND............................................................1
ARTICLE I - DEFINITIONS......................................................2
Section 1.01 Accounting Terms.......................................2
Section 1.02 Buhler Contracts.......................................2
Section 1.03 Contract Goods.........................................3
Section 1.04 Contract Price.........................................3
Section 1.05 Contract Year..........................................3
Section 1.06 Daily Plant Capacity...................................3
Section 1.07 Delivery Period........................................3
Section 1.08 Fancy Patent Flour.....................................3
Section 1.09 Flour Requirements.....................................3
Section 1.10 Initial Term...........................................3
Section 1.11 Lebanon Plant..........................................4
Section 1.12 Lebanon Property.......................................4
Section 1.13 Mill...................................................4
Section 1.14 Mill Assets............................................4
Section 1.15 Mill Capacity..........................................4
Section 1.16 Mill Property..........................................4
Section 1.17 Mill Reconfiguration...................................4
Section 1.18 New World Pasta Company................................5
Section 1.19 Plant..................................................5
Section 1.20 Plant Property.........................................5
Section 1.21 Producer Price Index...................................5
Section 1.22 Semolina...............................................5
ARTICLE II - OPERATIONS......................................................5
Section 2.01 Quantity...............................................5
Section 2.02 Quality Requirements of Individual Purchases...........6
Section 2.03 Purchase of Excess Contract Goods......................7
Section 2.04 Permits and Licenses...................................9
Section 2.05 Price..................................................9
Section 2.06 Payment...............................................15
Section 2.07 Notice of Flour Requirements..........................16
Section 2.08 Delivery of Contract Goods............................16
Section 2.09 Failure of Supply and Liquidated Damages..............17
Section 2.10 Purchase and Manufacturing Records....................18
Section 2.11 Inspection............................................19
Section 2.12 Quantity of Contract Goods Delivered..................19
Section 2.13 Terms of Sale.........................................19
Section 2.14 Maintenance Program...................................20
i
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Section 2.15 Force Majeure.........................................20
ARTICLE III - RESPECTIVE RIGHTS, TERMINATION AND TRANSFER...................21
Section 3.01 Term..................................................21
Section 3.02 Breach of Obligations.................................26
Section 3.03 Termination by Miller.................................26
ARTICLE IV - GENERAL PROVISIONS.............................................27
Section 4.01 Governing Law.........................................27
Section 4.02 Right of First Refusal................................27
Section 4.03 Notices...............................................28
Section 4.04 Breach of Agreement...................................29
Section 4.05 Confidentiality.......................................29
Section 4.06 Arbitration...........................................30
Section 4.07 Binding Effect and Assignment.........................30
Section 4.08 Severability..........................................31
Section 4.09 Counterparts..........................................31
Section 4.10 Integration...........................................31
Section 4.11 Costs of Mill Reconfiguration.........................31
Section 4.12 Title to Equipment and Fixtures.......................32
LIST OF EXHIBITS
Exhibit A - Specifications
Exhibit B - Delivery Procedures
Exhibit C - Example of Calculations for Sections 2.05 and 3.01
Exhibit D - Legal Description of Mill Property
Exhibit E - Legal Description of Plant Property
Exhibit F - Legal Description of Lebanon Property
ii
<PAGE>
MILL AGREEMENT
THIS MILL AGREEMENT ("Agreement") is made and entered into effective as of
the 10th day of March, 2000, by and among MILLER MILLING COMPANY, a Minnesota
corporation ("Miller"), WINCHESTER PASTA, L.L.C., a Delaware limited liability
company ("WPLLC") and PASTA GROUP, L.L.C., a Delaware limited liability company
("PGLLC").
In consideration of the mutual covenants and agreements herein contained,
and intending to be legally bound, it is agreed by and between the parties
hereto as follows:
GENERAL BACKGROUND
------------------
A. WPLLC has acquired and is operating a pasta manufacturing and processing
plant located in or near Winchester, Virginia (the "Plant") on land owned by
WPLLC (the "Plant Property").
B. PGLLC owns and is operating a pasta manufacturing and processing plant
located in or near Lebanon, Pennsylvania (the "Lebanon Plant") on land owned by
PGLLC (the "Lebanon Plant Property").
C. WPLLC and PGLLC need to purchase substantial quantities of semolina and
durum wheat flours for use in conjunction with the operation of the Plant and
the Lebanon Plant.
D. WPLLC desires to have a flour mill capable of supplying the Flour
Requirements of the Plant located adjacent to the Mill and operated as an
integrated part of the Plant operations (the "Mill").
E. Miller has constructed and is operating the Mill for processing durum
wheat and producing Contract Goods (as hereinafter defined).
<PAGE>
F. Miller, before commencing construction of the Mill, desired to secure a
commitment for a large volume of business on a continuing basis, which Miller
secured from the Hershey Pasta & Grocery Group, a division of Hershey Foods
Corporation ("HPG") (some of the assets of which have now been acquired by
WPLLC, including, without limitation, the Plant), pursuant to a Mill Agreement
dated April 17, 1992, which was amended pursuant to an Amendment to Mill
Agreement dated September 2, 1992, a Second Amendment to Mill Agreement dated
June 5, 1996, an Amended and Restated Mill Agreement dated July 29, 1998, and an
Amended and Restated Mill Agreement dated January 28, 1999 (the "Existing Mill
Agreement").
G. WPLLC and PGLLC have collectively assumed the obligations and succeeded
to the rights of HPG under the Existing Mill Agreement.
H. WPLLC, PGLLC and Miller now wish to modify certain terms of the Existing
Mill Agreement and, in connection therewith, to amend and restate the Existing
Mill Agreement in its entirety on the terms and conditions hereinafter set
forth.
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement, the following definitions shall have
the meanings set forth below:
Section 1.01 Accounting Terms. Any accounting terms used in this Agreement
----------------
which are not specifically defined shall have the meanings customarily given
them in accordance with generally accepted accounting principles.
Section 1.02 Buhler Contracts. The term "Buhler Contracts" means the
----------------
Contract dated January 20, 2000, between Miller and Buhler for certain
modifications to Miller's "A Mill" in
2
<PAGE>
Winchester which are designed to produce the Contract Goods in accordance with
WPLLC's request and the Contract dated January 20, 2000, between Miller and
Buhler for those modifications to Miller's "B Mill" in Winchester which are
designed to produce the Contract Goods in accordance with WPLLC's request.
Section 1.03 Contract Goods. The term "Contract Goods" shall mean
--------------
collectively semolina and durum wheat flours used by WPLLC and PGLLC to
manufacture pasta and noodles.
Section 1.04 Contract Price. The price for Contract Goods determined in
--------------
accordance with Sections 2.05 or 3.01.
Section 1.05 Contract Year. The term "Contract Year" shall mean a calendar
-------------
year beginning on January 1 and ending on December 31.
Section 1.06 Daily Plant Capacity. The daily production capacity of the
--------------------
Plant requires at least [Confidential Treatment Requested by New World Pasta].
Section 1.07 Delivery Period. The term "Delivery Period" shall mean any
---------------
period during which Contract Goods purchased by WPLLC or PGLLC are to be
delivered.
Section 1.08 Fancy Patent Flour. The flour produced from durum wheat which
------------------
meets WPLLC or PGLLC specifications for "fancy patent flour".
Section 1.09 Flour Requirements. "Flour Requirements" shall mean the
------------------
semolina and durum wheat flour raw material needs of the Plant and Lebanon Plant
as ordered by WPLLC and PGLLC, respectively.
Section 1.10 Initial Term. As defined in Section 3.01.
------------
Section 1.11 Lebanon Plant. "Lebanon Plant" means the production facility
-------------
located in Lebanon, Pennsylvania which is owned by PGLLC.
3
<PAGE>
Section 1.12 Lebanon Property. "Lebanon Property" means the real property
----------------
legally described on Exhibit F attached hereto on which the Lebanon Plant is
located.
Section 1.13 Mill. The "Mill" shall mean the flour mills located on the
----
Mill Property which are capable of processing durum wheat in sufficient
quantities to supply the Plant's Flour Requirements, subject to the limitations
set forth in this Agreement.
Section 1.14 Mill Assets. As defined in Section 4.02.
-----------
Section 1.15 Mill Capacity. The term "Mill Capacity" shall mean the
-------------
quantity of Contract Goods which the Mill shall be capable of producing,
operating [Confidential Treatment Requested by New World Pasta]. The Mill will
be capable of producing fancy patent flours daily in amounts which are no more
than [Confidential Treatment Requested by New World Pasta].
Section 1.16 Mill Property. The land in or near Winchester, Virginia, owned
-------------
by Miller Milling Company Limited Partnership on which the Mill is located and
which is legally described on Exhibit D attached hereto.
Section 1.17 Mill Reconfiguration. The term "Mill Reconfiguration" shall
--------------------
mean the modifications to Miller's A and B Mills in Winchester which are
designed to produce the Contract Goods in accordance with WPLLC's and PGLLC's
request. Such modifications are more particularly described in the Buhler
Contracts.
Section 1.18 New World Pasta Company. "New World Pasta Company" or
-----------------------
"NWP" means New World Pasta Company f/k/a Hershey Pasta Manufacturing Group, a
Delaware corporation, which owns all of the issued and outstanding equity
interests in WPLLC and PGLLC.
Section 1.19 Plant. The term "Plant" shall mean WPLLC's pasta production
-----
facility located in or near Winchester, Virginia.
4
<PAGE>
Section 1.20 Plant Property. The land in or near Winchester, Virginia owned
--------------
by WPLLC on which the Plant is located and which is legally described on Exhibit
E attached hereto.
Section 1.21 Producer Price Index. The term "Producer Price Index" or "PPI"
--------------------
means the Producer Price Index for Total Manufacturing Industries as published
by the Bureau of Labor and Statistics for the United States Department of Labor.
Section 1.22 Semolina. The flour produced from durum wheat which meets
--------
WPLLC and PGLLC specifications. It is recognized that there is a Standard of
Identity for semolina promulgated by the U.S. Food and Drug Administration. The
Mill shall be capable of producing semolina consistent with such standard as it
now exists or may exist in the future.
5
<PAGE>
ARTICLE II
OPERATIONS
----------
Section 2.01 Quantity. During each Contract Year and subject to the further
--------
terms of this Agreement, WPLLC agrees to purchase from Miller and Miller agrees
to sell to WPLLC and supply from the Mill the Contract Goods which WPLLC shall
require during such Contract Year in conjunction with the ongoing operation of
the Plant. Except as otherwise set forth below in this Section 2.01, the parties
agree that Miller's obligation to supply Contract Goods to WPLLC and WPLLC's
obligation to purchase Contract Goods from Miller under this Agreement shall
apply only to the Daily Plant Capacity as defined in Section 1.06. All
non-Contract Goods emanating from the Mill shall belong to Miller. If WPLLC
increases the Daily Plant Capacity to produce pasta products over the amount
stated in Section 1.06, then WPLLC shall permit Miller to offer, on terms and
conditions Miller deems appropriate, to supply WPLLC Contract Goods at the Plant
to meet such increased capacity requirements, provided, however, that at all
times Miller shall supply WPLLC its requirements for Contract Goods for the
Plant as ordered by WPLLC regardless of the Daily Plant Capacity up to a maximum
annual capacity of [Confidential Treatment Requested by New World Pasta] of
Contract Goods.
Section 2.02 Quality Requirements of Individual Purchases. Miller shall
--------------------------------------------
sell and deliver, in accordance with the instructions of WPLLC and PGLLC and the
terms of this Agreement, the specific Contract Goods which are ordered by WPLLC
and PGLLC. Such Contract Goods shall be of a quality in accordance with the
specifications set forth in Exhibit A. Further, the specifications shall be
changed if required by law or regulation or at WPLLC's or PGLLC's election. If
WPLLC or PGLLC elects to change the specifications for Contract Goods, it shall
give Miller at
6
<PAGE>
least thirty (30) days prior notice. If any change in the specifications results
in increased costs to Miller in providing Contract Goods and such cost increase
is documented by records kept in the ordinary course of business, then the
parties shall negotiate in good faith an adjustment to the pricing formulas of
this Agreement to address such increased costs. The Contract Goods processed and
delivered by Miller to WPLLC and PGLLC under the terms of this Agreement shall
also conform to all applicable federal, state and local laws and regulations.
Miller warrants that its processing of the Contract Goods shall be in accordance
with good manufacturing practices, all applicable laws and regulations and
WPLLC's and PGLLC's specifications and that the Mill shall be maintained in a
sanitary, food grade status. WPLLC and PGLLC may reject any Contract Goods which
fail to comply with the provisions of this Section and under such circumstances
Miller shall retrieve, as necessary, all such non-conforming Contract Goods and
bear all costs and expenses associated with such non-conforming Contract Goods,
including but not limited to, reimbursement to WPLLC and PGLLC for any costs
involved in handling or processing such Contract Goods, retrieval of such
Contract Goods, costs and expenses incurred by WPLLC or PGLLC in connection with
the handling of work-in-process or finished goods utilizing such non-conforming
Contract Goods. Costs and expenses incurred in connection with finished goods
shall be borne by Miller only to the extent WPLLC and PGLLC can reasonably
demonstrate that the problem with the finished goods arose from a problem with
Contract Goods supplied by Miller. Miller shall take samples at regular
intervals of Contract Goods prior to delivery to WPLLC and PGLLC.
Section 2.03 Purchase of Excess Contract Goods. To the extent that the
---------------------------------
quantity of Contract Goods purchased from the Mill for use at the Plant is less
than the quantity of Contract Goods that would be required to satisfy the Daily
Plant Capacity (the amount of such difference
7
<PAGE>
being referred to herein as the "Excess Contract Goods"), PGLLC agrees to
purchase from Miller, and Miller agrees to sell to PGLLC, such Excess Contract
Goods for use by PGLLC at PGLLC's Lebanon Plant. For purposes of this provision,
PGLLC shall be obligated to purchase Excess Contract Goods from Miller for the
Lebanon Plant equal to the amount of such Excess Contract Goods, but not more
than [Confidential Treatment Requested by New World Pasta] of the Lebanon
Plant's annual requirements for Contract Goods during each Contract Year.
Notwithstanding the above, Miller's obligation to supply Contract Goods to the
Lebanon Plant shall extend to all PGLLC orders, up to [Confidential Treatment
Requested by New World Pasta] of the Lebanon Plant's annual requirements for
Contract Goods, but Miller shall not be obligated to supply Contract Goods to
the Plant and the Lebanon Plant in an amount in excess of the maximum annual
Mill Capacity of [Confidential Treatment Requested by New World Pasta] of
Contract Goods. The price and payment terms for such Contract Goods delivered to
the Lebanon Plant shall be the same as the price and payment terms for Contract
Goods supplied to the Plant under this Agreement, except that PGLLC shall pay
Miller for actual delivery charges incurred to transport the Contract Goods from
the Mill to the Lebanon Plant. For purposes of this provision, all delivery
shall be as reasonably directed by PGLLC. In the event rail transportation is
specified by PGLLC, the actual delivery charge shall not exceed the lowest
available rate for movement in private cars and Miller shall be responsible for
supplying the private cars. If alternate delivery is made necessary due solely
to actions or omissions of PGLLC, PGLLC will be responsible for any delivery
charges in excess of [Confidential Treatment Requested by New World Pasta].
Notwithstanding the above, [Confidential Treatment Requested by New World
Pasta], it being the intent of the parties that the [Confidential Treatment
Requested by New World Pasta]. At the end of the Initial Term, if
8
<PAGE>
WPLLC renews the Agreement pursuant to Section 3.01, the transportation cost if
rail transportation is specified by PGLLC, will be adjusted to take into account
any increase or decrease in the cost of leasing private rail cars.
Section 2.04 Permits and Licenses. Miller shall acquire and maintain all
--------------------
material licenses and permits required for the handling, processing and
production of the Contract Goods and operations of the Mill. WPLLC and PGLLC
shall exercise reasonable commercial judgment in obtaining and maintaining
necessary and material licenses and permits for the operation of the Plant and
the Lebanon Plant.
Section 2.05 Price. WPLLC shall purchase from Miller and Miller shall sell
-----
to WPLLC, FOB [Confidential Treatment Requested by New World Pasta], WPLLC's
requirements of Contract Goods, in conformance with Section 2.01, at the Plant.
For purposes of calculating the price of Contract Goods, the price of durum
wheat FOB [Confidential Treatment Requested by New World Pasta] will include
[Confidential Treatment Requested by New World Pasta]. The price that WPLLC
shall pay for the Contract Goods delivered to the Plant shall be determined in
accordance with Section 2.05(a)(A) or Section 2.05(a)(B) as applicable, if
Miller purchases the durum wheat, or in accordance with Section 2.05(b)(A) or
Section 2.05(b)(B) as applicable, if WPLLC elects to purchase the durum wheat
directly.
(a) If Miller purchases the durum wheat to produce the Contract Goods:
(A) From the date hereof until the date which is [Confidential
Treatment Requested by New World Pasta], the purchase price
per cwt for semolina and other durum wheat flour specified
by WPLLC shall be [Confidential Treatment Requested by New
World Pasta].
9
<PAGE>
If the total [Confidential Treatment Requested by New World
Pasta] exceeds [Confidential Treatment Requested by New
World Pasta] shall be adjusted to [Confidential Treatment
Requested by New World Pasta]. If the total annual
[Confidential Treatment Requested by New World Pasta] shall
be adjusted [Confidential Treatment Requested by New World
Pasta] for all [Confidential Treatment Requested by New
World Pasta].
(B) From and after the date which is [Confidential
Treatment Requested by New World Pasta], the
purchase price for the Contract Goods manufactured
by Miller for WPLLC shall be [Confidential Treatment
Requested by New World Pasta]. Such [Confidential
Treatment Requested by New World Pasta] shall be
calculated according to the following formula:
[Confidential Treatment Requested by New World Pasta]
After completion of the above calculation, the purchase
price per cwt for semolina and other durum wheat flour
specified by WPLLC shall be determined by [Confidential
Treatment Requested by New World Pasta]
If the total [Confidential Treatment Requested by New World
Pasta] of durum flour exceeds [Confidential Treatment
Requested by New World Pasta], the tolling charge shall be
adjusted to an amount equal to [Confidential Treatment
Requested by New World Pasta] for all purchases which exceed
[Confidential Treatment Requested by New World Pasta]. If the
total [Confidential Treatment
10
<PAGE>
Requested by New World Pasta] of durum flour exceeds [Confidential
Treatment Requested by New World Pasta], the tolling charge shall be
adjusted further to an amount equal to [Confidential Treatment
Requested by New World Pasta].
Under the pricing mechanism for Contract Goods where Miller purchases the
durum wheat, Miller shall [Confidential Treatment Requested by New World Pasta].
During the [Confidential Treatment Requested by New World Pasta] beginning
on the date on which the [Confidential Treatment Requested by New World Pasta],
the price of Contract Goods shall be computed in accordance with the formula set
forth in Section 2.05(a)(A). However, Miller agrees that it will [Confidential
Treatment Requested by New World Pasta]. Such [Confidential Treatment Requested
by New World Pasta] shall be computed as the [Confidential Treatment Requested
by New World Pasta]. Such [Confidential Treatment Requested by New World Pasta]
at the end of each month based upon [Confidential Treatment Requested by New
World Pasta].
(b) [Confidential Treatment Requested by New World Pasta]. For purposes
of exercise of this provision, Miller agrees to make available for WPLLC's use,
[Confidential Treatment Requested by New World Pasta]. Each bushel of wheat
delivered by WPLLC hereunder shall establish the price of (i) [Confidential
Treatment Requested by New World Pasta] pounds of Contract Goods to WPLLC if
computed under 2.05(b)(A), or (ii) [Confidential Treatment Requested by New
World Pasta] of Contract Goods to WPLLC if computed under 2.05(b)(B). At the
time of such purchase by WPLLC, Miller will indicate to WPLLC the quantity
necessary to produce the Contract Goods being priced by WPLLC. WPLLC's delivery
of said
11
<PAGE>
purchases to the Mill will be evenly spread over the delivery period of the
Contract Goods. If said purchases are delivered to the Mill by rail they will be
delivered in accordance with normal rail delivery practices. The payment for
said wheat shall be made to WPLLC in accordance with normal terms from the date
of delivery and subject to receipt of freight and wheat purchase documentation.
(A) If WPLLC purchases the durum wheat directly, from the date
hereof until [Confidential Treatment Requested by New World
Pasta], the purchase price for the Contract Goods
manufactured by Miller for WPLLC shall be [Confidential
Treatment Requested by New World Pasta].
If the total [Confidential Treatment Requested by New World Pasta]
(including [Confidential Treatment Requested by New World Pasta] exceeds
[Confidential Treatment Requested by New World Pasta]. If the total annual
[Confidential Treatment Requested by New World Pasta] shall be adjusted
[Confidential Treatment Requested by New World Pasta]. Under this pricing
mechanism, Miller shall [Confidential Treatment Requested by New World Pasta].
(B) If WPLLC purchases the durum wheat directly, then from and
after the date which is [Confidential Treatment Requested by
New World Pasta], the purchase price for the Contract Goods
manufactured by Miller for WPLLC shall be [Confidential
Treatment Requested by New World Pasta]
After completion of the above calculation, the purchase price per cwt for
semolina and other durum wheat flour specified by WPLLC shall be
[Confidential Treatment Requested by New World Pasta].
12
<PAGE>
If the total [Confidential Treatment Requested by New World Pasta]
exceeds [Confidential Treatment Requested by New World Pasta], the
tolling charge shall be adjusted [Confidential Treatment Requested by
New World Pasta]. If the total [Confidential Treatment Requested by
New World Pasta] exceeds [Confidential Treatment Requested by New
World Pasta], the tolling charge shall be adjusted [Confidential
Treatment Requested by New World Pasta].
During the [Confidential Treatment Requested by New World Pasta], the price
of Contract Goods shall be computed in accordance with the formula set forth in
Section 2.05(b)(A). However, Miller agrees that [Confidential Treatment
Requested by New World Pasta]. Such [Confidential Treatment Requested by New
World Pasta]. Such [Confidential Treatment Requested by New World Pasta].
Notwithstanding anything contained in this Section 2.05 to the
contrary, in the event that both Miller and WPLLC mutually agree, Miller may
offer to manufacture and sell to WPLLC Contract Goods at an amount less than the
formula pricing as provided for in any paragraph of this Section 2.05.
Examples of how the purchase price for Contract Goods shall be
calculated pursuant to this Section 2.05 are set forth in Exhibit C attached
hereto.
Section 2.06 Payment. Payment terms for Contract Goods sold pursuant to
-------
this Agreement shall be [Confidential Treatment Requested by New World Pasta]
from receipt at the Plant or the Lebanon Plant, as applicable, of Miller's
shipment, or [Confidential Treatment Requested by New World Pasta] from receipt
of Miller's invoice at WPLLC's or PGLLC's billing location, as applicable, which
invoice shall not be issued until after delivery of the subject Contract Goods,
or as otherwise agreed upon between the parties.
13
<PAGE>
Section 2.07 Notice of Flour Requirements. On or before the [Confidential
----------------------------
Treatment Requested by New World Pasta] of each month, or other schedule that
the parties agree upon, WPLLC and PGLLC shall use reasonable efforts to give a
nonbinding delivery schedule to Miller, in writing or by telephone, forecasting
the type and quantity of Contract Goods which WPLLC and PGLLC shall require at
the Plant and, as may be applicable (and to the extent such orders in total do
not exceed [Confidential Treatment Requested by New World Pasta] of Contract
Goods per year), [Confidential Treatment Requested by New World Pasta], during
the following month. Miller shall deliver Contract Goods in accordance with
WPLLC's and PGLLC's actual orders but will not be required to deliver Contract
Goods to WPLLC or PGLLC unless and until the price for such Contract Goods has
been fixed pursuant to Section 2.05. The parties recognize that sales of pasta
products in which the Contract Goods will be utilized are seasonal in nature.
Therefore, WPLLC and PGLLC cannot plan or predict with certainty their need for
Contract Goods. Such forecast by WPLLC and PGLLC, therefore, shall not be
binding on WPLLC or PGLLC with respect to the amount of Contract Goods which are
actually ordered.
Section 2.08 Delivery of Contract Goods. Delivery of Contract Goods to
--------------------------
WPLLC shall be made to the Plant at such times as shall be ordered by WPLLC by
[Confidential Treatment Requested by New World Pasta], provided, however, that
Miller shall not be required to ship Contract Goods on Saturdays, Sundays, or
any other day the Mill is closed by reason of a legal or recognized holiday
unless Miller has been notified of the need for such shipment [Confidential
Treatment Requested by New World Pasta] in advance. In the event of interruption
of such method of delivery of Contract Goods to the Plant from the Mill, Miller
will, unless prevented by events described in Section 2.15 supply WPLLC all of
its requirements for the Plant in some other
14
<PAGE>
fashion bearing all the cost and expense of doing so. Title to the Contract
Goods shall transfer to WPLLC at the point where the pneumatic pipe enters the
Plant, or if another delivery method is used, then when WPLLC takes possession
of the Contract Goods. If the Mill is closed or not operating, WPLLC may still
take delivery of Contract Goods, to the extent of inventory available, by
utilizing the control panel in WPLLC's Plant which controls the flow of Contract
Goods through the pneumatic pipes in accordance with agreed upon procedures
between Miller and WPLLC. Delivery of Contract Goods to PGLLC at the Lebanon
Plant shall be in accordance with the procedure set forth in Exhibit B which is
attached hereto, covering Contract Goods which are shipped either by rail or by
truck. Title to the Contract Goods shall transfer to PGLLC at the time of
acceptance by PGLLC at the Lebanon Plant.
Section 2.09 Failure of Supply and Liquidated Damages. In the event that
----------------------------------------
Miller shall become unable to supply WPLLC or PGLLC with its requirements in
accordance with Section 2.01 or Section 2.03, or to perform any particular
contract between Miller and WPLLC or PGLLC, for the sale of any particular
quantity or type of Contract Goods for any reason, unless covered by Section
2.15, Miller shall either purchase sufficient quantities and quality of
comparable Contract Goods on the open market to fulfill the orders of WPLLC or
PGLLC or immediately notify WPLLC or PGLLC upon receipt of WPLLC's or PGLLC's
order that Miller is unable to make the necessary purchases or to make WPLLC's
or PGLLC's required deliveries, to enable WPLLC or PGLLC to effect its own cover
for such orders from other suppliers and Miller shall pay to WPLLC or PGLLC, as
liquidated damages and not as a penalty, the difference between WPLLC's or
PGLLC's cost of cover for any Contract Goods (which cost includes all freight
and transaction costs for such cover) which Miller failed to so deliver and the
contract price thereof. Such payment shall be made within
15
<PAGE>
[Confidential Treatment Requested by New World Pasta] after WPLLC or PGLLC shall
have paid for such cover and apprised Miller of the cost of such cover. Miller,
WPLLC and PGLLC acknowledge that the terms of this Section 2.09 which provide
for liquidated damages are not intended to apply to those force majeure
circumstances described in Section 2.15.
Section 2.10 Purchase and Manufacturing Records.
----------------------------------
(a) Miller shall keep complete, true and accurate records and accounts
with respect to all matters and inputs affecting the price of Contract Goods,
including but not limited to, records with respect to purchasing and
transporting of flour, such records to be kept in accordance with generally
accepted accounting principles applied on a consistent basis from year to year.
WPLLC and PGLLC and each of their representatives shall have the right to audit
such records and accounts after reasonable prior notice to Miller, and Miller
shall provide WPLLC and PGLLC with monthly statements of such matters in such
form as shall be reasonably requested by WPLLC or PGLLC.
(b) Miller shall also keep complete, true and accurate records with
respect to manufacturing practices, quality assurance measures, analytical
procedures and data and inspection reports. Miller shall allow WPLLC and PGLLC
access to such records upon WPLLC's or PGLLC's request insofar as they deal with
the Contract Goods.
Section 2.11 Inspection. During the term of this Agreement, Miller shall
----------
provide WPLLC and PGLLC with access to the Mill at any time during operating
hours after reasonable notification by WPLLC to Miller. WPLLC and PGLLC shall
not be required to give Miller notice in emergency situations. Miller shall
promptly notify WPLLC and PGLLC of the results of any and all inspections of the
Mill by any regulatory or industry authority. Further, Miller shall immediately
notify WPLLC
16
<PAGE>
and PGLLC of any deficiencies, sanitation or quality problems in incoming flour,
operations or Contract Goods identified by Miller, regulatory authorities or any
third party.
Section 2.12 Quantity of Contract Goods Delivered. In order to determine
------------------------------------
and track the quantity of Contract Goods delivered by Miller to WPLLC through
the pneumatic pipes, all Contract Goods shall be weighed by a scale at the point
of discharge from the Mill storage silos into the pneumatic pipes. For purposes
of confirming the quantity there shall also be weighing done by volumetric scale
based on totaling air lock turns. Adjustments to quantity and/or equipment shall
be made if these weighing mechanisms do not conform. At any time, WPLLC may
enter the Mill to check, recalibrate or otherwise investigate the weighing
equipment for accuracy and proper operation. Determination of the quantity of
Contract Goods delivered to the Lebanon Plant shall be based upon certified
railroad weight certificates if the Contract Goods are delivered by rail or upon
certified bills of lading if the Contract Goods are not delivered by rail.
Section 2.13 Terms of Sale. Except as otherwise provided in this Agreement
-------------
or in any particular contract for the purchase and delivery of any particular
quantity of Contract Goods, all sales of Contract Goods shall be governed by the
Uniform Commercial Code.
Section 2.14 Maintenance Program. Miller shall adhere to, at its cost, a
-------------------
program for the maintenance of the Mill and any and all equipment installed
therein, which program shall be in keeping with the generally accepted industry
standards for such programs and which shall also be as reasonable and prudent as
Miller's program for the maintenance at other Miller facilities. Such
maintenance program shall also be consistent with all requirements and
recommendations of the equipment manufacturers.
17
<PAGE>
Section 2.15 Force Majeure. Miller, WPLLC and PGLLC shall be excused from
-------------
performance of the purchase and supply provisions of this Article II by reason
of circumstances beyond their control, including, but not limited to, acts of
God, disaster, fire, floods, the elements, lockouts, strikes, embargoes,
governmental acts, wars (declared or undeclared) and riots. The party
experiencing such force majeure shall provide prompt notice to the other party
and its performance shall be excused during the existence of such force majeure.
The party experiencing such force majeure shall use its best efforts to remove,
rectify or correct such force majeure and if the force majeure extends for
longer than eighteen (18) months, the other party shall have the option of
terminating this Agreement upon written notice. If the force majeure prevents
Miller from supplying Contract Goods to the Plant or the Lebanon Plant as
required by this Agreement, then after nine (9) months of such force majeure,
and during the continuance of such force majeure, Miller agrees to reimburse
WPLLC or PGLLC for the difference in cost to WPLLC or PGLLC of Contract Goods
required to be purchased by WPLLC or PGLLC for operation of the Plant or the
Lebanon Plant, as applicable, and the cost of such Contract Goods as calculated
under Section 2.05.
ARTICLE III
RESPECTIVE RIGHTS, TERMINATION AND TRANSFER
-------------------------------------------
Section 3.01 Term. The Initial Term of this Agreement shall expire on
----
[Confidential Treatment Requested by New World Pasta]; provided, however, that
the tolling charge used in calculating the purchase price for Contract Goods
shall be adjusted on [Confidential Treatment Requested by New World Pasta] and
on the first day of each [Confidential Treatment Requested by New World Pasta]
thereafter throughout the Initial Term through and including [Confidential
Treatment Requested by New World Pasta] to preserve [Confidential
18
<PAGE>
Treatment Requested by New World Pasta] as defined below, [Confidential
Treatment Requested by New World Pasta] as measured by [Confidential Treatment
Requested by New World Pasta] in accordance with the following formulas:
[Confidential Treatment Requested by New World Pasta].
The initial adjustment shall be calculated using the month of [Confidential
Treatment Requested by New World Pasta] for the adjustment which takes effect on
[Confidential Treatment Requested by New World Pasta], and the adjustment for
each [Confidential Treatment Requested by New World Pasta] adjustment date
thereafter shall be calculated by using a [Confidential Treatment Requested by
New World Pasta]. The Base Year Processing Margin for the adjustment which takes
effect on [Confidential Treatment Requested by New World Pasta]. The calculation
of these adjustments shall be made in accordance with the following:
[Confidential Treatment Requested by New World Pasta] are:
[Confidential Treatment Requested by New World Pasta] and other [Confidential
Treatment Requested by New World Pasta] (which shall only mean the [Confidential
Treatment Requested by New World Pasta] and [Confidential Treatment Requested by
New World Pasta]. It is the intent of the parties that [Confidential Treatment
Requested by New World Pasta] derived by dividing the sum total of each such
[Confidential Treatment Requested by New World Pasta] incurred during the
[Confidential Treatment Requested by New World Pasta] by the total [Confidential
Treatment Requested by New World Pasta] during the same twelve (12) month
period, whether [Confidential Treatment Requested by New World Pasta] or not,
however [Confidential Treatment Requested by New World Pasta] shall not include
19
<PAGE>
[Confidential Treatment Requested by New World Pasta]. Miller shall
[Confidential Treatment Requested by New World Pasta] to [Confidential Treatment
Requested by New World Pasta].
[Confidential Treatment Requested by New World Pasta] shall be
determined by dividing the total [Confidential Treatment Requested by New World
Pasta] by an estimated [Confidential Treatment Requested by New World Pasta], no
adjustment is applied to the [Confidential Treatment Requested by New World
Pasta] is reduced by [Confidential Treatment Requested by New World Pasta] to
arrive at [Confidential Treatment Requested by New World Pasta] for that year,
e.g. [Confidential Treatment Requested by New World Pasta] is [Confidential
Treatment Requested by New World Pasta]. For [Confidential Treatment Requested
by New World Pasta] and subsequent periods the depreciation and amortization
expenses are zero. The depreciation and amortization expenses will be computed
as a [Confidential Treatment Requested by New World Pasta] using the method
described for [Confidential Treatment Requested by New World Pasta].
The [Confidential Treatment Requested by New World Pasta] is the
remainder determined by taking the average [Confidential Treatment Requested by
New World Pasta], minus the [Confidential Treatment Requested by New World
Pasta], minus the [Confidential Treatment Requested by New World Pasta] used to
[Confidential Treatment Requested by New World Pasta], including [Confidential
Treatment Requested by New World Pasta] needed to [Confidential Treatment
Requested by New World Pasta] from the sale of [Confidential Treatment Requested
by New World Pasta], minus the [Confidential Treatment Requested by
20
<PAGE>
New World Pasta]. [Confidential Treatment Requested by New World Pasta] is
determined by taking [Confidential Treatment Requested by New World Pasta].
An example of how the tolling charge used in determining the purchase
price for Contract Goods would be adjusted (based on certain assumptions about
hundred weight production volume, Specific Costs, depreciation and amortization,
mill extraction rates, freight costs, wheat costs and by-product values) is set
forth on Exhibit C attached hereto.
Notwithstanding the above, [Confidential Treatment Requested by New
World Pasta] shall not be adjusted to [Confidential Treatment Requested by New
World Pasta], or that would otherwise [Confidential Treatment Requested by New
World Pasta]. For purposes of this Agreement, [Confidential Treatment Requested
by New World Pasta] shall be defined to mean a [Confidential Treatment Requested
by New World Pasta]. For purposes of interpretation, [Confidential Treatment
Requested by New World Pasta] shall not be construed to require an [Confidential
Treatment Requested by New World Pasta], but shall require [Confidential
Treatment Requested by New World Pasta]. In the event that the adjustment of the
price for [Confidential Treatment Requested by New World Pasta], Miller shall
have the [Confidential Treatment Requested by New World Pasta] may decline such
[Confidential Treatment Requested by New World Pasta], in which case WPLLC
[Confidential Treatment Requested by New World Pasta].
Within thirty (30) days prior to [Confidential Treatment Requested by
New World Pasta], and within thirty (30) days prior to [Confidential Treatment
Requested by New World Pasta] of each year thereafter until this Agreement
expires or is terminated, WPLLC shall, on behalf
21
<PAGE>
of WPLLC and PGLLC, exercise one of the following options by delivering written
notice thereof to Miller (failure to provide such written notice shall result in
the exercise of option (a) below):
(a) Allow the [Confidential Treatment Requested by New World Pasta],
except that [Confidential Treatment Requested by New World Pasta] as set forth
above. Such [Confidential Treatment Requested by New World Pasta] shall become
effective [Confidential Treatment Requested by New World Pasta].
(b) Notify [Confidential Treatment Requested by New World Pasta] this
Agreement. Upon such notice from [Confidential Treatment Requested by New World
Pasta] to both parties. In the event the parties [Confidential Treatment
Requested by New World Pasta], then [Confidential Treatment Requested by New
World Pasta], prior to [Confidential Treatment Requested by New World Pasta] the
Agreement [Confidential Treatment Requested by New World Pasta] shall be
adjusted effective [Confidential Treatment Requested by New World Pasta] from
the date on [Confidential Treatment Requested by New World Pasta]. During any
such [Confidential Treatment Requested by New World Pasta] or any such
[Confidential Treatment Requested by New World Pasta], the terms which were
[Confidential Treatment Requested by New World Pasta] shall control.
In the event that [Confidential Treatment Requested by New World Pasta]
pursuant to this Section due to [Confidential Treatment Requested by New World
Pasta], and Miller [Confidential Treatment Requested by New World Pasta], it is
understood and acknowledged that [Confidential Treatment Requested by New World
Pasta]. However, if [Confidential Treatment Requested by New World Pasta]
establishes a [Confidential Treatment
22
<PAGE>
Requested by New World Pasta] from other [Confidential Treatment Requested by
New World Pasta] to the extent of [Confidential Treatment Requested by New World
Pasta]. For purposes of this Agreement, [Confidential Treatment Requested
by New World Pasta] shall be deemed to mean [Confidential Treatment Requested by
New World Pasta] exceeding [Confidential Treatment Requested by New World
Pasta]. For example, [Confidential Treatment Requested by New World Pasta], then
[Confidential Treatment Requested by New World Pasta] to supply [Confidential
Treatment Requested by New World Pasta].
PGLLC agrees to be legally bound by WPLLC's exercise of any option under
this Section 3.01 and hereby irrevocably authorizes WPLLC to exercise any such
option on behalf of PGLLC.
Section 3.02 Breach of Obligations. Failure of Miller to comply with any of
---------------------
the obligations or conditions herein contained, including, but not limited to
late delivery or failure to meet product specifications, shall be a default and
shall entitle WPLLC or PGLLC to give Miller written notice to cure such default.
[Confidential Treatment Requested by New World Pasta].
Section 3.03 Termination by Miller. Failure of WPLLC or PGLLC to comply
---------------------
with any of the obligations or conditions herein contained, including, but not
limited to failure to purchase or pay for Contract Goods, shall be a default and
shall entitle Miller to give WPLLC and PGLLC written notice to cure such
default. If any such default is not cured within thirty (30) days after receipt
of such written notice, Miller shall be entitled to terminate this Agreement in
its entirety by giving written notice to take effect six (6) months after such
notice. Upon a termination of the Agreement under this provision, WPLLC and
Miller shall work together to disconnect and disassemble any physical
connections between the Plant and the Mill.
23
<PAGE>
ARTICLE IV
GENERAL PROVISIONS
------------------
Section 4.01 Governing Law. The parties hereto acknowledge that this
-------------
Agreement was made under, and shall be governed by the laws of the State of
Virginia.
Section 4.02 [Confidential Treatment Requested by New World Pasta]. For
-----------------------------------------------------
purposes of this Section 4.02, [Confidential Treatment Requested by New World
Pasta] mean [Confidential Treatment Requested by New World Pasta].
Section 4.03 Notices. Notices under this Agreement shall be in writing and
-------
may be delivered by hand or sent by mail, courier or facsimile. Notices by mail
shall be sent by United States registered or certified mail, postage prepaid,
return receipt requested, and shall be deemed delivered five (5) days after date
of mailing. Notices sent by facsimile shall be deemed given on the date
transmitted; provided that (i) the sender receives a written confirmation to
verify the transmission, and (ii) the sender also delivers a copy of the notice
to the other party by overnight courier. Notices sent by a courier shall be
deemed delivered on the date of receipt or the date delivery is refused by the
intended recipient as evidenced by the courier's records. Notices shall be sent
to the parties at the addresses set forth below, or at such other addresses or
persons as the party may from time to time designate by written notice to the
other party:
If to Miller Miller Milling Company
or MMCLP: 880 Grain Exchange Building
Minneapolis, Minnesota 55415
Attention: President
With a copy to: Michael L. Snow, Esquire
Maslon Edelman Borman & Brand
3300 Norwest Center
Minneapolis, Minnesota 55402
24
<PAGE>
If to WPLLC: Winchester Pasta, L.L.C.
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Chief Executive Officer
With a copy to: Winchester Pasta, L.L.C.
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Vice President of Finance/
Chief Financial Officer
If to PGLLC: Pasta Group, L.L.C.
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Chief Executive Officer
With a copy to: Pasta Group, L.L.C.
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Vice President of Finance/
Chief Financial Officer
If to NWP: New World Pasta Company
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Chief Executive Officer
With a copy to: New World Pasta Company
85 Shannon Road
Harrisburg, Pennsylvania 17112
Attention: Vice President of Finance/
Chief Financial Officer
Section 4.04 Breach of Agreement. In the event of any breach of this
-------------------
Agreement, the non-breaching party may avail itself of any remedies afforded it
by law, except as otherwise provided in Section 2.09 or Section 4.06 of this
Agreement which shall govern in the event of any conflict with other provisions
of this Agreement.
25
<PAGE>
Section 4.05 Confidentiality. Miller, WPLLC and PGLLC each hereby agree not
---------------
to disclose, without the other parties' consent, to any third party (except
financial institutions or professional personnel such as lawyers, accountants,
and the like who are employed by the party hereto or as may be required or
advisable to comply with laws including, without limitation, state and federal
securities laws) the specific provisions of this Agreement; provided, however,
that any party shall, at the request of the other party, execute and deliver a
Memorandum of this Agreement in recordable form for recordation against the
Plant Property, the Lebanon Plant and the Mill Property to memorialize the
purchase and supply obligations of the parties hereto, Miller's obligations
under Section 4.02 and each of the parties obligations under Section 4.07.
Section 4.06 Arbitration. In the event the parties are unable to agree upon
-----------
the pricing of any products hereunder, the amount due for any delivery, or the
quality of any delivery they shall identify a third party who shall determine
such amount, and whose determination shall be binding upon the parties hereto,
and further provided that if Miller, WPLLC and PGLLC shall be unable to agree
upon the identity of such third party, said determination shall be made by a
board of arbitration in accordance with the rules and regulations of the
American Arbitration Association, and held in Minneapolis, Minnesota. The cost
of said arbitration shall be divided between the parties so that the losing
party shall pay to the prevailing party a portion of the cost of the prevailing
party's attorneys' fees and costs which shall be equal to a percentage
determined by dividing (i) the value of the award to the prevailing party by
(ii) the amount of the prevailing party's claim in the arbitration. The decision
of the arbitrators shall be final and binding and entitled to recognition and
enforcement by the courts of the United States and by the courts of all states
of the United States.
26
<PAGE>
Section 4.07 Binding Effect and Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties hereto, their successors and
assigns, including without limitation any party that purchases or leases
substantially all of the Plant assets or the Lebanon Plant assets or any
transferee which acquires effective control or ownership of the Plant or the
Lebanon Plant.
Section 4.08 Severability. The determination that any portion or
------------
provision of this Agreement is invalid or enforceable shall not affect the
remaining portions or provisions hereof, unless such determination of invalidity
relates to the essence or essential terms of this Agreement, in which event the
entire Agreement shall become null and void.
Section 4.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts and all counterparts so executed shall for all purposes constitute
one agreement, binding on all the parties hereto, notwithstanding that all
parties shall not have executed the same counterpart.
Section 4.10 Integration. This Agreement is an amendment and
-----------
restatement of the Existing Mill Agreement in its entirety and represents the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings of
the parties with respect to the subject matter hereof.
Section 4.11 Costs of Mill Reconfiguration. WPLLC shall pay, as and when
-----------------------------
due, all amounts which are required to be paid to Buhler under the Buhler
Contracts which have not been paid as of the date hereof and will not later than
the date that is ten (10) days after the date this Agreement is signed by both
parties, pay to Miller any amounts Miller has paid to Buhler under the Buhler
Contracts. In addition, WPLLC shall reimburse Miller or pay directly to any
vendor or contractor: [Confidential Treatment Requested by New World Pasta],
provided that the maximum amount payable by WPLLC under this clause (a) shall
not exceed [Confidential
27
<PAGE>
Treatment Requested by New World Pasta]; (b) all costs incurred by Miller in
connection with the acquisition and installation by a third party of a
[Confidential Treatment Requested by New World Pasta], provided that the maximum
amount payable by WPLLC under this clause (b) shall not exceed [Confidential
Treatment Requested by New World Pasta]; and (c) all costs incurred by Miller
which are not covered by the Buhler contracts which are necessary to secure
permits, pay permit fees, acquire equipment (other than the "weighing system"
under clause (b) above), supplies and services from third parties in connection
with the Mill Reconfiguration, including costs associated with construction
schedule delays, provided that the maximum amount payable by WPLLC under this
clause (c) shall not exceed [Confidential Treatment Requested by New World
Pasta]. Miller will, at its expense, pay for the cost of Miller's personnel
(including travel and lodging expenses) arising from Miller's management of the
construction and installation of the Mill Reconfiguration. Miller shall use
reasonable commercial efforts to minimize the costs covered by this Section
4.11.
Section 4.12 Title to Equipment and Fixtures. Title to any equipment or
-------------------------------
other trade fixtures which are installed in the Mill in connection with the Mill
Reconfiguration shall belong solely to WPLLC. WPLLC shall have no right to use
such equipment or other trade fixtures as collateral or to grant any security
interest in, lien on or otherwise encumber such equipment or other trade
fixtures. Title to the equipment and other trade fixtures installed in the Mill
in connection with the Mill Reconfiguration shall pass to Miller [Confidential
Treatment Requested by New World Pasta]. However, prior to the earlier of
[Confidential Treatment Requested by New World Pasta].
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
WINCHESTER PASTA, L.L.C.
WITNESS
By:
- ------------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
PASTA GROUP, L.L.C.
WITNESS
By:
- ------------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
ACKNOWLEDGMENT
New World Pasta Group, a Delaware corporation, is executing this Agreement,
in order to memorialize its agreement, as the owner of all of the issued and
outstanding equity interests in Winchester Pasta, L.L.C. and Pasta Group,
L.L.C., to be legally bound by the provisions of this Agreement, including
specifically and without limitation the provisions of Section 4.07, and to not
take any action that would be inconsistent with or in derogation of the
obligations of Winchester Pasta, L.L.C. or Pasta Group, L.L.C. under this
Agreement.
NEW WORLD PASTA COMPANY
WITNESS
By:
- ------------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
29
<PAGE>
MILLER MILLING COMPANY
WITNESS
By:
- ------------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
ACKNOWLEDGMENT
Miller Milling Company Limited Partnership, a Minnesota limited
partnership, is executing this Mill Agreement solely to indicate its agreement
to be bound by the Right of First Refusal provisions contained in Section 4.02.
MILLER MILLING COMPANY LIMITED
PARTNERSHIP
By Miller Milling Company,
Its General Partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
30
<PAGE>
AMENDED AND RESTATED
MILL AGREEMENT
Between
NEW WORLD PASTA COMPANY
and
MILLER MILLING COMPANY
March 10, 2000
(Fresno, California)
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................2
1.1 Blended Products...............................................2
1.2 Buhler Contract................................................2
1.3 Contract Goods.................................................2
1.4 Contract Year..................................................2
1.5 Delivery Period................................................2
1.6 Durum Products.................................................2
1.7 NWP Plant......................................................2
1.8 Mill Capacity..................................................2
1.9 Mill Property..................................................2
1.10 Mill Reconfiguration...........................................3
1.11 Minimum Quantity...............................................3
1.12 Non-Durum Products.............................................3
1.13 Plant Property.................................................3
1.14 Producer Price Index or PPI....................................3
1.15 Third Party Contract...........................................3
1.16 Actual Freight Cost............................................3
2. Purchase And Sale of Durum Products.....................................3
2.1 Minimum Quantity...............................................3
2.2 Quantity and Quality Requirements of Individual Purchases......4
2.3 Price and Payment..............................................4
2.4 Enrichment....................................................10
2.5 Notice of Requirements........................................10
2.6 Shipment......................................................11
2.7 Purchase and Manufacturing Records............................11
3. Term...................................................................12
4. Termination............................................................12
4.1 Breach of Obligations.........................................12
4.2 Bankruptcy....................................................12
5. Liquidated Damages in The Event of Force Majeure.......................12
5.1 Liquidated Damages............................................12
5.2 Force Majeure.................................................13
6. Inspection Rights of NWP...............................................13
7. Transportation.........................................................13
8. Storage................................................................14
<PAGE>
8a. Wheat Storage..........................................................14
9. Governing Law..........................................................14
10. Right of First Refusal.................................................14
11. Notices................................................................15
12. Terms of Sale..........................................................16
13. Breach of Agreement....................................................16
14. Confidentiality........................................................16
15. Arbitration............................................................16
16. Binding Effect.........................................................17
17. Severability...........................................................17
18. Counterparts...........................................................17
19. Costs of Mill Reconfiguration..........................................17
20. Title to Equipment and Fixtures........................................18
21. Integration............................................................18
List of Exhibits
- ----------------
Exhibit A - Specifications
Exhibit B - Example Calculations for Section 2.3
Exhibit C - Legal Description for Mill Property
Exhibit D - Legal Description for Plant Property
<PAGE>
THIS AMENDED AND RESTATED MILL AGREEMENT ("Agreement") is made and
entered into effective as of the 10th day of March, 2000, by and between MILLER
MILLING COMPANY, a Minnesota corporation ("Miller"), and NEW WORLD PASTA
COMPANY, a Delaware corporation ("NWP").
RECITALS
--------
WHEREAS, Miller has constructed and is operating a flour mill located
in Fresno, California (the "Mill"), for processing wheat and producing semolina
and various wheat flours;
WHEREAS, NWP is engaged in the manufacture of a variety of pasta and
other products at a plant located in Fresno, California (the "Plant");
WHEREAS, Miller, prior to constructing the Mill, secured a commitment
from the Hershey Pasta & Grocery Group ("Hershey"), the prior owner of the
Plant, to purchase a large volume of the durum wheat flours that will be
produced at the Mill, pursuant to an Agreement between Hershey and Miller dated
September 17, 1990, which was amended by an Amendment to Agreement dated
September 2, 1992, a letter amendment dated as of August 18, 1994, a letter
amendment dated as of April 9, 1997, an Amended and Restated Mill Agreement
dated March 1, 1998, and a First Amendment to Amended and Restated Mill
Agreement dated January 28, 1999 (as amended, the "Existing Mill Agreement");
WHEREAS, NWP purchased the Plant from Hershey and NWP now purchases
substantial quantities of durum wheat flours for use in conjunction with the
operation of the Plant;
WHEREAS, NWP is required to purchase a portion of its requirements for
durum wheat flours for the Plant, and Miller is obligated to supply such
requirements, pursuant to the Existing Mill Agreement;
WHEREAS, NWP and Miller now desire to extend the term of the Existing
Mill Agreement and to modify certain other provisions thereof on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and agreements herein contained, it is agreed by and between the
parties hereto as follows:
1
<PAGE>
1. Definitions. For the purposes of this Agreement, the following
-----------
definitions shall apply:
1.1 Blended Products. The term "Blended Products" shall mean
----------------
any flour comprised of no less than [Confidential Treatment Requested by New
World Pasta].
1.2 Buhler Contract. The term "Buhler Contract" means the
---------------
Contract dated January 20, 2000, between Miller and Buhler for certain
modifications to Miller's "A Mill" in Fresno which are designed to produce the
Contract Goods in accordance with NWP's request.
1.3 Contract Goods. The term "Contract Goods" shall mean
--------------
collectively Durum Products, Non-Durum Products, and Blended Products used by
NWP to manufacture pasta and noodles.
1.4 Contract Year. The term "Contract Year" shall mean a
-------------
period of twelve (12) consecutive months commencing each year on the date, or
anniversary of the date, on which the term of this Agreement shall commence
pursuant to Section 3 of this Agreement.
1.5 Delivery Period. The term "Delivery Period" shall mean
---------------
any period during which Contract Goods purchased by NWP pursuant to a contract
with a third party are to be delivered.
1.6 Durum Products. The term "Durum Products" shall mean no
--------------
less than [Confidential Treatment Requested by New World Pasta].
1.7 NWP Plant. The terms "NWP Plant" or the term the "Plant"
---------
shall mean NWP's plant located in Fresno, California.
1.8 Mill Capacity. The term "Mill Capacity" shall mean the
-------------
quantity of Contract Goods which the Mill shall be capable of producing,
[Confidential Treatment Requested by New World Pasta].
1.9 Mill Property. The term "Mill Property" means the real
-------------
property in Fresno, California, which is legally described on Exhibit C attached
hereto on which the Mill is located together with perpetual nonexclusive
easement rights for the purposes of utilities and railroad trackage to serve the
Mill Property over the North Easement Parcel and the South Easement Parcel as
described on Exhibit C attached hereto, which real property is owned by Miller
Milling Company Limited Partnership, a Minnesota limited partnership.
1.10 Mill Reconfiguration. The term "Mill Reconfiguration"
--------------------
shall mean the modifications to Miller's A Mill in Fresno which are designed to
produce the Contract Goods in
2
<PAGE>
accordance with NWP's request. Such modifications are more particularly
described in the Buhler Contract.
1.11 Minimum Quantity. The term "Minimum Quantity" shall have
----------------
the meaning set forth in Section 2.1 below.
1.12 Non-Durum Products. The term "Non-Durum Products" shall
------------------
mean any flour products made in whole from wheat other than durum wheat.
1.13 Plant Property. The term "Plant Property" means the real
---------------
property in Fresno, California in which the Plant is located and which is owned
by NWP and is legally described on Exhibit D attached hereto.
1.14 Producer Price Index or PPI. "Producer Price Index" or
---------------------------
"PPI" means the Producer Price Index for Total Manufacturing Industries as
published by the Bureau of Labor and Statistics for the United States Department
of Labor.
1.15 Third Party Contract. The term "Third Party Contract"
--------------------
shall mean any contract with a third party for any Contract Goods.
1.16 Actual Freight Cost. The term "Actual Freight Cost" shall
-------------------
have the meaning set forth in Section 2.3.
2. Purchase And Sale of Durum Products.
-----------------------------------
2.1 Minimum Quantity. During each Contract Year and subject to the
----------------
further terms of this contract, NWP agrees to purchase from Miller and Miller
agrees to sell to NWP and supply from the Mill:
An amount equal to, or greater than [Confidential
Treatment Requested by New World Pasta] in the
aggregate, [Confidential Treatment Requested by New
World Pasta] shall require [Confidential Treatment
Requested by New World Pasta].
2.2 Quantity and Quality Requirements of Individual Purchases. NWP
---------------------------------------------------------
agrees that during the course of the Contract Year it shall purchase such
quantities of Contract Goods, in the aggregate, from Miller such that by the end
of a Contract Year, NWP shall have purchased at least [Confidential Treatment
-----------------------
Requested by New World Pasta] of its aggregate purchases of goods for use in the
- ----------------------------
Plant, which are the equivalent of Contract Goods, from Miller.
3
<PAGE>
NWP may order, at its discretion, any amount of the specific type of
Contract Goods, subject only to the aforestated aggregate purchase requirement.
Miller shall sell and deliver, in accordance with the instructions of NWP and
the terms of this Agreement, the specific Contract Goods which are ordered by
NWP. Such Contract Goods shall be of a quality in accordance with the
specifications as set forth in Exhibit A. The specifications set forth on
Exhibit A may be changed if mutually agreed upon by the parties.
In no event, however, shall Miller be required to sell to NWP Contract
Goods in excess of the Mill Capacity pursuant to the terms of this Agreement.
2.3 Price and Payment. It is intended by both parties that NWP shall
-----------------
buy the Contract Goods from Miller, and Miller shall sell and deliver the
Contract Goods to NWP, F.O.B. [Confidential Treatment Requested by New World
Pasta] at a price equal to the Actual Contract Price (as defined below).
[Confidential Treatment Requested by New World Pasta] shall be
determined by multiplying the [Confidential Treatment Requested by New
World Pasta], as agreed upon by the parties, times [Confidential
Treatment Requested by New World Pasta].
Actual [Confidential Treatment Requested by New World Pasta]
shall be determined by multiplying the [Confidential Treatment
Requested by New World Pasta], as agreed upon by the parties, times
[Confidential Treatment Requested by New World Pasta].
(b) During the [Confidential Treatment Requested by New World
Pasta] month period beginning on the date on which the final
implementation of the Mill Reconfiguration is achieved, the price of
Contract Goods shall be computed in accordance with the formula set
forth in Section 2.3(a). However, Miller agrees that it
4
<PAGE>
will provide NWP with a discount/cwt from the price of Contract Goods.
Such per cwt discount shall be computed as [Confidential Treatment
Requested by New World Pasta]. Such per cwt discount shall be applied
on a contract by contract basis at the end of each month based upon
[Confidential Treatment Requested by New World Pasta] for such month.
From and after the date which is [Confidential Treatment
Requested by New World Pasta] after the date on which final
implementation of the Mill Reconfiguration is achieved, the purchase
price for the Contract Goods manufactured by Miller for NWP shall be
determined in accordance with the calculations below considering
[Confidential Treatment Requested by New World Pasta]; it being the
intent of Miller and NWP that [Confidential Treatment Requested by New
World Pasta].
(c) Actual Contract Price per hundred weight for Contract
Goods originating [Confidential Treatment Requested by New World Pasta]
shall be determined by multiplying [Confidential Treatment Requested by
New World Pasta], as agreed upon by the parties in accordance with one
of the following formulas, as applicable based upon [Confidential
Treatment Requested by New World Pasta]:
[Confidential Treatment Requested by New World Pasta]
Actual Contract Price per hundred weight for Contract Goods
originating [Confidential Treatment Requested by New World Pasta] shall
be determined by multiplying the [Confidential Treatment Requested by
New World Pasta], as agreed upon by the parties in accordance with one
of the following formulas, as applicable based upon [Confidential
Treatment Requested by New World Pasta]:
[Confidential Treatment Requested by New World Pasta]
Notwithstanding anything herein to the contrary, it is agreed
that [Confidential Treatment Requested by New World Pasta]; and whichever
[Confidential Treatment Requested by New World Pasta], shall be known as the
[Confidential Treatment Requested by New World Pasta.]
5
<PAGE>
Effective September 1, 1998, Miller will offer NWP
the following volume incentive discount off the agreed upon
purchase prices specified above for Contract Goods purchased
from the Mill:
Purchases Quantity Discount
------------------ --------
[Confidential Treatment Requested by New World Pasta]
Notwithstanding the foregoing, the pricing formula used in
calculating the purchase price for Contract Goods shall be adjusted on
[Confidential Treatment Requested by New World Pasta], as defined
below, to [Confidential Treatment Requested by New World Pasta] in
accordance with the following formulas:
Formula for adjustment as of [Confidential Treatment Requested by New World
Pasta] [Confidential Treatment Requested by New World Pasta]
Formula for annual adjustments for periods subsequent to [Confidential Treatment
Requested by New World Pasta]:
[Confidential Treatment Requested by New World Pasta]
The initial adjustment shall be calculated using the month of
[Confidential Treatment Requested by New World Pasta] as the Base Month PPI for
the adjustment which takes effect on [Confidential Treatment Requested by New
World Pasta], and the adjustment for each [Confidential Treatment Requested by
New World Pasta] adjustment date thereafter shall be calculated by using
[Confidential Treatment Requested by New World Pasta] which shall be the month
of [Confidential Treatment Requested by New World Pasta] ending immediately
prior to the last adjustment date [Confidential Treatment Requested by New World
Pasta]. The Base Year Processing Margin for the adjustment which takes effect on
[Confidential Treatment Requested by New World Pasta] shall be the processing
margin for [Confidential Treatment Requested by New World Pasta] and the Base
Year Processing Margin for each [Confidential Treatment Requested by New World
Pasta] thereafter shall be the [Confidential Treatment Requested by New World
Pasta]. The calculation of these adjustments shall be made in accordance with
the following:
6
<PAGE>
For purposes of making the initial adjustment to the price of
Contract Goods, which takes effect on [Confidential Treatment Requested by New
World Pasta], the [Confidential Treatment Requested by New World Pasta] will be
utilized in order to calculate the [Confidential Treatment Requested by New
World Pasta] or [Confidential Treatment Requested by New World Pasta]. In
addition, the pricing formula determined according to Section 2.3(c) that
corresponds with such [Confidential Treatment Requested by New World Pasta] will
be utilized to calculate the[Confidential Treatment Requested by New World
Pasta].
For purposes of making the [Confidential Treatment Requested
by New World Pasta], which takes effect on [Confidential Treatment Requested by
New World Pasta], and the annual adjustments that take place thereafter, the
[Confidential Treatment Requested by New World Pasta].
For purposes of determining the [Confidential Treatment
Requested by New World Pasta]. It is the intent of the parties that each of
these costs be expressed as [Confidential Treatment Requested by New World
Pasta] derived by dividing the [Confidential Treatment Requested by New World
Pasta] by the [Confidential Treatment Requested by New World Pasta], whether
sold to NWP or not, however the denominator shall not include the [Confidential
Treatment Requested by New World Pasta]. Miller shall use reasonable commercial
efforts to minimize Specific Costs increases.
For purposes of determining the Processing Margin, the
[Confidential Treatment Requested by New World Pasta] shall be determined by
dividing the total initial cost of the Mill by an [Confidential Treatment
Requested by New World Pasta] (straight line depreciation and amortization).
During years [Confidential Treatment Requested by New World Pasta] of the asset
life [Confidential Treatment Requested by New World Pasta]. During years
[Confidential Treatment Requested by New World Pasta] of the asset life, the
straight line depreciation and amortization is reduced by [Confidential
Treatment Requested by New World Pasta] to arrive at an adjusted depreciation
and amortization for that year, [Confidential Treatment Requested by New World
Pasta]. For year [Confidential Treatment Requested by New World Pasta] the
depreciation and amortization expenses are
7
<PAGE>
[Confidential Treatment Requested by New World Pasta]. The depreciation and
amortization expenses will be computed as a cost per hundred weight using
[Confidential Treatment Requested by New World Pasta].
The Processing Margin is the remainder determined by taking
[Confidential Treatment Requested by New World Pasta].
Notwithstanding the above, the pricing formula shall not be
adjusted to an extent that would cause the price for Contract Goods to exceed
[Confidential Treatment Requested by New World Pasta], or that would otherwise
put NWP at [Confidential Treatment Requested by New World Pasta]. For purposes
of this Agreement, [Confidential Treatment Requested by New World Pasta]. For
purposes of interpretation, [Confidential Treatment Requested by New World
Pasta] and [Confidential Treatment Requested by New World Pasta] shall not be
construed to require an [Confidential Treatment Requested by New World Pasta],
but shall require an [Confidential Treatment Requested by New World Pasta]. In
the event that the adjustment of the price for Contract Goods is restricted in
this manner, Miller shall have [Confidential Treatment Requested by New World
Pasta], or it may [Confidential Treatment Requested by New World Pasta], in
which case NWP shall be [Confidential Treatment Requested by New World Pasta].
Such option must be exercised or declined by Miller promptly and in a timely
fashion.
An example of how the pricing formula used in determining the
purchase price for Contract Goods would be adjusted (based upon certain
assumptions about hundred weight production volume, Specific Costs, depreciation
and amortization, mill extraction rates and wheat costs) is set forth on the
Exhibit B attached hereto.
In the event that price adjustments are [Confidential
Treatment Requested by New World Pasta] pursuant to this Section due to
[Confidential Treatment Requested by New World Pasta], and Miller elects
[Confidential Treatment Requested by New World Pasta], it is understood and
acknowledged that NWP may [Confidential Treatment Requested by New World Pasta].
However, if NWP establishes a [Confidential Treatment Requested by New World
Pasta], then Miller shall be [Confidential Treatment Requested by New World
Pasta]. For purposes of this Agreement, a [Confidential Treatment Requested by
New
8
<PAGE>
World Pasta] shall be deemed to mean [Confidential Treatment Requested by New
World Pasta].
2.4 Enrichment. In the event NWP is purchasing any Third Party Contract
----------
goods similar to Contract Goods and such similar goods are enriched as per NWP's
specifications, then Miller shall also enrich the Contract Goods purchased by
NWP, per NWP's specifications, for the same price, terms and conditions as
stated in such Third Party Contract; provided, however, that in the event said
Third Party Contract does not provide for enrichment, then Miller will, at NWP's
request, enrich said Contract Goods and the cost, to be negotiated by both
parties, shall be paid by NWP to Miller as an additional cost and expense of
NWP.
2.5 Notice of Requirements. On or before the [Confidential Treatment
----------------------
Requested by New World Pasta] day of each month, NWP shall use reasonable
efforts to give a delivery schedule to Miller, in writing or by telephone,
forecasting the type and quantity of Contract Goods which NWP shall require at
the Plant during the following month. The quantity of Contract Goods which NWP
may order to be delivered to NWP during any given week shall not, without the
prior written consent of Miller, exceed an amount equal to the production
capacity of the Mill for such week. The parties recognize that sales of pasta
products in which the Contract Goods will be utilized are seasonal in nature.
Therefore, NWP cannot plan or predict with certainty its need for Contract
Goods. NWP agrees it shall use reasonable, good faith efforts to provide Miller
with a forecast of NWP's intended purchases of Contract Goods within
[Confidential Treatment Requested by New World Pasta] of expected delivery.
[Confidential Treatment Requested by New World Pasta].
2.6 Shipment. Delivery of Contract Goods to NWP shall be made at such
--------
times as shall be ordered by NWP, provided, however, that Miller, shall not be
required to ship Contract Goods on Saturdays, Sundays, or any other day the Mill
is closed by reason of a legal or union- bargained holiday unless special
prearrangements have been made.
Miller shall deliver Contract Goods F.O.B. [Confidential Treatment
Requested by New World Pasta] in accordance with orders placed by NWP. Delay in
delivery resulting from the unavailability of the agreed upon mode of
transportation from the Mill to NWP's plant shall not constitute breach of this
Agreement and shall not give rise to a claim by NWP for damages, unless
otherwise set forth in the delivery terms or transportation arrangements, if (a)
such delay does not exceed [Confidential Treatment Requested by New World
Pasta], (b) such
9
<PAGE>
unavailability is not the fault of Miller (which may include a one (1) week
period each year at which time the Mill's operations shall cease for fumigation,
maintenance, and repairs, for which Miller shall provide [Confidential Treatment
Requested by New World Pasta] advance notice to NWP), and (c) Miller has used
reasonable efforts to provide a reasonable substitute mode of transportation.
2.7 Purchase and Manufacturing Records.
----------------------------------
(a) Miller shall keep complete, true and accurate records and
accounts with respect to all matters and inputs affecting the price of Contract
Goods, including but not limited to, records with respect to purchasing and
transporting of flour, such records to be kept in accordance with generally
accepted accounting principles applied on a consistent basis from year to year.
NWP or its representatives shall have the right to audit such records and
accounts after reasonable prior notice to Miller, and Miller shall provide NWP
with monthly statements of such matters in such form as shall be reasonably
requested by NWP.
(b) Miller shall also keep complete, true and accurate records
with respect to manufacturing practices, quality assurance measures, analytical
procedures and data and inspection reports. Miller shall allow NWP access to
such records upon NWP's request insofar as they deal with the Contract Goods.
3. Term. The term of this Agreement shall be a period commencing with the
----
first day of the month following that in which such production of Contract Goods
commenced and shall expire on [Confidential Treatment Requested by New World
Pasta].
4. Termination.
-----------
4.1 Breach of Obligations. Failure of Miller to comply with any of the
---------------------
obligations or conditions herein contained, including, but not limited to late
delivery or failure to meet product specifications, shall be a default and shall
entitle NWP to give Miller written notice to cure such default. If any such
default is not cured [Confidential Treatment Requested by New World Pasta] after
receipt of such written notice, NWP shall be entitled to terminate this
Agreement by giving written notice to take effect immediately.
4.2 Bankruptcy. If either party shall file a voluntary petition in
----------
bankruptcy, be declared bankrupt, make an assignment for the benefit of
creditors or suffer the appointment of a receiver or a trustee of its assets,
that party shall be in breach of this Agreement and the other
10
<PAGE>
party shall have the right to terminate this Agreement by giving written notice
to take effect immediately.
5. Liquidated Damages in The Event of Force Majeure.
------------------------------------------------
5.1 Liquidated Damages. In the event that Miller shall become unable to
------------------
supply NWP with its requirements in accordance with Section 2 of this Agreement,
or to perform any particular contract between Miller and NWP, for the sale of
any particular quantity or type of Contract Goods for any reason beyond the
control of Miller, unless covered by Section 5.2, Miller shall either purchase
sufficient quantities and quality of comparable Contract Goods on the open
market to fulfill the orders of NWP or notify NWP that Miller is unable to make
the necessary purchases to enable NWP to effect its own cover for such orders
from other suppliers and Miller shall pay, as liquidated damages and not as a
penalty, to NWP the difference between the cost of cover for any Contract Goods
which Miller failed to so deliver and the Actual Contract Price thereof. Such
payment shall be made within 30 days after NWP shall have paid for such cover
and apprised Miller of the cost of such cover. Miller and NWP acknowledge that
the terms of this Section 5.1 which provide for liquidated damages are not
intended to apply to those force majeure circumstances described in Section 5.2
below.
5.1.1. For purposes of Section 5.1, the Actual Contract Price
of a particular quantity of any Contract Goods ordered by NWP which
Miller failed to deliver shall equal the price fixed for such Contract
Goods in accordance with Section 2.3, as applicable considering the
timing of final implementation of the Mill Reconfiguration, at the time
such order was placed.
5.2 Force Majeure. Miller and NWP shall be excused from performance of
-------------
the purchase and supply provisions of this Agreement by reason of circumstances
beyond their control, including, but not limited to, acts of God, disaster,
fire, floods, the elements, lockouts, strikes, embargoes, governmental acts,
wars (declared or undeclared) and riots. The party experiencing such force
majeure shall provide prompt notice to the other party and its performance shall
be excused during the existence of such force majeure. The party experiencing
such force majeure shall use its best efforts to remove, rectify or correct such
force majeure and if the force majeure extends for longer than eighteen (18)
months, the other party shall have the option of terminating this Agreement upon
written notice. If the force majeure prevents Miller
11
<PAGE>
from supplying Contract Goods to the Plant as set forth in this Agreement, then
after nine (9) months of such force majeure, and during the continuance of such
force majeure, Miller agrees to reimburse NWP for the difference in cost to NWP
of Contract Goods required to be purchased by NWP for operation of the Plant and
the cost of such Contract Goods as calculated under subsection 2.3.
6. Inspection Rights of NWP. During the term of this Agreement, NWP is hereby
------------------------
granted the rights to examine, at any time that the Mill is open, the Mill and
the raw materials used to manufacture Contract Goods.
7. Transportation. Miller will deliver Contract Goods to the Plant by truck
--------------
which carrier shall meet the reasonable approval of NWP. Should NWP request
deliveries by a mode other than truck, then NWP will reimburse Miller for the
actual additional cost incurred by Miller because of the increase in
transportation costs.
8. Storage. NWP has, at [Confidential Treatment Requested by New World Pasta],
-------
constructed storage at the NWP plant sufficient to hold [Confidential Treatment
Requested by New World Pasta] of Contract Goods, single identity at a time. NWP
agrees to use this capacity only for Miller produced products. The form and
method of such construction was agreed to by and between Miller and NWP. At the
termination or the expiration of this Agreement, NWP shall own, at no cost, the
storage facility free and clear of any liens, claims or encumbrances.
8a. Wheat Storage. Miller has constructed and will make available to NWP
-------------
additional storage at the Mill sufficient to hold an additional [Confidential
Treatment Requested by New World Pasta] of wheat (in addition to the current
storage capacity of [Confidential Treatment Requested by New World Pasta]). NWP
will pay Miller for the use of this additional storage (for each bushel NWP
stores in excess of [Confidential Treatment Requested by New World Pasta]) a per
bushel amount as follows:
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year [Confidential Treatment Requested by New World Pasta]
Year and beyond [Confidential Treatment Requested by New World
Pasta].
12
<PAGE>
NWP's right to use of the storage is always dependent on (i) the
[Confidential Treatment Requested by New World Pasta], and (ii)[Confidential
Treatment Requested by New World Pasta].
9. Governing Law. The parties hereto acknowledge that this Agreement was made
-------------
under, and shall be governed by, the laws of the State of California.
10. [Confidential Treatment Requested by New World Pasta]. For purposes of this
-----------------------------------------------------
Section 10, [Confidential Treatment Requested by New World Pasta] means the
[Confidential Treatment Requested by New World Pasta].
11. Notices. All notices under this Agreement shall be in writing and may be
-------
delivered by hand or sent by mail, courier or facsimile. Notices by mail shall
be sent by United States registered or certified mail, postage prepaid, return
receipt requested, and shall be deemed delivered five (5) days after date of
mailing. Notices sent by facsimile shall be deemed received on the day sent;
provided that (i) the sender receives written confirmation that the facsimile
has been sent, and (ii) the sender delivers a copy thereof to the other party by
overnight courier. Notices by courier shall be deemed to have been received at
the time of delivery or refusal of delivery as confirmed by the courier's
records. Notices shall be sent to the parties at the addresses set forth below,
or at such other addresses or persons as the party may from time to time
designate by written notice to the other party:
If to Miller: Miller Milling Company
880 Grain Exchange Building
Minneapolis, Minnesota 55415
Attention: President
With copy to: Maslon Edelman Borman & Brand, LLP
13
<PAGE>
3300 Norwest Center
Minneapolis, Minnesota 55402
Attention: Michael L. Snow, Esq.
and Edwin Chanin, Esq.
If to NWP: New World Pasta Company
85 Shannon Drive
Harrisburg, Pennsylvania 17112
Attention: Chief Executive Officer
With copy to: New World Pasta Company
85 Shannon Drive
Harrisburg, Pennsylvania 17112
Attention: Vice President Finance/Chief Financial
Officer
12. Terms of Sale. Except as otherwise provided in this Agreement or in any
-------------
particular contract for the purchase and delivery of any particular quantity of
Contract Goods, all sales of Contract Goods shall be governed by the Uniform
Commercial Code.
13. Breach of Agreement. In the event of any breach of this Agreement, the
-------------------
non-breaching party may avail itself of any remedies afforded it by law.
14. Confidentiality. Both Miller and NWP hereby agree not to disclose, without
---------------
the other parties' consent, to any third party (except financial institutions or
professional personnel such as lawyers, accountants, and the like who are
employed by the party hereto or as may be required or advisable to comply with
laws including, without limitation, state and federal securities laws) the
specific provisions of this Agreement; provided, however, that either party
shall, at the request of the other party, execute and deliver a Memorandum of
this Agreement in recordable form for recordation against the Plant Property and
the Mill Property to memorialize the purchase and supply obligations of the
parties hereto, Miller's obligations under Section 10 and each of the parties'
obligations under Section 16.
15. Arbitration. In the event the parties are unable to agree upon the pricing
-----------
of any products hereunder, the amount due for any delivery, or the quality of
any delivery they shall identify a third party who shall determine such amount,
and whose determination shall be binding upon the parties hereto, and further
provided that if Miller and NWP shall be unable to agree upon the identity of
such third party, said determination shall be made by a board of arbitration in
accordance with the rules and regulations of the American Arbitration
Association, and held in
14
<PAGE>
San Francisco or Los Angeles, California. The cost of said arbitration shall be
divided between the parties so that the losing party shall pay to the prevailing
party a portion of the cost of the prevailing party's attorneys' fees and costs
which shall be equal to a percentage determined by dividing (i) the value of the
award to the prevailing party by (ii) the amount of the prevailing party's claim
in the arbitration. The decision of the arbitrators shall be final and binding
and entitled to recognition and enforcement by the courts of the United States
and by the courts of all states of the United States.
16. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto, their successors and assigns including, without
limitation, any party that purchases or leases substantially all of the Plant
assets or any transferee which acquires effective control or ownership of the
Plant.
17. Severability. The determination that any portion or provision of this
------------
Agreement is invalid or unenforceable shall not affect the remaining portions or
provisions hereof, unless such determination of invalidity relates to the
essence or essential terms of this Agreement, in which event the entire
Agreement shall become null and void.
18. Counterparts. This Agreement may be executed in two or more counterparts and
------------
all counterparts so executed shall for all purposes constitute one agreement,
binding on all the parties hereto, notwithstanding that all parties shall not
have executed the same counterpart.
19. Costs of Mill Reconfiguration. NWP shall pay, as and when due, all amounts
-----------------------------
which are required to be paid to Buhler under the Buhler Contracts which have
not been paid as of the date hereof and will not later than the date that is ten
(10) days after the date this Agreement is signed by both parties, pay to Miller
any amounts Miller has paid to Buhler under the Buhler Contracts. In addition,
NWP shall reimburse Miller or pay directly to any vendor or contractor all costs
incurred by Miller which are not covered by the Buhler contracts which are
necessary to secure permits, pay permit fees, acquire equipment, supplies and
services from third parties in connection with the Mill Reconfiguration,
provided that the maximum amount payable by NWP under this sentence shall not
exceed [Confidential Treatment Requested by New World Pasta]. Miller will, at
its expense, pay for the cost of Miller's personnel (including travel and
lodging expenses) arising from Miller's management of the construction and
installation of the
15
<PAGE>
Mill Reconfiguration. Miller shall use reasonable efforts to minimize the costs
covered by Section 19.
20. Title to Equipment and Fixtures. Title to any equipment or other trade
-------------------------------
fixtures which are installed in the Mill in connection with the Mill
Reconfiguration shall belong solely to NWP. NWP shall have no right to use any
equipment or other trade fixtures as collateral or to grant any security
interest in, lien on or otherwise encumber any equipment or trade fixtures.
Title to the equipment and other trade fixtures installed in the Mill in
connection with the Mill Reconfiguration shall pass to Miller [Confidential
Treatment Requested by New World Pasta]. However, prior to the earlier of
[Confidential Treatment Requested by New World Pasta].
21. Integration. This Agreement amends and restates the Existing Mill Agreement
-----------
in its entirety and represents the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
WITNESS MILLER MILLING COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WITNESS NEW WORLD PASTA COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACKNOWLEDGMENT
Miller Milling Company Limited Partnership, a Minnesota limited
partnership, is executing this Mill Agreement solely to indicate its agreement
to be bound by the Right of First Refusal provisions contained in Section 10.
MILLER MILLING COMPANY LIMITED
PARTNERSHIP
By Miller Milling Company,
Its General Partner
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 6,687
<SECURITIES> 0
<RECEIVABLES> 16,479
<ALLOWANCES> 0
<INVENTORY> 22,381
<CURRENT-ASSETS> 55,961
<PP&E> 220,571
<DEPRECIATION> 123,320
<TOTAL-ASSETS> 322,094
<CURRENT-LIABILITIES> 33,533
<BONDS> 292,660
130,261
0
<COMMON> 50
<OTHER-SE> (140,064)
<TOTAL-LIABILITY-AND-EQUITY> 322,094
<SALES> 81,999
<TOTAL-REVENUES> 81,999
<CGS> 45,049
<TOTAL-COSTS> 45,049
<OTHER-EXPENSES> 31,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,932
<INCOME-PRETAX> (1,695)
<INCOME-TAX> (627)
<INCOME-CONTINUING> (1,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,068)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
