<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 333-32827
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN ITALIAN PASTA COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2099 84-1032638
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
1000 ITALIAN WAY
EXCELSIOR SPRINGS, MISSOURI 64024
(816) 502-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
TIMOTHY S. WEBSTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN ITALIAN PASTA COMPANY
1000 ITALIAN WAY
EXCELSIOR SPRINGS, MISSOURI 64024
(816) 502-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
JAMES A. HEETER, ESQ. JOHN J. MCCARTHY, JR., ESQ.
SONNENSCHEIN NATH & ROSENTHAL DAVIS POLK & WARDWELL
4520 MAIN STREET, SUITE 1100 450 LEXINGTON AVENUE
KANSAS CITY, MISSOURI 64111 NEW YORK, NEW YORK 10017
(816) 932-4400 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO REGISTERED(1) OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE(3)
BE REGISTERED SHARE(2) PRICE(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Convertible Common Stock,
$.001 par value................... 9,085,000 shares $17.00 $154,445,000 $46,801.52
========================================================================================================================
</TABLE>
(1) Includes 1,185,000 shares which the U.S. Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States and Canadian offering of the
registrant's Class A Common Stock (the "U.S. Prospectus") and one to be used in
connection with a concurrent international offering of the Class A Common Stock
(the "International Prospectus" and, together with the U.S. Prospectus, the
"Prospectuses"). The International Prospectus will be identical to the U.S.
Prospectus except that it will have a different front cover page. The U.S.
Prospectus is included herein and is followed by the front cover page to be used
in the International Prospectus. The front cover page for the International
Prospectus included herein has been labeled "Alternate International Cover
Page."
<PAGE> 3
PROSPECTUS (Subject to Completion)
Issued October 8, 1997
7,900,000 Shares
AIPC LOGO
American Italian Pasta Company
CLASS A COMMON STOCK
------------------------
OF THE 7,900,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 5,310,000
SHARES ARE BEING SOLD BY THE COMPANY AND 2,590,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF CLASS A COMMON STOCK
BY SUCH SELLING STOCKHOLDERS. OF THE 7,900,000 SHARES OF CLASS A COMMON STOCK
BEING OFFERED HEREBY, 6,320,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,580,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15
AND $17. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS A
COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF
CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER
SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B COMMON
STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND AS REQUIRED
BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF
DIRECTORS.
------------------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE, ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "PLB."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $1,350,000.
(3) The Company and certain stockholders have granted to the U.S. Underwriters
an option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 1,185,000 additional Shares of Class A Common Stock at the
Price to Public less Underwriting Discounts and Commissions, for the purpose
of covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ , and $ , respectively. See "Underwriters."
------------------------
The Shares of Class A Common Stock are offered, subject to prior sale,
when, as and if accepted by the Underwriters named herein and subject to
approval of certain legal matters by Davis Polk & Wardwell, counsel for the
Underwriters. It is expected that delivery of the Shares of Class A Common Stock
will be made on or about October , 1997 at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
GEORGE K. BAUM & COMPANY
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 4
AIPC'S PASTA LABELLA(R) BRANDED PASTA
MUELLER'S(R) IS A REGISTERED TRADEMARK OF CPC INTERNATIONAL INC.
PRODUCTS TO BE PRODUCED BY
AIPC FOR CPC INTERNATIONAL INC.
AIPC'S PRIVATE LABEL AND BRANDED PASTA
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING STOCKHOLDERS OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL NOVEMBER , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY, BY THE SELLING STOCKHOLDERS OR BY ANY
UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS A COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE SELLING
STOCKHOLDERS AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY
RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON STOCK AND THE DISTRIBUTION
OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 10
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial and Other Data...... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 32
Management............................. 43
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related
Transactions......................... 53
Principal and Selling Stockholders..... 56
Description of Capital Stock........... 58
Shares Eligible for Future Sale........ 61
Certain United States Federal Income
Tax Considerations for Non-U.S.
Holders.............................. 63
Underwriters........................... 66
Legal Matters.......................... 69
Experts................................ 70
Additional Information................. 70
Index to Audited Financial
Statements........................... F-1
</TABLE>
------------------------
This Prospectus contains forward-looking statements and information based
on management's beliefs or assumptions made by and information currently
available to management that involve risks and uncertainties. If one or more of
these risks or uncertainties materialize, or should such assumptions prove
incorrect, the Company's actual results may be materially different from those
anticipated. Factors that may cause such differences include, but are not
limited to, those discussed under "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The Company
undertakes no obligation to update any such forward-looking statements to
reflect future events or developments.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all references in this Prospectus to (i) the "Company" and
"AIPC" shall mean American Italian Pasta Company, a Delaware corporation, and
its predecessor unless the context otherwise requires; and (ii) "pasta" shall
mean dry pasta, including dry pasta used in shelf-stable, frozen and canned
pasta products. Unless otherwise indicated, all information in this Prospectus
has been adjusted to give effect to the Recapitalization (as defined herein) and
assumes the U.S. Underwriters' over-allotment option is not exercised.
THE COMPANY
OVERVIEW
AIPC is the third largest and one of the fastest-growing producers and
marketers of pasta in North America. The Company commenced operations in 1988
with the North American introduction of new, highly-efficient durum wheat
milling and pasta production technology. Management believes that the Company's
singular focus on pasta, vertically-integrated facilities, continued
technological improvements and development of a highly-skilled workforce enable
AIPC to produce high-quality pasta at costs below those of many of its
competitors. Management believes that the combination of the Company's cost
structure, the average age of its competitors' North American pasta production
equipment and the growing pasta consumption in North America creates significant
opportunities for continued growth. The Company's revenue and operating income
excluding product introduction costs were $121.6 million and $16.7 million,
respectively, for the calendar year ended December 31, 1996, and grew at
compound annual growth rates ("CAGR") of 33% and 33%, respectively, over the
five-year period ended December 31, 1996. During the nine-month period ended
June 30, 1997, the Company had revenue of $93.6 million and an operating margin
excluding product introduction costs of 15.9%.
The Company has rapidly established a significant market presence in North
America by developing strategic customer relationships with food industry
leaders that have substantial pasta requirements. North American pasta
consumption exceeded 5.0 billion pounds in 1995 and is expected to grow based on
industry and trade sources and the Company's own analysis. The Company has a
long-term supply agreement with Sysco Corporation ("Sysco"), the nation's
largest marketer and distributor of foodservice products. In 1998, AIPC will
become the exclusive producer of Mueller's(R), the largest pasta brand in the
United States, pursuant to a recent long-term manufacturing and distribution
agreement with CPC International Inc. ("CPC"). CPC has announced its intention
to close its current pasta production facility by December 1997. AIPC is also
the primary supplier of pasta to Sam's Wholesale Club ("Sam's Club"), the
largest club store chain in the United States, and supplies private label and
branded pasta to six of the 10 largest grocery retailers in the United States,
including Wal*Mart, A&P, Publix, Albertsons, American Stores and Winn-Dixie. In
addition, AIPC has developed supply relationships with leading food processors,
such as Pillsbury, General Mills and Kraft Foods which use the Company's pasta
as an ingredient in branded food products.
The Company produces more than 80 dry pasta shapes in two
vertically-integrated production and distribution facilities, strategically
located in Excelsior Springs, Missouri and Columbia, South Carolina. The
construction of the Missouri plant in 1988 represented the first use in North
America of a vertically-integrated, high-capacity pasta plant using Italian
pasta production technology. Management believes that this plant continues to be
among the most efficient and highly-automated pasta facilities in North America.
The South Carolina plant, which commenced operations in 1995, produces only
pasta shapes conducive to high-volume production and employs a highly-skilled,
self-managed workforce. Management believes that the South Carolina plant is the
most efficient pasta facility in North America in terms of productivity and
conversion cost per pound. To meet the significant volume requirements of the
CPC agreement and support future growth, the Company commenced a capital
expenditure program in 1997 to nearly double the
4
<PAGE> 7
Company's annual pasta production capacity and add a highly-automated durum
wheat mill to its South Carolina plant, with completion scheduled for 1998.
OPERATING STRATEGY
The Company's operating strategy is to grow revenues and profitability by
offering customers the highest quality pasta products at competitive prices with
superior customer service. Key elements of the Company's operating strategy are
to:
- Continue to Lead the Industry as the Lowest Cost Producer of High
Quality Pasta. AIPC has successfully implemented production and capital
investment strategies designed to achieve low-cost production of
high-quality products. AIPC has distinguished itself from most major pasta
producers by vertically integrating the durum wheat milling function with
the production process and strategically locating its distribution centers.
Management believes that its facilities are among the most efficient pasta
production facilities in North America in terms of productivity and
conversion cost per pound, and that its vertically-integrated processes
produce pasta of superior color, texture, flavor and consistency. The
Company expects to realize additional operating efficiencies through the
completion of the current expansion program at its South Carolina and
Missouri facilities and ongoing improvement programs.
- Expand Customer-Driven Strategy. The Company is committed to
developing and maintaining strategic relationships with customers who (i)
are food industry leaders requiring a significant volume of high-quality
pasta; (ii) have committed marketing and sales resources to growing their
pasta business; and (iii) pursue long-term supply arrangements. The Company
has followed this strategy since commencing operations in 1988, beginning
with an agreement with Sysco, and has developed strategic supply
relationships with CPC, Sam's Club and leading grocery retailers.
Management believes that these strategic relationships increase operating
efficiencies, enhance AIPC's investment in new technology, create
distribution synergies, and enable closer involvement in its customers'
pasta businesses.
- Provide Superior Customer Service. The Company develops and enhances
customer relationships by providing superior service and technical support
to its customers. The Company has invested heavily in the development of a
broad range of customer service programs, including electronic data
interchange ("EDI") and efficient consumer response ("ECR") which
streamline the order, invoicing and inventory management functions. The
Company provides marketing, technical and service support to its customers
by assisting customers with supply and category management decisions,
producing pasta to its customers' specifications and making operational
recommendations to its customers using pasta as an ingredient in their food
products.
GROWTH STRATEGY
The Company continues to implement its growth strategy, which builds on the
Company's operating strategy and industry trends. Key elements of the Company's
growth strategy are to:
- Successfully Implement CPC Business Expansion. The Company was
recently selected to be the exclusive producer of CPC's Mueller's brand
pasta, the largest pasta brand in North America. Upon completion of AIPC's
capacity expansion in 1998, management anticipates CPC's annual volume
requirements will represent an approximately 60% increase over the
Company's fiscal 1997 production run rate. Management believes that the
Company's experience in servicing large pasta supply agreements and its
current capacity expansion program will enable AIPC to meet the current CPC
volume requirements and support potential future growth.
- Pursue Strategic Alliances. The Company believes that commercial
users and marketers of pasta will continue to require increasing quantities
of pasta and that a greater portion of these requirements will be
outsourced to more efficient producers of high-quality pasta, such as AIPC.
Management has identified additional strategic opportunities with
commercial users and marketers of pasta which may result in incremental
growth, new product development and cost savings opportunities in the
future.
5
<PAGE> 8
- Secure Additional Private Label Customers. The Company intends to
continue to grow its private label customer base and secure additional
private label customers by continuing to offer quality products,
competitive pricing, category management and superior customer service.
Management believes that AIPC's prospects for growth in the private label
market have been enhanced since Borden Foods Holdings Corporation
("Borden"), historically the largest private label supplier in North
America, announced its intention to exit the private label pasta business
in 1997.
- Continue Product Innovation. In 1995, the Company introduced Pasta
LaBella(R) flavored pasta, a line of all natural, full-flavored pasta
products utilizing patented flavoring technology and AIPC's proprietary
production process. In addition to pursuing increased sales with
institutional customers, the Company is exploring potential sales and
marketing alliances to expand retail distribution of Pasta LaBella flavored
pasta. AIPC also intends to continue assisting its customers with
innovative products and packaging, and the development of additional
value-added products intended to generate higher margins than traditional
pasta products.
The Company was incorporated under the laws of the State of Delaware in
1991, and is the successor by merger of a Colorado corporation incorporated in
1986. The Company's executive offices are located at 1000 Italian Way, Excelsior
Springs, Missouri 64024, and its telephone number is (816) 502-6000. The
Company's home page on the World Wide Web is located at
http://www.pastalabella.com. Information contained in the Company's home page
shall not be deemed to be a part of this Prospectus.
RECAPITALIZATION
Prior to the Offering, the Company amended and restated its Certificate of
Incorporation (as so amended, the "Charter") and effected a recapitalization
(the "Recapitalization"), pursuant to which each share of common stock and Class
A common stock of the Company outstanding immediately prior to the
Recapitalization was converted into 6.132043 shares of Class A Common Stock, par
value $.001 per share, of the Company ("Class A Common Stock"). Shares of Class
A Common Stock held by the Morgan Stanley Stockholders (as defined herein) and
certain related persons are, in certain circumstances, convertible into an equal
number of shares of Class B Non-Voting Common Stock, par value $.001 per share,
of the Company ("Class B Common Stock") and vice versa. The Company's Charter
provides that if at any time after consummation of the Offering, the Morgan
Stanley Stockholders own in excess of 49% of the outstanding Class A Common
Stock, such excess shares will be automatically converted on a one-for-one basis
into shares of Class B Common Stock. Shares of Class A Common Stock held by
persons other than the Morgan Stanley Stockholders and such related persons are
not convertible into Class B Common Stock. Unless otherwise indicated, all
references in this Prospectus to "Common Stock" shall mean, collectively, the
Class A Common Stock and the Class B Common Stock. See "Description of Capital
Stock -- General."
OWNERSHIP
As of the date of this Prospectus, The Morgan Stanley Leveraged Equity Fund
II, L.P. ("MSLEF"), Morgan Stanley Capital Partners III, L.P. and certain
affiliated funds (the "MSCP Funds" and with MSLEF, the "Morgan Stanley
Stockholders") own approximately 75.1% of the outstanding Common Stock. Upon
consummation of the Offering, the Morgan Stanley Stockholders will own
approximately 39.6% of the outstanding Common Stock. The Company and certain
stockholders may sell up to 1,185,000 shares of Class A Common Stock in
connection with the Offering, but only to the extent that the Underwriters
exercise their overallotment option. See "Principal and Selling Stockholders"
and "Underwriters."
6
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by:
The Company........................................ 5,310,000 Shares
The Selling Stockholders........................... 2,590,000 Shares(1)
----------------------------------------------
Total......................................... 7,900,000 Shares
==============================================
Class A Common Stock offered in:
U.S. Offering...................................... 6,320,000 Shares
International Offering............................. 1,580,000 Shares
----------------------------------------------
Total......................................... 7,900,000 Shares
==============================================
Common Stock outstanding after the Offering.......... 16,776,056 Shares(2)
Use of proceeds...................................... The net proceeds to the Company from the
Offering will be used to repay existing
indebtedness, fund expansion of the Company's
facilities and for general corporate purposes.
The Company will not receive any proceeds from
the sale of Class A Common Stock by any
Selling Stockholder. See "Use of Proceeds."
New York Stock Exchange Symbol....................... PLB
</TABLE>
- -------------------------
(1) Of such shares, 630,000 shares are being offered by Thompson Holdings, L.P.
("Thompson Holdings"), a limited partnership of which Richard C. Thompson, a
director of the Company, is the only limited partner, 1,375,893 shares are
being offered by MSLEF and 584,107 shares are being offered by Morgan
Stanley Capital Partners III, L.P. Thompson Holdings, MSLEF and Morgan
Stanley Capital Partners III, L.P. are sometimes referred to herein
collectively as the "Selling Stockholders." Such shares do not include up to
1,185,000 shares that may be sold by the Company and certain Selling
Stockholders pursuant to the exercise of the U.S. Underwriters'
over-allotment option. See "Principal and Selling Stockholders."
(2) Does not include the U.S. Underwriters' over-allotment option. Excludes (i)
1,132,049 shares, 46,665 shares and 993,391 shares of Class A Common Stock
reserved for issuance upon the exercise of outstanding stock options under
the Company's 1992 Non-Statutory Stock Option Plan (the "1992 Plan"), 1993
Non-Qualified Stock Option Plan (the "1993 Plan") and 1997 Equity Incentive
Plan (the "1997 Plan"), respectively; and (ii) 69,832 shares, 36,118 shares
and 1,006,609 shares of Class A Common Stock available for future grants
under the 1992 Plan, the 1993 Plan and the 1997 Plan, respectively. See
"Management -- Stock Option Plans."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Class A Common Stock.
7
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING DATA
The following summary financial and operating data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Financial Statements of the Company,
including the Notes thereto, appearing elsewhere in this Prospectus. In 1996,
the Company changed its fiscal year end from December 31 to the last Friday of
September or the first Friday of October. This change resulted in a nine-month
fiscal period ended September 30, 1996, and will result in a 53-week year for
fiscal 1997, and a 52- or 53-week year for all subsequent fiscal years. The
Company's first three fiscal quarters end on the Friday last preceding December
31, March 31, and June 30 of each year. For purposes of this Prospectus, the
1996 fiscal year is described as the nine-month fiscal period ended September
30, 1996, and the nine-month 1996 and 1997 interim periods are described as
having ended June 30. The statement of operations data of the Company for the
calendar year ended December 31, 1996 and the nine-month period ended June 30,
1996 are included herein only for comparison purposes.
<TABLE>
<CAPTION>
NINE-MONTH NINE-MONTH
CALENDAR FISCAL PERIOD PERIOD ENDED
FISCAL YEAR ENDED DECEMBER 31, YEAR ENDED ENDED JUNE 30,
------------------------------------- DECEMBER 31, SEPTEMBER 30, ----------------------
1992 1993 1994 1995 1996 1996 1996 1997
---- ---- ---- ---- ------------ ------------- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $39,049 $47,872 $69,465 $92,903 $121,621 $92,074 $86,514 $ 93,616
Cost of goods sold.............. 28,750 35,081 54,393 73,851 89,704 68,555 65,697 67,821
Plant expansion costs(1)........ -- 1,171 484 2,065 -- -- 425 --
------- ------- ------- ------- -------- ------- ------- --------
Gross profit.................... 10,299 11,620 14,588 16,987 31,917 23,519 20,392 25,795
Selling and marketing expense,
including product introduction
costs(2)...................... 2,888 2,883 3,792 5,303 21,250 16,798 11,236 10,212
General and administrative
expense....................... 2,077 2,049 1,951 2,930 3,498 2,805 2,741 2,855
------- ------- ------- ------- -------- ------- ------- --------
Operating profit................ 5,334 6,688 8,845 8,754 7,169 3,916 6,415 12,728
Interest expense, net........... 5,396 3,210 4,975 8,008 10,575 8,023 8,030 7,800
------- ------- ------- ------- -------- ------- ------- --------
Income (loss) before income tax
and extraordinary loss........ (62) 3,478 3,870 746 (3,406) (4,107) (1,615) 4,928
Income tax...................... -- (3,221) 1,484 270 (1,288) (1,556) (642) 1,878
Extraordinary loss, net of
income tax(3)................. 2,639 -- 204 -- 1,647 1,647 1,647 --
------- ------- ------- ------- -------- ------- ------- --------
Net income (loss)............... $(2,701) $ 6,699 $ 2,182 $ 476 $ (3,765) $(4,198) $(2,620) $ 3,050
======= ======= ======= ======= ======== ======= ======= ========
Pro forma net income (loss) per
common share(4)............... $ (.39) $ .66 $ .21 $ .05 $ (.37) $ (.41) $ (.25) $ .25
Pro forma weighted average
common shares
outstanding(4)................ 6,943 10,219 10,231 10,275 10,305 10,303 10,296 12,160
OTHER DATA:
EBITDA(5)....................... $ 7,993 $ 9,495 $12,408 $13,836 $ 12,460 $ 8,994 $11,395 $ 18,037
EBITDA as a percent of
revenues(5)................... 20.5% 19.8% 17.9% 14.9% 10.2% 9.8% 13.2% 19.3%
Revenue per employee
(end of period)............... $ 209 $ 244 $ 288 $ 361 $ 437 NM NM NM
Working capital excluding
current maturities of
long-term debt (average for
the period) as a percent of
revenues...................... 17.3% 14.2% 12.0% 4.6% 6.5% NM NM NM
Cash flows provided by (used
in):
Operating activities.......... $ 966 $ 4,787 $ 3,690 $ 5,730 $ (5,013) $(7,477) $(4,155) $ 14,076
Investing activities.......... (1,000) (15,139) (25,431) (38,789) (3,870) (3,041) (6,084) (11,464)
Financing activities.......... 2,142 10,382 19,603 33,066 10,543 12,318 11,722 (1,818)
Earnings to fixed charges....... .50x 1.87x 1.48x .92x .52x .28x .59x 1.60x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(6)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,612 $ 16,443
Working capital............................................. 13,276 29,982
Total assets................................................ 145,462 159,293
Long-term debt, less current maturities..................... 89,500 28,543
Stockholders' equity........................................ 40,977 118,640
</TABLE>
(footnotes appear on following page)
8
<PAGE> 11
(footnotes from previous page)
- -------------------------
(1) Plant expansion costs include incremental direct and indirect manufacturing
and distribution costs which are incurred as a result of construction,
commissioning and start-up of new capital assets. These costs are expensed
as incurred but are unrelated to current production and, therefore, are
reported as a separate line item in the statement of operations.
(2) Selling and marketing expense includes incremental product introduction
costs, including payment of product placement or "slotting" fees, related to
the Company's launch of its Pasta LaBella flavored pasta products into the
U.S. retail grocery market. The Company did not incur such product
introduction costs prior to the calendar year ended December 31, 1996.
Product introduction costs were incurred as follows: $9.6 million for the
calendar year ended December 31, 1996, $8.1 million for the nine-month
period ended September 30, 1996, $4.6 million for the nine-month period
ended June 30, 1996 and $2.1 million for the nine-month period June 30,
1997.
(3) Represents losses due to early extinguishment of long-term debt, net of
income tax.
(4) Earnings per share is presented on a pro forma basis giving effect to the
consummation of the Recapitalization in connection with the Offering.
(5) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income. Management believes that EBITDA is a meaningful measure of operating
performance, cash generation and ability to service debt. However, EBITDA
should not be considered as an alternative either to: (i) net earnings
(determined in accordance with U.S. generally accepted accounting principles
("GAAP")); (ii) operating cash flow (determined in accordance with GAAP); or
(iii) liquidity. There can be no assurance that the Company's calculation of
EBITDA is comparable to similarly-titled items reported by other companies.
(6) Adjusted to give effect to the issuance and sale by the Company of 5,310,000
shares of Class A Common Stock in the Offering at an assumed initial public
offering price per share of $16 and the application of the net proceeds to
the Company therefrom. See "Use of Proceeds" and "Capitalization."
9
<PAGE> 12
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the shares of Class A Common Stock offered hereby.
DEPENDENCE ON MAJOR CUSTOMERS
Historically, a limited number of customers have accounted for a
substantial portion of the Company's revenues. During 1994, 1995, the nine-month
fiscal period ended September 30, 1996, and the nine-month period ended June 30,
1997, Sysco accounted for approximately 38%, 33%, 27% and 27%, respectively, and
sales to Sam's Club accounted for approximately 12%, 23%, 20% and 21%,
respectively, of the Company's revenues. The Company expects it will continue to
rely on a limited number of major customers for a substantial portion of its
revenues in the future. Management believes that a majority of the Company's
fiscal 1998 revenues will be derived from combined sales to Sysco, Sam's Club
and CPC. The Company has an exclusive supply contract with Sysco (the "Sysco
Agreement") through June 2000, subject to renewal by Sysco for two additional
three-year periods. The Company recently entered into a long-term manufacturing
and distribution agreement with CPC (the "CPC Agreement") that requires CPC to
purchase a minimum of 175 million pounds of pasta annually for nine years. The
Company does not have supply contracts with a substantial number of its
customers, including Sam's Club. Accordingly, the Company is dependent upon its
customers to sell the Company's products and to assist the Company in promoting
market acceptance of, and creating demand for, the Company's products. An
adverse change in, or termination or expiration without renewal of, the
Company's relationships with or the financial viability of one or more of its
major customers could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, certain exclusivity
provisions of the Sysco Agreement and CPC Agreement prevent AIPC from producing
and supplying competitors of Sysco and CPC with certain pasta products. Under
the Sysco Agreement, the Company is restricted from supplying pasta products to
foodservice businesses other than Sysco. Without CPC's consent, AIPC may not
produce branded retail pasta for Borden, Hershey Foods Corporation ("Hershey")
or Barilla Alimentare S.p.A. ("Barilla"), and is limited to the production of an
aggregate of 12 million pounds of branded pasta products annually for other
producers. See "Business -- Production and Supply Agreements."
MANAGEMENT OF GROWTH AND IMPLEMENTATION OF CPC BUSINESS
The Company has experienced rapid growth and management expects significant
additional growth in the future. Successful management of any such future growth
will require the Company to continue to invest in and enhance its operational,
financial and management information resources and systems, attract and retain
management personnel to manage such resources and systems, accurately forecast
sales demand and meet such demand, accurately forecast retail sales, control its
overhead, and attract, train, motivate and manage its employees effectively.
There can be no assurance that the Company will continue to grow, or that it
will be effective in managing its future growth. Any failure to effectively
manage growth could have a material adverse effect on the Company's business,
financial condition and results of operations.
During 1998, the Company will be required to produce substantially all of
CPC's Mueller's brand pasta, which has averaged approximately 200 million pounds
of pasta annually over the last five years. To meet its significant volume and
other obligations under the CPC Agreement and provide for future growth, the
Company must successfully complete its 1997-1998 capital expansion program to
increase its overall milling, production and distribution capacity by
approximately 100%. Implementation of the CPC Agreement may also adversely
affect the Company's financial, operational and human resources. There can be no
assurance that the Company's planned expansion of its production facilities will
be completed in a timely and cost-effective manner or at all, or that such
expanded facilities will be adequate to meet the CPC volume requirements and any
future growth. Failure to complete the Company's planned capital expansion in a
timely and cost-effective manner and implement the CPC Agreement could have a
material adverse effect on the Company's business, financial condition and
results of operations.
10
<PAGE> 13
SUBSTANTIAL PLANNED INVESTMENTS IN MILLING AND PRODUCTION FACILITIES
The Company has begun a major expansion of its durum wheat milling and
pasta production and distribution facilities, budgeted to cost approximately $86
million during the 1997 and 1998 fiscal years, which is planned to increase
AIPC's overall milling, production and distribution capacity by approximately
100%. There can be no assurance that the Company will be able to complete this
expansion on schedule, within budget or at all, that the expanded facilities
will result in the anticipated increase in production capacity or that future
revenues from products produced at the expanded facilities will be sufficient to
recover the Company's investment in the expansion. In addition, there can be no
assurance that the Company will be able to calibrate its production capacity to
future changes in demand for its products or that any future additions to, or
expansions of, its facilities will be completed on schedule and within budget.
Any significant delay or cost overrun in the construction or acquisition of new
or expanded facilities could have a material adverse effect on the Company's
business, financial condition and results of operations.
RAW MATERIALS
The principal raw material in the Company's products is durum wheat. Durum
wheat is used almost exclusively in pasta production and is a narrowly traded,
cash only commodity crop. The Company attempts to minimize the effects of durum
wheat cost fluctuations through forward purchase contracts and raw material
cost-based pricing agreements with many of its customers. The Company's
commodity procurement and pricing practices are intended to reduce the risk of
durum wheat cost increases on profitability, but also may temporarily affect the
Company's ability to benefit from possible durum wheat cost decreases. The
supply and price of durum wheat is subject to market conditions and is
influenced by numerous factors beyond the control of the Company, including
general economic conditions, natural disasters and weather conditions,
competition, and governmental programs and regulations. The supply and cost of
durum wheat may also be adversely affected by insects, plant diseases and
funguses, including the karnal bunt fungus which infected a portion of the durum
wheat produced in the southwestern United States in 1996 and in central Texas in
1997. The Company also relies on the supply of plastic, corrugated and other
packaging materials. The costs of durum wheat and packaging materials have
varied widely in recent years and future changes in such costs may cause the
Company's results of operations and margins to fluctuate significantly. A large,
rapid increase in the cost of raw materials could have a material adverse effect
on the Company's operating profit and margins unless and until the increased
cost can be passed along to customers. Following a period of relatively stable
prices during the nine months ended June 30, 1997, the market price of durum
wheat increased by approximately 21% from $5.60 per bushel to $6.75 per bushel
between June 30, 1997 and October 6, 1997. Historically, changes in prices of
the Company's pasta products have lagged changes in the Company's materials
costs. Competitive pressures may also limit the ability of the Company to raise
prices in response to increased raw material costs in the future. Accordingly,
there can be no assurance as to whether, or the extent to which, the Company
will be able to offset raw material cost increases with increased product
prices. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Raw Materials and Supplies."
COMPETITION
The Company operates in a highly-competitive environment against numerous
well-established national, regional and foreign companies, and many smaller
companies in the procurement of raw materials, the development of new pasta
products and product lines, the improvement and expansion of previously
introduced pasta products and product lines and the production, marketing and
distribution of pasta products. Several of these companies have longer operating
histories, broader product lines, significantly greater brand recognition and
greater production capacity and financial and other resources than the Company.
The Company's direct competitors include large multi-national companies such as
food industry leader Hershey with brands such as San Giorgio(R) and Ronzoni(R),
and Borden with brands such as Prince(R) and Creamette(R), regional U.S.
producers of retail and institutional pasta such as Dakota Growers Pasta Company
("Dakota Growers"), a farmer-owned cooperative in North Dakota, Philadelphia
Macaroni Co. Inc. ("Philadelphia Macaroni") and A. Zerega's Sons, Inc.
("Zerega's"), each an independent producer, and foreign companies such as
Italian pasta producers De Cecco ("De Cecco") and Barilla.
11
<PAGE> 14
The Company's competitive environment depends to a significant extent on
the aggregate industry capacity relative to aggregate demand for pasta products.
Several domestic pasta producers have recently completed production facility
additions or announced their intention to increase domestic production capacity.
In addition to AIPC's planned capital expansion, management believes that these
capacity additions represent more than 200 million pounds in aggregate. Dakota
Growers recently increased the capacity of its durum wheat mill and has
announced plans to complete a pasta production capacity expansion in excess of
100 million pounds by the end of 1997. Hershey recently added approximately 50
million pounds of pasta capacity to its facility in Winchester, Virginia. In
September 1997, Barilla announced plans to build a pasta plant near Ames, Iowa
with an estimated annual pasta capacity of over 200 million pounds. Two major
pasta producers have also recently announced planned reductions in pasta
production capacity. Borden announced that it will close or sell five of its ten
North American pasta plants by the end of 1997, and CPC intends to eliminate its
capacity of approximately 180 million pounds by the end of 1997. Increases in
industry capacity levels above demand for pasta products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Several foreign producers, based principally in Italy and Turkey, have
aggressively targeted the U.S. pasta market in recent years. In 1996, a U.S.
Department of Commerce investigation revealed that several Italian and Turkish
producers were engaging in unfair trade practices by selling pasta at less than
fair value in the U.S. markets and benefitting from subsidies from their
respective governments. Effective July 1996, the U.S. International Trade
Commission ("ITC"), imposed anti-dumping and countervailing duties on Italian
and Turkish imports. While such duties may enable the Company and its domestic
competitors to compete more favorably against Italian and Turkish producers in
the U.S. pasta market, there can be no assurance that the duties will be
maintained for any length of time, or that these or other foreign producers will
not sell competing products in the United States at prices less than those of
the Company. Such practices, if continued or increased, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Bulk imported pasta, and pasta produced in the U.S. by foreign
firms, are generally not subject to such anti-dumping and countervailing duties.
Foreign pasta producers generally may avoid such duties by importing bulk pasta
into the United States and repackaging it in U.S. facilities for distribution. A
leading branded Italian producer, Barilla, opened a bulk pasta repackaging and
distribution facility in Syracuse, New York in 1996 and recently announced plans
to build a pasta production plant in Ames, Iowa for completion in mid-1998. In
addition, on August 28, 1997, the Department of Commerce announced that it is
conducting an administrative review of its anti-dumping and countervailing duty
orders of July 1996 relating to three Turkish and 16 Italian pasta producers,
including Barilla and De Cecco. The Department of Commerce indicated that it
intends to complete its review not later than July 31, 1998. The Company cannot
predict the outcome of the Department of Commerce's review. See "Business --
Pasta Industry -- Pasta Production Capacity" and "-- Competition."
RELIANCE ON PASTA; PRODUCT LINE CONCENTRATION
Since commencing operations in 1988, the Company has focused exclusively on
the dry pasta industry. For the foreseeable future, AIPC expects to continue to
receive substantially all of its revenues from the sale of pasta and
pasta-related products. Because of this product concentration, any decline in
the demand or pricing for dry pasta, any shift in consumer preferences away from
dry pasta, or any other factor that adversely affects the pasta market, could
have a more significant adverse effect on the Company's business, financial
condition and results of operations than on pasta producers which also produce
other products. In addition, the Company's pasta production equipment is highly
specialized and is not adaptable to the production of non-pasta food products.
RELIANCE ON KEY PERSONNEL
The Company's operations and prospects depend in large part on the
performance of its senior management team, including Horst W. Schroeder,
Chairman of the Board, Timothy S. Webster, President and Chief Executive
Officer, David E. Watson, Executive Vice President and Chief Financial Officer,
Norman F. Abreo, Executive Vice President of Operations and David B. Potter,
Senior Vice President of Procurement. No assurance can be given that the Company
would be able to find qualified replacements for
12
<PAGE> 15
any of these individuals if their services were no longer available. The loss of
the services of one or more members of the Company's senior management team
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not maintain key person
life insurance on any of its key employees. The Company has entered into
employment agreements with Messrs. Schroeder, Webster, Watson, Abreo and Potter
effective upon consummation of the Offering. See "Management."
TRANSPORTATION
Durum wheat is shipped to the Company's production facility in Missouri
directly from North Dakota, Montana and Canada under a long-term rail contract
with its most significant rail carrier, the Canadian Pacific Rail System. Under
such agreement, the Company is obligated to transport specified wheat volumes
and, in the event such volumes are not met, the Company must reimburse the
carrier for certain of its costs. The Company currently is in compliance with
such volume obligations. The Company also has a rail contract to ship semolina,
milled and processed at the Missouri facility, to the South Carolina facility.
An extended interruption in the Company's ability to ship durum wheat by
railroad to the Missouri plant, or semolina to the Company's South Carolina
facility, could have a material adverse affect on the Company's business,
financial condition and results of operations. The Company experienced a
significant interruption in railroad shipments in 1994 due to a railroad strike.
While the Company would attempt to transport such materials by alternative means
if it were to experience another interruption due to strike, natural disasters
or otherwise, there can be no assurance that the Company would be able to do so
or be successful in doing so in a timely and cost-effective manner. See
"Business -- Milling and Production Processes" and "-- Raw Materials and
Supplies."
PRODUCTION AND INVENTORY MANAGEMENT
Most of the Company's customers use, to some extent, inventory management
systems which track sales of particular products and rely on reorders being
rapidly filled by suppliers to meet consumer demand rather than on large
inventories being maintained by retailers. Although these systems reduce a
retailer's investment in inventory, they increase pressure on suppliers like the
Company to fill orders promptly and thereby shift a portion of the retailer's
inventory management cost to the supplier. The Company's production of excess
inventory to meet anticipated retailer demand could result in markdowns and
increased inventory carrying costs for the Company. In addition, if the Company
underestimates the demand for its products, it may be unable to provide adequate
supplies of pasta products to retailers in a timely fashion, and may
consequently lose sales.
POTENTIAL VOLATILITY OF FUTURE QUARTERLY OPERATING RESULTS
The Company's results of operations may fluctuate on a quarterly basis as a
result of a number of factors, including total sales volumes, the timing and
scope of new customer volumes, the timing and amounts of price adjustments due
to durum wheat and other cost changes, the cost of raw materials, including
durum wheat (see "Risk Factors -- Raw Materials"), plant expansion costs and
interest expenses. In addition, fluctuations in quarterly results could affect
the market price of the Class A Common Stock in a manner unrelated to the longer
term operating performance of the Company.
RISK OF PRODUCT LIABILITY
Although the Company has never been involved in a product liability
lawsuit, the sale of food products for human consumption involves the risk of
injury to consumers as a result of tampering by unauthorized third parties,
product contamination or spoilage, including the presence of foreign objects,
substances, chemicals, aflatoxin and other agents, or residues introduced during
the growing, storage, handling or transportation phases. While the Company is
subject to U.S. Food & Drug Administration inspection and regulations and
believes its facilities comply in all material respects with all applicable laws
and regulations, there can be no assurance that consumption of the Company's
products will not cause a health-related illness in the future or that the
Company will not be subject to claims or lawsuits relating to such matters. The
Company maintains product liability insurance in an amount which the Company
believes to be adequate. However, there can be
13
<PAGE> 16
no assurance that the Company will not incur claims or liabilities for which it
is not insured or that exceed the amount of its insurance coverage.
SUBSTANTIAL INFLUENCE OF CURRENT PRINCIPAL STOCKHOLDER
Upon consummation of the Offering, the Morgan Stanley Stockholders will own
approximately 39.6% of the outstanding Common Stock. The Company's Charter
provides that, if at any time after consummation of the Offering, the Morgan
Stanley Stockholders own in excess of 49% of the outstanding Class A Common
Stock, such excess shares will be automatically converted into an equal number
of shares of Class B Common Stock. The Morgan Stanley Stockholders are
affiliates of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), an
affiliate of Morgan Stanley & Co. Incorporated, a representative of the U.S.
Underwriters, and Morgan Stanley & Co. International Limited, a representative
of the International Underwriters. Upon consummation of the Offering, three of
nine directors of the Company will be employees of a wholly-owned subsidiary of
MSDWD. Pursuant to the Stockholders Agreement (as amended and restated effective
upon the consummation of the Offering) among the Morgan Stanley Stockholders,
the Company, and certain other stockholders of the Company, one of the Morgan
Stanley Stockholders, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF
II"), has the right to designate two director nominees so long as it owns at
least 25% of the outstanding Common Stock or one director nominee so long as it
owns at least 5% but less than 25% of the outstanding Common Stock. In addition,
another Morgan Stanley Stockholder, Morgan Stanley Capital Partners III, L.P.
("MSCP"), has the right to designate two director nominees so long as it owns at
least 35% of the outstanding Common Stock or one director nominee so long as it
owns at least 5% but less than 35% of the outstanding Common Stock. Whenever
MSLEF II and MSCP individually own less than 5% of the outstanding Common Stock,
they shall jointly be entitled to designate one director nominee as long as the
Morgan Stanley Stockholders beneficially own, in the aggregate, at least 5% of
the outstanding Common Stock. The number of directors designated by the Morgan
Stanley Stockholders will increase proportionately if the size of the Board of
Directors is increased in the future. In addition, so long as the Morgan Stanley
Stockholders own at least 25% of the outstanding shares of Common Stock, certain
significant corporate actions are subject to the approval of the Board of
Directors and the Morgan Stanley Stockholders. As a result of their ownership
interest in the Company and their rights under the Stockholders Agreement, the
Morgan Stanley Stockholders will continue to have a substantial influence over
the affairs of the Company following the consummation of the Offering, including
with respect to mergers or other business combinations involving the Company and
the acquisition or disposition of assets by the Company. Similarly, the Morgan
Stanley Stockholders will have the power to prevent or, by selling their Common
Stock, cause a change of control of the Company and could take other actions
that might be favorable to the Morgan Stanley Stockholders. In such instances or
otherwise, various conflicts of interest between the Company and the Morgan
Stanley Stockholders could arise. Stockholders may be prevented from receiving a
premium for their shares if the Morgan Stanley Stockholders were to act in
concert to oppose any takeover attempt. See "Principal and Selling
Stockholders," "Anti-takeover Effect of Certain Charter, By-Law and Statutory
Provisions" and "Certain Relationships and Related Transactions -- Stockholders
Agreement."
FINANCIAL LEVERAGE; SENSITIVITY TO INTEREST RATE FLUCTUATIONS; COVENANT
RESTRICTIONS
The Company will use the net proceeds to the Company from the Offering to
reduce its outstanding bank indebtedness as of June 30, 1997 from approximately
$86 million to $22 million upon application of the net proceeds of the Offering,
after which such debt will represent approximately 15% of the Company's total
capitalization. However, the Company intends to substantially increase such
indebtedness in the future to finance its capital expenditure plan. The degree
to which the Company is financially leveraged following such borrowings and the
terms of the Company's indebtedness could have important consequences to
stockholders, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, and general
corporate purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations may have to be dedicated to the payment of the
principal of and interest on its indebtedness; (iii) the terms of such
indebtedness may restrict the Company's ability to pay dividends; and (iv) the
Company may be more highly leveraged than many of its competitors, which may
place the Company
14
<PAGE> 17
at a competitive disadvantage. As of June 30, 1997, the outstanding indebtedness
under the Company's $162.6 million credit facility (the "Credit Facility") was
$85.9 million. See "Use of Proceeds."
As of June 30, 1997, the Company's indebtedness had a weighted average
interest rate of 9.3% and approximately 92%, or $85.9 million, of the Company's
indebtedness bore interest at variable rates. Although the Company will use the
net proceeds of the Offering to substantially reduce the amount of such
variable-rate indebtedness, the Company may incur additional amounts of
variable-rate indebtedness in the future. If this were to occur, and if interest
rates were to significantly increase thereafter, the Company's operating results
and its ability to satisfy its debt service obligations may be materially and
adversely affected. Previously, the Company had relied on an interest rate cap
to effectively limit the Company's exposure to variable rates with respect to a
portion of the Company's debt. Under the Credit Facility, the Company is
required to obtain an interest rate protection agreement by November 15, 1997.
There can be no assurance the Company will be able to obtain such interest rate
protection agreement on favorable terms.
The limitations contained in the agreements relating to the Company's
existing Credit Facility, together with the leveraged position of the Company,
restrict the Company from paying dividends and could limit the ability of the
Company to effect future debt or equity financings and may otherwise restrict
corporate activities, including the ability to avoid defaults and to respond to
competitive market conditions, to provide for capital expenditures beyond those
permitted or to take advantage of business opportunities. See "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS
Charter and Bylaws. Certain provisions of the Company's Charter and By-laws
(the "By-laws") could delay or frustrate the removal of incumbent directors and
could make more difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be beneficial, in the short term, to the
interests of the stockholders. For example, the Charter and By-laws allow the
Company to issue preferred stock with rights senior to those of the Class A
Common Stock without stockholder action, require the Board of Directors to be
divided into three classes serving three-year staggered terms, require
stockholder actions to be effected only at annual or special stockholder
meetings (unless the action to be effected by written consent of stockholders
and the taking of such action by written consent have been approved in advance
by the Board of Directors or unless the shareholder action involves the removal
of a director nominated pursuant to the Stockholders Agreement and the person
who nominated such director pursuant to the Stockholders Agreement votes in
favor of the removal of such director pursuant to such written consent), require
the affirmative vote of holders of two-thirds of the outstanding shares entitled
to vote to remove directors (unless the removal of a director has been requested
by a shareholder who designated such director as a nominee for election pursuant
to the Stockholders Agreement, in which case such director can be removed with
or without cause by the affirmative vote of holders of a simple majority of such
shares), require the affirmative vote of holders of at least 80% of the
outstanding shares to amend certain provisions of the Charter or to repeal or
amend the Company's By-laws and impose various other procedural requirements on
the taking of certain actions.
Pursuant to the Charter, shares of preferred stock and Class A Common Stock
may be issued in the future without further stockholder approval and, in the
case of such preferred stock, upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine. The
issuance of preferred stock and Class A Common Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
transactions, could have the effect of making it more difficult for a third
party to acquire, or effectively preventing a third party from acquiring, a
majority of the outstanding Common Stock of the Company. See "Description of
Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions."
Delaware Corporation Law. The Company also is subject to provisions of the
General Corporation Law of the State of Delaware, as amended (the "DGCL"), that
prohibit a publicly-held Delaware corporation from engaging in a broad range of
business combinations with a person who, together with affiliates and
associates, owns 15% of more of the corporation's common stock (an "Interested
Stockholder") for three
15
<PAGE> 18
years after the person became an Interested Stockholder, unless the business
combination is approved in a prescribed manner. Those provisions could
discourage or make more difficult a merger, tender offer or similar transaction,
even if favorable to the Company's stockholders. See "Description of Capital
Stock -- Delaware Law and Certain Charter and By-Law Provisions."
Amended Stockholders Agreement. In addition, the amended Stockholders
Agreement grants the Morgan Stanley Stockholders the right, depending on their
respective ownership percentages, to designate nominees to the Board and to have
the right to approve certain significant corporate actions including, but not
limited to, mergers, consolidations or other similar transactions. The
substantial ownership position of the Morgan Stanley Stockholders could make it
more difficult for a third party to acquire, or effectively prevent a third
party from acquiring, a majority of the outstanding Common Stock.
Dual Class Structure. Tender offers or other non-open market acquisitions
of stock are usually made at prices above the prevailing market price of a
company's stock. In addition, acquisitions of stock by persons attempting to
acquire control through market purchases may cause the market price of the stock
to reach levels which are higher than would otherwise prevail. While the Class B
Common Stock is non-voting, the ability of the Morgan Stanley Stockholders to
convert that stock into Class A Common Stock (so long as such conversion does
not increase their aggregate ownership of Class A Common Stock above 49% of the
then-outstanding Class A Common Stock) may discourage such acquisitions,
particularly those of less than all of the Company's stock, and may thereby
deprive shareholders of an opportunity to sell their shares at a premium price.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. Even if the Class A Common Stock is listed on the New York Stock
Exchange, there can be no assurance that an active trading market for the Class
A Common Stock will develop or be sustained after the Offering, or that
purchasers of Class A Common Stock will be able to resell their Class A Common
Stock at prices equal to or greater than the initial public offering price. The
initial public offering price was determined by negotiations between the Company
and the U.S. Representatives based on the factors described in "Underwriters."
The trading price of the Class A Common Stock could be subject to wide
fluctuations in response to announcements of increases in the cost of raw
materials, new products introduced by the Company or its competitors, variations
in the Company's quarterly results of operations, or changes in financial
estimates by securities analysts and other events or factors. The stock market
has experienced extreme price and volume fluctuations in recent years. Stock
market volatility unrelated to the operating performance of the Company may
adversely affect the market price of the Class A Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 16,776,056 shares of Common Stock, assuming no exercise of
outstanding options. Of these shares, all of the shares sold in the Offering
will be freely tradeable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" of the Company
as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The
remaining 8,876,056 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 or 701 promulgated under the Securities Act. As a result of the
contractual restrictions described below and the provisions of Rules 144 and
701, the Restricted Shares will be available for sale in the public market as
follows: (i) no shares will be eligible for immediate sale on the date of this
Prospectus; and (ii) 8,220,330 shares will be eligible for sale pursuant to Rule
144, provided the conditions of Rule 144 are met, upon expiration of the lock-up
agreements at least 180 days after the date of this Prospectus. All officers,
directors and substantially all stockholders and holders of vested options of
the Company have agreed not to sell or otherwise transfer any shares of Common
Stock or any other securities of the Company for a period of at least 180 days
after the date of this Prospectus. Sales, or the possibility of sales, of Common
Stock by the Company's existing stockholders, whether in connection with the
exercise of
16
<PAGE> 19
registration rights or otherwise, could adversely affect the market price of the
Company's Class A Common Stock. The Company has granted the stockholders who are
parties to the Stockholders Agreement, including the Morgan Stanley
Stockholders, certain "demand" and "piggyback" registration rights with respect
to the Common Stock owned by such stockholders. See "Certain Relationships and
Related Transactions -- Stockholders Agreement" and "Shares Eligible for Future
Sale."
ABSENCE OF DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock
and currently intends to retain all available funds for use in the operation and
expansion of its business. The Company does not anticipate that any cash
dividends on the Common Stock will be declared or paid in the foreseeable
future. See "Dividend Policy."
SUBSTANTIAL AND IMMEDIATE DILUTION
Investors in the Offering will incur immediate dilution of $9.35 per share
in the pro forma net tangible book value per share of Class A Common Stock
(based upon an assumed initial public offering price of $16 per share) as of
June 30, 1997. See "Dilution."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A
Common Stock in the Offering are estimated to be approximately $77.7 million,
assuming an initial public offering price of $16 per share. The Company will use
approximately $63.8 million of the net proceeds from the Offering to repay bank
indebtedness (with stated maturities from 2000 through 2004 and bearing interest
at a weighted-average interest rate of 9.3% per annum as of June 30, 1997)
incurred under the Company's Credit Facility and the balance will be used to
fund the expansion of the Company's facilities and for general corporate
purposes. The Company will not receive any of the proceeds from the sale of
Class A Common Stock by the Selling Stockholders. See "Underwriters."
DIVIDEND POLICY
The Company has not declared or paid any dividends on its Common Stock to
date and does not anticipate paying any such dividends in the foreseeable
future. After consummation of the Offering, the Company intends to retain
earnings for the foreseeable future to provide funds for the operation and
expansion of its business and for the repayment of indebtedness. The borrowing
agreements relating to the Company's Credit Facility contain certain provisions
which effectively prohibit the payment of dividends. Future borrowing agreements
of the Company may also contain limitations on the payment of dividends. Any
determination to pay dividends in the future will be at the discretion of the
Company's Board of Directors and will depend upon the Company's financial
condition, capital requirements, results of operations and other factors,
including any contractual or statutory restrictions on the Company's ability to
pay dividends.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth information regarding the short-term debt
and capitalization of the Company on a pro forma basis to give effect to the
Recapitalization as if it had occurred as of June 30, 1997 and on a pro forma as
adjusted basis which reflects the issuance and sale of 5,310,000 shares of Class
A Common Stock offered hereby by the Company at an assumed initial public
offering price of $16 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Description of Capital
Stock -- General." The following table should be read in conjunction with the
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, current
portion................................................... $ 3,685 $ 810
======== ========
Long-term debt and capital lease obligations, less current
portion:
Long-term debt............................................ $ 83,063 $ 22,106
Capital lease obligations................................. 6,437 6,437
-------- --------
Total long-term debt and capital lease obligations,
less current portion.................................. 89,500 28,543
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding pro forma
and pro forma as adjusted.............................. -- --
Class A Common Stock, $.001 par value, 75,000,000 shares
authorized, 11,466,056 shares issued and outstanding
pro forma and 16,776,056 shares issued and outstanding
pro forma as adjusted(1)............................... 11 18
Class B Common Stock, $.001 par value, 25,000,000 shares
authorized, no shares issued and outstanding pro forma
and pro forma as adjusted.............................. -- --
Additional paid-in capital................................ 55,324 132,980
Notes receivable from officers............................ (298) (298)
Accumulated deficit....................................... (14,060) (14,060)
-------- --------
Total stockholders' equity........................... 40,977 118,640
-------- --------
Total capitalization........................................ $130,477 $147,183
======== ========
</TABLE>
- -------------------------
(1) Excludes (i) 1,132,049 shares, 46,665 shares and 993,391 shares of Class A
Common Stock reserved for issuance upon the exercise of outstanding stock
options under the Company's 1992 Plan, 1993 Plan and 1997 Plan,
respectively; and (ii) 69,832 shares, 36,118 shares and 1,006,609 shares of
Class A Common Stock available for future grants under the 1992 Plan, the
1993 Plan and the 1997 Plan, respectively. See "Management -- Stock Option
Plans."
18
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at June 30, 1997 was
$33.8 million, or $2.95 per share of Common Stock. Pro forma net tangible book
value per share is equal to the Company's total tangible assets less total
liabilities, divided by the pro forma total number of shares outstanding. The
Company had a pro forma total of 11,466,056 shares of Common Stock outstanding
as of June 30, 1997, assuming the Recapitalization had occurred as of that date.
After giving effect to the sale by the Company of 5,310,000 shares of Class A
Common Stock in the Offering at an assumed initial public offering price of
$16.00 per share and deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma as adjusted
net tangible book value of the Company as of such date would have been
approximately $111.5 million, or $6.65 per share, based on 16,776,056 shares of
Common Stock to be outstanding after the Offering. This represents an immediate
increase in net tangible book value of $3.70 per share to the current holders of
the Common Stock and an immediate dilution of $9.35 per share to new investors
purchasing shares of Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $16.00
Pro forma net tangible book value per share before the
Offering.................................................. 2.95
Increase per share attributable to new investors............ 3.70
----
Pro forma as adjusted net tangible book value per share
after the Offering........................................ 6.65
------
Dilution per share to new investors......................... $ 9.35
======
</TABLE>
The following table summarizes as of June 30, 1997, on a pro forma basis
after giving effect to the Offering, the differences in the total consideration
paid and the average price per share paid by the existing stockholders with
respect to the outstanding Common Stock and by the purchasers of the shares of
Common Stock offered by the Company in the Offering (at an assumed initial
public offering price of $16.00 per share and before deducting underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................. 11,466,056 68.3% $ 55,335,000 39.4% $ 4.83
New investors(2).......................... 5,310,000 31.7 84,960,000 60.6 16.00
---------- ----- ------------ ----- ------
Total................................ 16,776,056 100.0% $140,295,000 100.0% $ 8.36
========== ===== ============ ===== ======
</TABLE>
- -------------------------
(1) Excludes (i) 1,132,049 shares, 46,665 shares and 993,391 shares of Class A
Common Stock reserved for issuance upon the exercise of outstanding stock
options under the Company's 1992 Plan, the 1993 Plan and the 1997 Plan,
respectively; and (ii) 69,832 shares, 36,118 shares and 1,006,609 shares of
Class A Common Stock available for future grants under the 1992 Plan, the
1993 Plan and the 1997 Plan, respectively. See "Management -- Stock Option
Plans."
(2) Sales of Class A Common Stock by the Selling Stockholders in the Offering
will reduce the number of shares of Common Stock held by existing
stockholders to 8,876,056, or approximately 52.9% of the total shares of
Common Stock outstanding after the Offering, and will increase the number of
shares held by new investors to 7,900,000, or approximately 47.1% of the
total shares of Common Stock outstanding after the Offering. See "Principal
and Selling Stockholders."
19
<PAGE> 22
SELECTED FINANCIAL AND OTHER DATA
The selected statement of operations data for the years ended December 31,
1994 and 1995, the nine-month fiscal period ended September 30, 1996, and the
nine-month period ended June 30, 1997 and the selected balance sheet data as of
December 31, 1995, September 30, 1996 and June 30, 1997 are derived from, and
are qualified by reference to, the Financial Statements of the Company audited
by Ernst & Young LLP, independent auditors, appearing elsewhere in this
Prospectus. The selected statement of operations data for the years ended
December 31, 1992 and 1993 and the selected balance sheet data as of December
31, 1992, 1993 and 1994 have been derived from audited financial statements of
the Company not included herein. The selected statement of operations data for
the calendar year ended December 31, 1996 and the nine-month period ended June
30, 1996, and the balance sheet data as of December 31, 1996 and June 30, 1996
have been derived from the Company's unaudited internal financial statements,
which in the opinion of management, have been prepared on the same basis as the
audited financial statements and reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position of the Company. The statement of operations
data of the Company for the calendar year ended December 31, 1996 and the
nine-month period ended June 30, 1996 are included herein only for comparison
purposes. The Company's results of operations for the nine-month period ended
June 30, 1997 are not necessarily indicative of its results for the full fiscal
year. The selected other data has been derived from the accounting records of
the Company and have not been audited. The selected financial and other data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE-MONTH NINE-MONTH
CALENDAR FISCAL PERIOD PERIOD ENDED
FISCAL YEAR ENDED DECEMBER 31, YEAR ENDED ENDED JUNE 30,
-------------------------------------- DECEMBER 31, SEPTEMBER 30, ----------------------
1992 1993 1994 1995 1996(1) 1996(1) 1996 1997(1)
---- ---- ---- ---- ------------ ------------- ---- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $39,049 $47,872 $69,465 $ 92,903 $121,621 $ 92,074 $ 86,514 $ 93,616
Cost of goods sold............... 28,750 35,081 54,393 73,851 89,704 68,555 65,697 67,821
Plant expansion costs(2)......... -- 1,171 484 2,065 -- -- 425 --
------- ------- ------- -------- -------- -------- -------- --------
Gross profit..................... 10,299 11,620 14,588 16,987 31,917 23,519 20,392 25,795
Selling and marketing expense,
including product introduction
costs(3)....................... 2,888 2,883 3,792 5,303 21,250 16,798 11,236 10,212
General and administrative
expense........................ 2,077 2,049 1,951 2,930 3,498 2,805 2,741 2,855
------- ------- ------- -------- -------- -------- -------- --------
Operating profit................. 5,334 6,688 8,845 8,754 7,169 3,916 6,415 12,728
Interest expense, net............ 5,396 3,210 4,975 8,008 10,575 8,023 8,030 7,800
------- ------- ------- -------- -------- -------- -------- --------
Income (loss) before income tax
and extraordinary loss......... (62) 3,478 3,870 746 (3,406) (4,107) (1,615) 4,928
Income tax....................... -- (3,221) 1,484 270 (1,288) (1,556) (642) 1,878
Extraordinary loss, net of income
tax(4)......................... 2,639 -- 204 -- 1,647 1,647 1,647 --
------- ------- ------- -------- -------- -------- -------- --------
Net income (loss)................ $(2,701) $ 6,699 $ 2,182 $ 476 $ (3,765) $ (4,198) $ (2,620) $ 3,050
======= ======= ======= ======== ======== ======== ======== ========
Pro forma net income (loss) per
common share(5)................ $ (.39) $ .66 $ .21 $ .05 $ (.37) $ (.41) $ (.25) $ .25
Pro forma weighted average common
shares outstanding(5).......... 6,943 10,219 10,231 10,275 10,305 10,303 10,296 12,160
OTHER DATA:
EBITDA(6)........................ $ 7,993 $ 9,495 $12,408 $ 13,836 $ 12,460 $ 8,994 $ 11,395 $ 18,037
EBITDA as a percent of
revenues(6).................... 20.5% 19.8% 17.9% 14.9% 10.2% 9.8% 13.2% 19.3%
Revenue per employee
(end of period)................ $ 209 $ 244 $ 288 $ 361 $ 437 NM NM NM
Working capital excluding current
maturities of long-term debt
(average for the period) as a
percent of revenues............ 17.3% 14.2% 12.0% 4.6% 6.5% NM NM NM
Cash flows provided by (used in):
Operating activities........... $ 966 $ 4,787 $ 3,690 $ 5,730 $ (5,013) $ (7,477) $ (4,155) $ 14,076
Investing activities........... (1,000) (15,139) (25,431) (38,789) (3,870) (3,041) (6,084) (11,464)
Financing activities........... 2,142 10,382 19,603 33,066 10,543 12,318 11,722 (1,818)
Earnings to fixed charges........ .50x 1.87x 1.48x .92x .52x .28x .59x 1.60x
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash equivalents........ $ 2,119 $ 2,149 $ 11 $ 18 $ 1,678 $ 1,818 $ 707 $ 2,612
Working capital.................. 2,900 3,077 4,830 6,632 (1,965) (1,601) 1,667 13,276
Total assets..................... 48,803 66,337 93,629 135,424 137,974 141,688 141,293 145,462
Long-term debt, less current
maturities..................... 31,509 40,024 62,375 97,452 92,143 93,284 94,884 89,500
Stockholders' equity............. 9,994 16,973 19,401 20,067 16,402 15,969 16,716 40,977
</TABLE>
(footnotes appear on following page)
20
<PAGE> 23
(footnotes from previous page)
- -------------------------
(1) The Company adopted a fiscal year ending on the last Friday of September or
the first Friday of October, effective beginning with the nine-month fiscal
period ended September 27, 1996 and for all subsequent fiscal periods. For
purposes of this Prospectus, the 1996 fiscal year and 1997 interim period
are shown as having ended on September 30 and June 30, respectively.
(2) Plant expansion costs include incremental direct and indirect manufacturing
and distribution costs which are incurred as a result of construction,
commissioning and start-up of new capital assets. These costs are expensed
as incurred but are unrelated to current production and, therefore, are
reported as a separate line item in the statement of operations.
(3) Selling and marketing expense includes incremental product introduction
costs, including payment of product placement or "slotting" fees, related to
the Company's launch of its Pasta LaBella flavored pasta products into the
U.S. retail grocery market. The Company did not incur such product
introduction costs prior to the calendar year ended December 31, 1996.
Product introduction costs were incurred as follows: $9.6 million in
calendar year ended December 31, 1996, $8.1 million for the nine-month
period ended September 30, 1996, $4.6 million for the nine-month period
ended June 30, 1996 and $2.1 million for the nine-month period June 30,
1997.
(4) Represents losses due to early extinguishment of long-term debt, net of
income tax.
(5) Earnings per share is presented on a pro forma basis giving effect to the
consummation of the Recapitalization in connection with the Offering.
(6) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income. Management believes that EBITDA is a meaningful measure of operating
performance, cash generation and ability to service debt. However, EBITDA
should not be considered as an alternative either to: (i) net earnings
(determined in accordance with GAAP); (ii) operating cash flow (determined
in accordance with GAAP); or (iii) liquidity. There can be no assurance that
the Company's calculation of EBITDA is comparable to similarly-titled items
reported by other companies.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Financial Statements
of the Company and the Notes thereto included elsewhere in this Prospectus. For
a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
The Company changed its fiscal year end from December 31 to the last Friday
of September or the first Friday of October. This change resulted in a
nine-month fiscal year for 1996, and will result in a 53-week year for fiscal
1997, and a 52- or 53-week year for all subsequent fiscal years. The Company's
first three fiscal quarters end on the Friday last preceding December 31, March
31, and June 30. For purposes of this Prospectus, the 1996 fiscal year is
described as the nine-month fiscal period ended September 30, 1996, and the
nine-month 1996 and 1997 interim periods are described as having ended June 30.
The statement of operations data of the Company for the nine-month periods ended
September 30, 1995 and June 30, 1996, and the calendar year ended December 31,
1996 are included herein only for comparison purposes.
OVERVIEW
AIPC is the third largest and one of the fastest-growing producers and
marketers of pasta in North America. The Company commenced operations in 1988
with the North American introduction of new, highly-efficient durum wheat
milling and pasta production technology. Management believes that the Company's
singular focus on pasta, vertically-integrated facilities, continued
technological improvements and development of a highly-skilled workforce enable
AIPC to produce high-quality pasta at costs below those of many of its
competitors. Management believes that the combination of the Company's cost
structure, the average age of its competitors' North American pasta production
equipment and the growing pasta consumption in North America creates significant
opportunities for continued growth.
The Company generates its revenues in two customer markets: Retail and
Institutional. The Retail market revenues include the revenues from sales of the
Company's pasta products to customers who resell the Company's pasta in retail
channels. These revenues include sales to club stores and grocery retailers,
encompass sales of the Company's private label and branded products, and will
include sales to CPC. The Institutional market revenues include the revenues
from product sales to Company customers who use the Company's pasta as an
ingredient in food products or customers who resell the Company's pasta in the
foodservice market such as Sysco. The Institutional market also includes
revenues from opportunistic sales to government agencies and other customers
which the Company pursues periodically when capacity is available ("Contract
Sales") to increase production volumes and thereby lower average unit costs.
Average sales prices in the Retail and Institutional markets differ depending on
customer-specific packaging and raw material requirements, product manufacturing
complexity and other service requirements. Generally, average retail sales
prices are higher than institutional sales prices. Average retail and
institutional prices vary due to changes in the relative share of customer
revenues and item specific sales volumes (i.e., product sales mix). Revenues are
reported net of cash discounts, pricing allowances and product returns.
The Company seeks to develop strategic customer relationships with food
industry leaders that have substantial pasta requirements. The Company has
long-term supply agreements with Sysco and CPC and other arrangements with food
industry leaders, such as Sam's Club, that provide for the "pass-through" of
direct material cost changes as pricing adjustments. The pass-throughs are
generally limited to actual changes in cost and, as a result, impact marginal
profitability in periods of changing costs and prices. The pass-throughs are
generally effective 30 to 90 days following such costs changes and thereby
significantly reduce the long-term exposure of the Company's operating results
to the volatility of raw material costs. Management estimates that approximately
60% of the Company's revenues in fiscal 1997 will be pursuant to long-term
supply agreements and other non-contractual customer arrangements which provide
for the pass-through of changes in durum wheat costs. Management believes that
this percentage will increase as the Company begins to generate revenue from
CPC. See "Risk Factors -- Raw Materials."
The Company's Pasta LaBella flavored pasta products are sold at prices
which are significantly higher than the Company's non-flavored products as a
result of higher product and distribution costs and its premium
22
<PAGE> 25
brand position. In the second quarter of calendar 1996, the Company began
distribution of Pasta LaBella flavored pasta into the U.S. Retail grocery
market. This initiative was supported by a comprehensive trade and consumer
product introduction program, including the payment of product placement or
"slotting" fees to retailers, and an on-going selling and marketing program
required to support branded retail sales. The Company achieved distribution in
approximately 40% of the U.S. Retail grocery market and ceased to incur
additional product introduction costs in the first quarter of fiscal 1997. The
Company did not incur such product introduction costs prior to the calendar year
ended December 31, 1996. Product introduction costs included in selling and
marketing expense were incurred as follows: $9.6 million for the calendar year
ended December 31, 1996, $8.1 million for the nine-month period ended September
30, 1996, $4.6 million for the nine-month period ended June 30, 1996 and $2.1
million for the nine-month period June 30, 1997.
The Company's cost of goods sold consists primarily of raw materials,
packaging, manufacturing (including depreciation) and distribution costs. A
significant portion of the Company's cost of goods sold is durum wheat. The
Company purchases durum wheat on the open market and, consequently, is subject
to fluctuations in cost. The Company manages its durum cost risk through
long-term contracts and other noncontractual arrangements with its customers and
advance purchase contracts for durum wheat which are generally less than six
months' duration. The price of durum wheat was volatile during the period
between January 1, 1994 and September 30, 1996 and the published average monthly
market price per bushel fluctuated from $5.18 to $7.49 over this period. In
addition, following a period of relatively stable prices during the nine months
ended June 30, 1997, the market price per bushel of durum wheat increased by
approximately 21% from $5.60 at June 30, 1997 to $6.75 at October 6, 1997. On
September 12, 1997, the U.S. Department of Agriculture predicted that the 1997
U.S. durum wheat harvest will be approximately 22% lower than for 1996. The
durum cost volatility and the timing and amount of sales price adjustments
impacted profit and margins over the 1994-1997 periods and are expected to
increase the Company's costs beginning in the first quarter of its 1998 fiscal
year.
The Company's capital asset strategy is to achieve low-cost production
through vertical integration and investment in the most current pasta-making
assets and technologies. The manufacturing- and distribution-related capital
assets which have been or will be acquired to support this strategy are
depreciated over their respective economic lives. Because of the capital
intensive nature of the Company's business and its current and future facilities
expansion plans, management believes its depreciation expense for production and
distribution assets may be higher than that of many of its competitors.
Depreciation expense is a component of inventory cost and cost of goods sold.
Plant expansion costs include incremental direct and indirect manufacturing and
distribution costs which are incurred as a result of construction, commissioning
and start-up of new capital assets. These costs are expensed as incurred but are
unrelated to current production and, therefore, reported as a separate line item
in the statement of operations.
The Company has commenced an $86 million capital expansion of its durum
wheat milling and pasta production and distribution facilities in Missouri and
South Carolina. The capital expansion will increase the Company's overall
milling, production and distribution capacity by approximately 100% to meet the
significant volume requirements of the CPC agreement. The expansion will be
financed with a combination of a portion of the net proceeds to the Company from
the Offering and borrowings under either the Company's current Credit Facility
or a new $150 million revolving credit facility the Company intends to enter
into with its lenders shortly following the Offering. The Company will use a
majority of the net proceeds to the Company from the Offering to repay a portion
of the outstanding indebtedness under the current Credit Facility. The Company
has signed commitments with respect to the construction of the expanded
facilities and purchase of Italian pasta production equipment totaling
approximately $47 million. The expansion construction is currently on schedule
and is planned to be completed in early 1998 in time to implement the CPC
Agreement and support future growth opportunities. See "Risk Factors --
Substantial Planned Investments in Milling and Production Facilities."
Selling and marketing expense incurred to support retail sales are higher
than those for institutional sales, as the Company incurs external broker
commissions, and promotional and other marketing expenses in addition to the
costs incurred by its internal retail sales force. The Company is not
responsible for selling and marketing expense related to the CPC Agreement.
Consequently, the Company expects prospective selling
23
<PAGE> 26
and marketing expense as a percentage of revenues to decrease relative to
historical levels as the Company begins to generate CPC revenues in 1998.
At June 30, 1997, the Company had a net operating loss carryforward of
approximately $26.7 million for federal income tax purposes. The net operating
loss carryforward resulted principally from the Company's significant tax
depreciation deductions related to its capital assets. Subject to certain
limitations, the Company expects this net operating loss carryforward will be
available to offset future taxable income.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company, expressed as a percentage of revenues, for each of the periods
presented. This table should be read in conjunction with the Financial
Statements and related Notes thereto appearing elsewhere in this Prospectus:
<TABLE>
<CAPTION>
NINE-MONTH NINE-MONTH
FISCAL YEAR ENDED CALENDAR FISCAL PERIOD PERIODS ENDED
DECEMBER 31, YEAR ENDED ENDED JUNE 30,
----------------- DECEMBER 31, SEPTEMBER 30, -----------------
1994 1995 1996 1996 1996 1997
---- ---- ------------ ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Retail........................... 44.6% 53.1% 59.6% 60.7% 57.5% 56.3%
Institutional.................... 55.4 46.9 40.4 39.3 42.5 43.7
----- ----- ----- ----- ----- -----
Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----
Cost of goods sold................. 78.3 79.5 73.7 74.6 75.8 72.5
Gross profit before plant expansion
costs............................ 21.7 20.5 26.3 25.4 24.2 27.5
Plant expansion costs.............. 0.7 2.2 -- -- 0.5 --
----- ----- ----- ----- ----- -----
Gross profit....................... 21.0 18.3 26.3 25.4 23.7 27.5
Selling and marketing expense,
including product introduction
costs............................ 5.5 5.7 17.5 18.2 13.0 10.9
General and administrative
expense.......................... 2.8 3.2 2.9 3.0 3.2 3.0
----- ----- ----- ----- ----- -----
Operating profit................... 12.7 9.4 5.9 4.2 7.5 13.6
Interest expense, net.............. 7.2 8.6 8.7 8.7 9.3 8.3
Income tax......................... 2.1 0.3 (1.1) (1.7) (0.7) 2.0
Extraordinary loss, net of income
tax.............................. 0.3 -- 1.4 1.8 1.9 --
----- ----- ----- ----- ----- -----
Net income (loss).................. 3.1% 0.5% (3.1)% (4.6)% (3.0)% 3.3%
===== ===== ===== ===== ===== =====
</TABLE>
NINE-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO THE NINE-MONTH PERIOD
ENDED JUNE 30, 1996
Revenues. Revenues increased $7.1 million, or 8.2%, to $93.6 million for
the nine-month period ended June 30, 1997, from $86.5 million for the nine-month
period ended June 30, 1996. The increase for the nine-month period ended June
30, 1997 was primarily due to higher unit volume which was partially offset by
lower unit revenues on Pasta LaBella flavored pasta retail sales and price
reductions as a result of the pass-through of lower durum wheat costs. The
increase was lower than historical periods as the Company planned for and
achieved higher than historical capacity utilization levels which precluded more
significant unit production and sales growth. The Company believes the scheduled
1998 increases in production capacities and the start of CPC sales will result
in increased revenue growth in 1998.
Revenues for the Retail market increased $3.0 million, or 6.0%, to $52.7
million for the nine-month period ended June 30, 1997, from $49.7 million for
the nine-month period ended June 30, 1996. This increase was due to higher unit
volume, primarily from the private label category. This revenue increase was
partially offset by a lower average retail unit price primarily resulting from
volume-based price incentives on Pasta LaBella flavored pasta. The lower Pasta
LaBella flavored pasta unit price was mitigated by product sales mix
improvements in private label and club store sales.
24
<PAGE> 27
Revenues for the Institutional market increased $4.1 million, or 11.1%, to
$40.9 million for the nine-month period ended June 30, 1997, from $36.8 million
for the nine-month period ended June 30, 1996. This was primarily the result of
volume gains in ingredient and foodservice markets and Contract Sales which were
partially offset by price reductions as a result of decreases in durum wheat
costs.
Gross Profit. Gross profit increased $5.4 million, or 26.5%, to $25.8
million for the nine-month period ended June 30, 1997, from $20.4 million for
the nine-month period ended June 30, 1996. Gross profit as a percentage of
revenues increased to 27.6% for the nine-month period ended June 30, 1997 from
23.6% for the nine-month period ended June 30, 1996. These increases were the
result of (i) increases in unit volumes; (ii) lower durum wheat and packaging
material costs; and (iii) product sales mix improvements.
Selling and Marketing Expense. Selling and marketing expense decreased $1.0
million, or 8.9%, to $10.2 million for the nine-month period ended June 30,
1997, from $11.2 million for the nine-month period ended June 30, 1996. Selling
and marketing expense as a percentage of revenues decreased to 10.9% for the
nine-month period ended June 30, 1997, from 13.0% for the nine-month period
ended June 30, 1996. The decrease was primarily due to the Company's incurrence
of $2.1 million of product introduction costs for the nine-month period ended
June 30, 1997, as compared to $4.6 million for the nine-month period ended June
30, 1996. These costs were primarily related to the payment of product placement
fees or "slotting," introductory consumer sampling, couponing, advertising and
trade promotions. The decrease in product introduction costs was due to
decreased product placement fees and lower introductory selling and marketing
expense. The decrease in product introduction costs was partially offset by an
increase in other selling and marketing expense incurred to support incremental
retail Pasta LaBella flavored pasta volume and increases in private label
revenue growth.
General and Administrative Expense. General and administrative expense
increased $0.2 million, or 7.4%, to $2.9 million for the nine-month period ended
June 30, 1997, from $2.7 million for the nine-month period ended June 30, 1996,
but decreased as a percentage of revenues from 3.2% to 3.0%. The increase in
general and administrative expense was primarily due to higher administrative
and other costs needed to support sales growth.
Operating Profit. Operating profit increased $6.3 million, or 98.4%, to
$12.7 million for the nine-month period ended June 30, 1997, from $6.4 million
for the nine-month period ended June 30, 1996. Excluding product introduction
costs, operating profit increased $3.9 million, or 35.5%, to $14.9 million for
the nine-month period ended June 30, 1997, from $11.0 million for the nine-month
period ended June 30, 1996, and increased as a percentage of revenues to 15.9%
for the nine-month period ended June 30, 1997, from 12.7% for the nine-month
period ended June 30, 1996.
Interest Expense. Interest expense decreased $0.2 million, or 2.5%, to $7.8
million for the nine-month period ended June 30, 1997, from $8.0 million for the
nine-month period ended June 30, 1996. The decrease was primarily the result of
reduced borrowings under the Company's term and revolving credit facilities
resulting from the $22.3 million in proceeds realized from the April 1997
private equity financing (the "1997 Private Equity Financing"). See "--
Liquidity and Capital Resources" and "Certain Relationships and Related
Transactions."
Income Tax. Income tax increased $2.5 million for the nine-month period
ended June 30, 1997 to $1.9 million, from $(0.6) for the nine-month period ended
June 30, 1996, and reflects an effective income tax rate of approximately 38%.
Extraordinary Item. During the nine-month period ended June 30, 1996, the
Company incurred a $1.6 million (net of tax) extraordinary loss due to the
write-off of deferred debt issuance costs in conjunction with a partial
extinguishment and restructuring of the Company's principal bank credit
agreement. There was no such item for the nine-month period ended June 30, 1997.
Net Income. Net income increased $5.7 million to $3.1 million for the
nine-month period ended June 30, 1997, from $(2.6) million for the nine-month
period ended June 30, 1996.
25
<PAGE> 28
NINE-MONTH FISCAL PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995
Revenues. Revenues increased $28.3 million, or 44.4%, to $92.1 million for
the nine-month fiscal period ended September 30, 1996, from $63.8 million for
the nine-month period ended September 30, 1995. This increase was primarily due
to higher unit volume, favorable changes in product sales mix and higher average
prices resulting from the introduction of the Company's new, higher-priced Pasta
LaBella flavored pasta.
Revenues for the Retail market increased $23.1 million, or 70.4%, to $55.9
million for the nine-month fiscal period ended September 30, 1996, from $32.8
million for the nine-month period ended September 30, 1995. This increase was
due to (i) higher sales volume, with the largest increases coming from private
label and club stores customers; (ii) higher average unit prices due to the
introduction of the Company's new, higher-priced Pasta LaBella flavored pasta
into the U.S. retail grocery market; (iii) improved product sales mix in the
club store category; and (iv) the pass-through of higher durum wheat costs.
Revenues for the Institutional market increased $5.2 million, or 16.8%, to
$36.2 million for the nine-month fiscal period ended September 30, 1996, from
$31.0 million for the nine-month period ended September 30, 1995. The volume
gains in ingredient and foodservice categories were partially offset by lower
Contract Sales volumes as available production capacity was utilized by retail
sales growth. The average 1996 institutional unit price also increased due to
the pass-through of higher durum wheat costs.
Gross Profit. Gross profit increased $12.9 million, or 121.7%, to $23.5
million for the nine-month fiscal period ended September 30, 1996, from $10.6
million for the nine-month period ended September 30, 1995. Gross profit as a
percentage of revenues increased to 25.5% for the nine-month fiscal period ended
September 30, 1996, from 16.6% for the nine-month period ended September 30,
1995. These increases were primarily the result of (i) higher sales volumes;
(ii) higher average unit prices, primarily as a result of Pasta LaBella flavored
pasta sales; (iii) the absence of plant expansion costs; (iv) lower per unit
warehousing and distribution costs resulting from outsourcing logistics
functions through a new strategic alliance with Lanter Company; and (v) improved
plant efficiencies and capacity utilization, including the impact of the new
South Carolina production and distribution facilities.
Selling and Marketing Expense. Selling and marketing expense increased
$13.1 million, or 354.1%, to $16.8 million for the nine-month fiscal period
ended September 30, 1996, from $3.7 million for the nine-month period ended
September 30, 1995. Selling and marketing expense as a percentage of revenues
increased to 18.2% for the nine-month fiscal period ended September 30, 1996
from 5.7% for the nine-month period ended September 30, 1995. These increases in
selling and marketing expense were primarily due to the Company's incurrence of
$8.1 million of product introduction costs during the nine-month fiscal period
ended September 30, 1996 related to the retail introduction of the Company's
Pasta LaBella flavored pasta products. These costs included payment of product
placement fees or "slotting," introductory consumer sampling, couponing,
advertising and trade promotions. There were no comparable 1995 expenditures.
Selling and marketing expenses also increased due to Pasta LaBella flavored
pasta sales and increases in club store and private label revenues.
General and Administrative Expense. General and administrative expense
increased $0.8 million, or 40.0%, to $2.8 million for the nine-month fiscal
period ended September 30, 1996, from $2.0 million for the nine-month period
ended September 30, 1995, but decreased as a percentage of revenues from 3.2%
for the nine-month period ended September 30, 1995 to 3.0% for the nine-month
fiscal period ended September 30, 1996. The increase in general and
administrative expense was primarily due to increases in MIS expenses and
communication costs incurred to support sales growth and the commencement of
operations in South Carolina.
Operating Profit. Operating profit decreased $1.0 million, or 20.4% to $3.9
million for the nine-month fiscal period ended September 30, 1996 from $4.9
million for the nine-month period ended September 30, 1995. Excluding product
introduction costs, operating profit increased to $12.0 million, or 144.9%, from
$4.9 million and increased as a percentage of revenue to 13.0% for the
nine-month fiscal period ended September 30, 1996 from 7.7% for the nine-month
period ended September 30, 1995.
26
<PAGE> 29
Interest Expense. Interest expense increased $2.7 million, or 50.9%, to
$8.0 million for the nine-month fiscal period ended September 30, 1996 from $5.3
million for the nine-month period ended September 30, 1995, due to higher
borrowing levels to finance the Company's South Carolina and Missouri capital
assets expansion and increases in working capital.
Income Tax. Income tax decreased to $(1.6) million for the nine-month
fiscal period ended September 30, 1996, from $(0.1) million for the nine-month
period ended September 30, 1995 and reflected an effective income tax rate of
approximately 38% in both periods.
Extraordinary Item. During the nine-month fiscal period ended September 30,
1996, the Company incurred a $1.6 million (net of tax) extraordinary loss due to
the write-off of deferred debt issuance costs in conjunction with a partial
extinguishment and restructuring of the Company's principal bank credit
agreement. There was no such item for the nine-month period ended September 30,
1995.
Net Income. Net income decreased $4.0 million to $(4.2) million for the
nine-month fiscal period ended September 30, 1996, from $(0.2) million for the
nine-month period ended September 30, 1995.
CALENDAR YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 1995
The calendar year ended December 31, 1996 does not conform to the Company's
fiscal year and is discussed below only for purposes of comparison with the
Company's fiscal year ended December 31, 1995.
Revenues. Revenues increased $28.7 million, or 30.9%, to $121.6 million for
the calendar year ended December 31, 1996, from $92.9 million for the fiscal
year ended December 31, 1995. This increase was due to higher unit volume,
higher average unit price from the mid-1996 introduction of the Company's new
higher-priced Pasta LaBella flavored pasta into the U.S. Retail grocery market
and improvements in product sales mix.
Revenues for the Retail market increased $23.1 million, or 46.9%, to $72.4
million for the calendar year ended December 31, 1996, from $49.3 million for
the fiscal year ended December 31, 1995. This increase was due to (i) higher
average unit prices associated with the introduction of the Company's new,
higher-priced Pasta LaBella flavored pasta into the U.S. retail grocery market
in mid-1996; (ii) higher unit volume, with the largest increases coming from the
private label and club store customers; (iii) improved product sales mix; and
(iv) the pass-through of higher durum wheat costs.
Revenues for the Institutional market increased $5.6 million, or 12.8% to
$49.2 million for the calendar year ended December 31, 1996 from $43.6 million
for the fiscal year ended December 31, 1995. The ingredient and foodservice
volume gains were partially offset by lower Contract Sales volumes as available
capacities were utilized by retail unit growth. The average 1996 institutional
unit price increased due to the pass-through of higher durum wheat costs.
Gross Profit. Gross profit increased $14.9 million, or 87.6%, to $31.9
million for the calendar year ended December 31, 1996, from $17.0 million for
the fiscal year ended December 31, 1995. Gross profit as a percentage of
revenues increased to 26.2% for the calendar year ended December 31, 1996, from
18.3% for the fiscal year ended December 31, 1995. These increases were
primarily the result of (i) higher unit volumes; (ii) higher average unit
prices, primarily due to Pasta LaBella flavored pasta sales; (iii) lower durum
wheat costs; (iv) the absence of plant expansion costs; and (v) lower per unit
warehousing and distribution costs resulting from outsourcing logistics
functions through a new strategic alliance with Lanter Company.
Selling and Marketing Expense. Selling and marketing expense increased
$16.0 million, or 301.9%, to $21.3 million for the calendar year ended December
31, 1996, from $5.3 million for the fiscal year ended December 31, 1995. Selling
and marketing expense grew as a percentage of revenue to 17.5% for the calendar
year ended December 31, 1996, from 5.7% for the fiscal year ended December 31,
1995. This increase was due to the Company's incurrence of $9.6 million of
product introduction costs during the calendar year ended December 31, 1996
related to the retail introduction of the Company's Pasta LaBella flavored pasta
products. These costs included payment of fees for product placement or
"slotting," introductory consumer sampling, couponing, advertising and trade
promotions. There were no comparable 1995 expenditures. In addition to
27
<PAGE> 30
product introduction costs, selling and marketing expenses also increased due to
the larger retail revenues associated with Pasta LaBella flavored pasta and
increases in club store private label sales.
General and Administrative Expense. General and administrative expense
increased $0.6 million, or 20.7%, to $3.5 million for the calendar year ended
December 31, 1996 from $2.9 million for the fiscal year ended December 31, 1995,
but decreased as a percentage of revenues from 3.2% to 2.9% over the same
period. The increase in general and administrative expense was primarily due to
increases in MIS expenses and communication costs incurred to support sales
growth and the operations in South Carolina.
Operating Profit. Operating profit decreased $1.6 million, or 18.2%, to
$7.2 million for the calendar year ended December 31, 1996, from $8.8 million
for fiscal year ended December 31, 1995 and decreased as a percentage of revenue
to 5.9% for the calendar year ended December 31, 1996, from 9.4% for the fiscal
year ended December 31, 1995. Excluding product introduction costs, operating
profit increased by $8.0 million, or 90.9%, to $16.8 million for the calendar
year ended December 31, 1996, from $8.8 million for the fiscal year ended
December 31, 1995 and increased as a percentage of revenue to 13.8% for the
calendar year ended December 31, 1996 from 9.4% for the fiscal year ended
December 31, 1995.
Interest Expense. Interest expense increased $2.6 million, or 32.5% to
$10.6 million for the calendar year ended December 31, 1996 from $8.0 million
for fiscal year ended December 31, 1995, due to higher debt levels resulting
from the incremental borrowings required to finance the Company's South Carolina
and Missouri capital asset expansion and increases in working capital.
Income Tax. Income tax decreased to $(1.3) million for the calendar year
ended 1996 from $0.3 million for the fiscal year ended 1995, and reflects an
effective income tax rate of approximately 38% in both periods.
Extraordinary Item. During calendar year ended December 31, 1996, the
Company incurred a $1.6 million (net of tax) extraordinary loss due to the
write-off of deferred debt issuance costs in conjunction with a partial
extinguishment and restructuring of the Company's principal bank credit
agreement.
Net Income. Net income decreased $4.3 million to $(3.8) million for the
calendar year ended December 31, 1996, from $0.5 million for the fiscal year
ended 1995.
FISCAL YEAR ENDED DECEMBER 1995 COMPARED TO THE FISCAL YEAR ENDED DECEMBER
1994
Revenues. Revenues increased $23.4 million, or 33.7%, to $92.9 million for
the fiscal year ended December 31, 1995, from $69.5 million for the fiscal year
ended December 31, 1994. This increase was due primarily to higher unit volume
and higher average unit prices resulting from a favorable product sales mix and
price increases as a result of increases in durum wheat costs.
Revenues for the Retail market increased $18.5 million, or 60.1%, to $49.3
million for the fiscal year ended December 31, 1995, from $30.8 million for the
fiscal year ended December 31, 1994. The growth in Retail revenues was primarily
due to significant volume increases from the mid-1994 commencement of sales to
club stores and private label growth. The average 1995 retail unit price also
increased due to price increases as a result of the pass-through of higher durum
wheat costs and improved product sales mix.
Revenues for the Institutional market increased $5.3 million, or 13.8%, to
$43.6 million for the fiscal year ended December 31, 1995, from $38.3 million
for the fiscal year ended December 31, 1994. The increased net revenue resulted
primarily from (i) increased foodservice unit volume; (ii) an increase in
Contract Sales volumes; (iii) price increases made as a result of the
pass-through of higher durum wheat costs; and (iv) sales from the foodservice
introduction of higher-priced Pasta LaBella flavored pasta in the second half of
1995.
Gross Profit. Gross profit increased $2.4 million, or 16.4%, to $17.0
million for the fiscal year ended December 31, 1995, from $14.6 million for the
fiscal year ended December 31, 1994. This increase resulted primarily from
higher unit volumes. Gross profit as a percentage of revenues decreased to 18.3%
for the fiscal year ended December 31, 1995 from 21.0% for the fiscal year ended
December 31, 1994. Approximately two-thirds of the gross margin decrease was due
to incremental plant expansion costs related to the 1995
28
<PAGE> 31
construction, commissioning and start-up of the South Carolina production and
distribution facilities and the Missouri distribution facility. The balance of
the gross margin decrease was a result of (i) planned short-term increases in
average unit manufacturing and logistics costs due to temporarily lower overall
capacity and higher production cost due to the opening of the South Carolina
plant, and (ii) increases in average unit packaging material costs.
Selling and Marketing Expense. Selling and marketing expense increased $1.5
million, or 39.5%, to $5.3 million for the fiscal year ended December 31, 1995,
from $3.8 million for the fiscal year ended December 31, 1994. Selling and
marketing expense as a percentage of revenues increased from 5.5% in fiscal 1994
to 5.7% in fiscal 1995, primarily as a result of retail revenue growth.
General and Administrative Expense. General and administrative expense
increased $0.9 million, or 45.0%, to $2.9 million for the fiscal year ended
December 31, 1995, from $2.0 million for the fiscal year ended December 31,
1994. General and administrative expense as a percentage of revenues increased
from 2.8% in fiscal 1994 to 3.2% in fiscal 1995, primarily due to increases in
MIS, communications, travel and other general expenses related to the
commencement of operations in South Carolina.
Operating Profit. Operating profit was $8.8 million for the fiscal year
ended December 31, 1995, unchanged from the prior fiscal year ended December 31,
1994. Excluding plant expansion costs in 1995 and 1994, operating profit
increased $1.5 million, or 16.1%, to $10.8 million for the fiscal year ended
December 31, 1995, from $9.3 million for fiscal year ended December 31, 1994,
and decreased as a percentage of revenue to 11.6% for the fiscal year ended
December 31, 1995 from 13.4% for the fiscal year ended December 31, 1994.
Interest Expense. Interest expense increased $3.0 million, or 60.0%, to
$8.0 million for the fiscal year ended December 31, 1995 from $5.0 million for
the fiscal year ended December 31, 1994, primarily due to higher debt levels
resulting from increased working capital and the financing of the Company's
South Carolina and Missouri capital asset expansion.
Income Tax. Income tax decreased $1.2 million to $0.3 million for the
fiscal year ended December 31, 1995 from $1.5 million for the fiscal year ended
December 31, 1994 and reflects an effective income tax rate of approximately 38%
in both periods.
Extraordinary Item. During the fiscal year ended December 31, 1994, the
Company incurred a $0.2 million (net of tax) extraordinary loss due to the write
off of deferred debt issuance costs in connection with a partial extinguishment
and restructuring of the Company's principal bank credit agreement. There was no
such item in 1995.
Net Income. Net income decreased $1.7 million to $0.5 million for the
fiscal year ended December 31, 1995 from $2.2 million for the fiscal year ended
December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $2.6 million and working capital totaled
$13.3 million at June 30, 1997. At September 30, 1996, cash and cash equivalents
totaled $1.8 million and working capital totaled $(1.6) million. The $14.9
million increase in working capital resulted primarily from the $22.3 million
April 15, 1997 private equity financing (the "1997 Private Equity Financing")
and improvements in the Company's operating results.
The Company's net cash provided by operating activities totaled $14.1
million for the nine-month period ended June 30, 1997 compared to $(7.5) million
for the nine-month fiscal period ended September 30, 1996. This increase of
$21.6 million was primarily due to higher net income, reductions in net working
capital investment and reduced product introduction costs. Net cash provided by
operating activities was $5.7 million and $3.7 million for the fiscal years
ending December 31, 1995 and 1994, respectively. The $2.0 million increase in
net cash provided by operating activities in the fiscal year ending December 31,
1995 was primarily due to lower investment in net working capital.
Cash flow used in investing activities principally relates to the Company's
investments in manufacturing, distribution, milling and MIS assets. Capital
expenditures were $11.5 million and $3.0 million for the nine-month periods
ending June 30, 1997 and September 30, 1996, respectively, and were $38.8
million and $25.4 million for the fiscal years ended December 31, 1995 and 1994,
respectively. The increase in spending for the
29
<PAGE> 32
nine-month period ending June 30, 1997 was a result of the Company's initial
expenditures in the $86.0 million capital expansion program targeted for 1998
completion. This expansion is designed to meet the volume requirements of the
CPC Agreement and planned future growth opportunities. The increased spending in
1994 and 1995 was primarily the result of the construction of the Company's
South Carolina manufacturing and distribution facilities and the Missouri
distribution center.
Net cash provided by financing activities was $(1.8) million for the nine
months ended June 30, 1997 compared to $12.3 million for the nine-month fiscal
period ended September 30, 1996. The $14.1 million change is primarily a result
of the $22.3 million in net proceeds from the 1997 Private Equity Financing
offset by the $25.2 million repayment of short-term and long-term borrowings.
Net cash provided by financing activities was $33.1 million and $19.6 million
for the fiscal years ending December 31, 1995 and 1994, respectively, as a
result of borrowings required to fund the Company's capital asset expansion
programs and working capital.
In April 1997, the Company entered into an amended and restated credit
agreement with Bankers Trust Company, Morgan Stanley Senior Funding, Inc. and
various banks named therein (the "Credit Agreement"). The Credit Agreement
provides for (i) an $18.0 million term loan maturing on February 26, 2000; (ii)
a $19.9 million term loan maturing on February 26, 2002; (iii) a $54.7 million
term loan maturing on February 27, 2004; (iv) a $45.0 million term loan maturing
on February 27, 2004 to finance a portion of the Company's 1997-1998 capital
assets expansion; and (v) a $25.0 million revolving loan maturing on February
29, 2000. At June 30, 1997, $85.9 million was outstanding under the Credit
Agreement, and the Company had $45.0 million available to borrow under the $45.0
million term credit facility and $24.5 million available to borrow under the
$25.0 million revolving credit facility (subject to borrowing base limitations).
As of August 31, 1997, $87.9 million was outstanding under the Credit Agreement.
Interest on borrowings is based on the London Interbank Offer Rate (LIBOR), plus
a credit margin of 300 to 375 basis points. At June 30, 1997, the three-month
LIBOR rate was 5.8%, and the Company's aggregate, weighted average bank debt
borrowing rate was 9.3%. The current Credit Agreement contains restrictive
covenants that, among other things, limit the Company's ability to incur debt,
sell assets, make capital expenditures and pay dividends. Management does not
expect these limitations to have a material effect on the Company's business or
results of operations. The Company is in compliance with all financial covenants
contained in the Credit Agreement and believes it will continue to be in
compliance during fiscal 1997.
The Company plans to use a majority of its net proceeds from the Offering
to repay outstanding indebtedness incurred under the Company's Credit Facility.
The balance of such proceeds will be used to fund a portion of the Company's
planned $86 million (of which $17 million has been incurred and paid) capital
expansion of its milling and production facilities designed to meet the
significant volume requirements of the CPC Agreement and planned future growth
opportunities. The Company intends to finance the remainder of its capital
expansion program and fund future working capital needs with a combination of
the balance of the net proceeds to the Company from the Offering and borrowings,
either under the existing Credit Facility or under a new credit agreement with
its lenders (the "New Credit Agreement") to be entered into following the
closing of the Offering. The Company has received from its lenders a commitment
letter for a new $150 million unsecured revolving credit facility which will
replace the existing Credit Facility. The commitment letter provides that
interest on borrowings under the new credit facility will be based on, at the
Company's option, either LIBOR plus a credit margin of 37.5 to 175 basis points
or Bankers Trust Company's base rate plus a credit margin of 0 to 50 basis
points. There can be no assurance as to whether or when such new credit facility
will be completed or as to the terms of such facility.
The Company expects to incur an extraordinary charge related to the
write-off of deferred debt issuance costs in connection with the extinguishment
of the existing credit facility and the establishment of the new credit
facility. The unamortized balance of deferred debt issuance costs at June 30,
1997 was $3,597,000.
The commitment letter contemplates that the New Credit Agreement will
contain restrictive covenants similar to those in the current Credit Agreement
with respect to limits on the Company's ability to incur debt, sell assets, make
capital expenditures and pay dividends. Management does not expect these
limitations to have a material effect on the Company's business or results of
operations. The Company is in compliance with all financial covenants contained
in the current Credit Agreement.
30
<PAGE> 33
The Company expects that future cash requirements will principally be for
capital expenditures, repayments of indebtedness under the Credit Agreement and
working capital requirements. As of June 30, 1997, the Company had commitments
to purchase Italian pasta production equipment and expand the milling,
production and distribution facilities totaling approximately $49.7 million and
durum wheat purchase commitments totaling approximately $6.3 million. Management
believes that net cash provided by operating activities, net cash provided by
financing activities and the net proceeds of the Offering will be sufficient to
meet the Company's expected capital and liquidity needs for the foreseeable
future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which is required to be adopted by the Company on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. If SFAS No. 128 had been
implemented by the Company at June 30, 1997, the impact on the calculation of
earnings per share would not have been material.
EFFECT OF INFLATION AND INTEREST RATE FLUCTUATIONS
Historically, inflation has not had a material effect on the Company, other
than to increase its cost of borrowing. In general, the Company has been able to
increase the majority of customer sales prices to recover significant increases
in the prices of raw materials. However, changes in prices of the Company's
pasta products and the pass-through of higher durum wheat costs to certain
customers historically have lagged price increases in the Company's raw material
costs.
31
<PAGE> 34
BUSINESS
OVERVIEW
AIPC is the third largest and one of the fastest-growing producers and
marketers of pasta in North America. The Company commenced operations in 1988
with the North American introduction of new, highly-efficient durum wheat
milling and pasta production technology. Management believes that the Company's
singular focus on pasta, vertically-integrated facilities, continued
technological improvements and development of a highly-skilled workforce enable
AIPC to produce high-quality pasta at costs below those of many of its
competitors. Management believes that the combination of the Company's cost
structure, the average age of its competitors' North American pasta production
equipment and the growing pasta consumption in North America creates significant
opportunities for continued growth. The Company's revenue and operating income
excluding product introduction costs were $121.6 million and $16.7 million,
respectively, for the calendar year ended December 31, 1996, and grew at CAGRs
of 33% and 33%, respectively, over the five-year period ended December 31, 1996.
During the nine-month period ended June 30, 1997, the Company had revenue of
$93.6 million and an operating margin excluding product introduction costs of
15.9%.
The Company has rapidly established a significant market presence in North
America by developing strategic customer relationships with food industry
leaders that have substantial pasta requirements. The Company has a long-term
supply agreement with Sysco, the nation's largest marketer and distributor of
foodservice products. In 1998, AIPC will become the exclusive producer of
Mueller's, the largest pasta brand in the United States, pursuant to a recent
long-term manufacturing and distribution agreement with CPC. CPC has announced
its intention to close its current pasta production facility by December 1997.
AIPC is also the primary supplier of pasta to Sam's Club, the largest club store
chain in the United States, and supplies private label and branded pasta to six
of the 10 largest grocery retailers in the United States, including Wal*Mart,
A&P, Publix, Albertsons, American Stores and Winn-Dixie. In addition, AIPC has
developed supply relationships with leading food processors, such as Pillsbury,
General Mills and Kraft Foods, which use the Company's pasta as an ingredient in
branded food products.
The Company produces more than 80 dry pasta shapes in two
vertically-integrated production and distribution facilities, strategically
located in Excelsior Springs, Missouri and Columbia, South Carolina. The
construction of the Missouri plant in 1988 represented the first use in North
America of a vertically-integrated, high-capacity pasta plant using Italian
pasta production technology. Management believes that this plant continues to be
among the most efficient and highly-automated pasta facilities in North America.
The South Carolina plant, which commenced operations in 1995, produces only
pasta shapes conducive to high-volume production and employs a highly-skilled,
self-managed workforce. Management believes that the South Carolina plant is the
most efficient pasta facility in North America in terms of productivity and
conversion cost per pound. To meet the significant volume requirements of the
CPC Agreement and support future growth, the Company commenced a capital
expenditure program in 1997 to nearly double the Company's annual pasta
production capacity and add a highly-automated durum wheat mill to its South
Carolina plant, with completion scheduled for 1998.
OPERATING STRATEGY
The Company's operating strategy is to grow revenues and profitability by
offering customers the highest quality pasta products at competitive prices with
superior customer service. Key elements of the Company's operating strategy are
to:
- Continue to Lead the Industry as the Lowest Cost Producer of High
Quality Pasta. AIPC has successfully implemented production and capital
investment strategies designed to achieve low-cost production of
high-quality products. AIPC has distinguished itself from most major pasta
producers by vertically integrating the durum wheat milling function with
the production process, thereby allowing the Company to manage the grain
procurement process and better control the consistency, quality and cost of
its raw materials. The Company has invested in new pasta making technology,
process controls and the development of a largely self-managed work force.
Management believes that its facilities are among the
32
<PAGE> 35
most efficient pasta production facilities in North America in terms of
productivity and conversion cost per pound. AIPC actively manages plant
capacity utilization to optimize its fixed asset base and profitability
through Contract Sales to government agencies and other customers. The
Company believes that its vertically-integrated processes and pasta
production equipment produces pasta of superior color, texture, flavor and
consistency. AIPC's logistics strategy enables the Company to realize
significant distribution cost savings through its strategically-located
distribution centers. The Company expects to realize additional operating
efficiencies through the completion of the current expansion program at its
South Carolina and Missouri facilities and ongoing improvement programs.
See "-- Facilities and Expansion."
- Expand Customer-Driven Strategy. The Company is committed to
developing and maintaining strategic relationships with customers who (i)
are food industry leaders requiring a significant volume of high-quality
pasta; (ii) have committed marketing and sales resources to growing their
pasta business; and (iii) pursue long-term supply arrangements. The Company
has pursued this strategy since commencing operations in 1988, beginning
with an agreement with Sysco. For almost a decade, the Company has been
Sysco's primary pasta supplier. In addition, since 1994, the Company has
been the primary pasta supplier to Sam's Club. AIPC currently supplies
private-label and branded products to over 20 retail grocery customers,
including many of the largest U.S. grocery retailers. AIPC also supplies
pasta to leading food processors such as Pillsbury, General Mills and Kraft
for use as a food ingredient. Starting in 1998, the Company will become the
sole producer of Mueller's, the largest pasta brand in the United States,
under the CPC Agreement. Management believes that these strategic
relationships increase operating efficiencies, enhance AIPC's investment in
new technology, create distribution synergies, and enable closer
involvement in its customers' pasta businesses.
- Provide Superior Customer Service. The Company develops and enhances
customer relationships by providing superior service and technical support
for its customers. The Company has invested heavily in the development of a
broad range of customer service programs, including electronic data
interchange (EDI) and efficient consumer response (ECR) programs which
streamline the order, invoicing and inventory management functions. AIPC
uses its customer response services and category management expertise,
based in part on data supplied by A.C. Nielsen Co. ("Nielsen"), to assist
customers in their supply management and merchandising decisions. AIPC's
inventory management system is designed to optimize customer lead time,
order fill rate and inventory turnover. To provide its customers with
benefits in both transportation cost and delivery time, the Company has
strategically located its distribution centers in Missouri, South Carolina
and California. The Company provides marketing, technical and service
support to its customers by assisting customers with supply and category
management decisions, producing pasta to its customers' specifications and
making operational recommendations to its customers using pasta as an
ingredient in their food products. AIPC is the only pasta producer to
sponsor an annual durum milling and pasta production technology forum, at
which industry experts conduct a training and development program for the
manufacturing and research and development personnel of food companies.
GROWTH STRATEGY
The Company continues to implement its growth strategy, which builds on the
Company's operating strategy and industry trends. Key elements of the Company's
growth strategy are to:
- Successfully Implement CPC Business Expansion. The Company was
recently selected to be the exclusive producer of CPC's Mueller's brand
pasta, the largest pasta brand in North America. Upon completion of AIPC's
planned capacity expansion in 1998, management anticipates CPC's annual
volume requirements will represent an approximately 60% increase over the
Company's fiscal 1997 production run rate. Management believes that the
Company's experience in servicing large pasta supply agreements and its
current capacity expansion program will enable AIPC to meet the current CPC
volume requirements and support potential future growth.
- Pursue Strategic Alliances. The Company believes that commercial
users and marketers of pasta will continue to require increasing quantities
of pasta and that a greater portion of these requirements will
33
<PAGE> 36
be outsourced to more efficient producers of high-quality pasta, such as
AIPC. Management has identified additional strategic opportunities with
commercial users and marketers of pasta which may result in incremental
growth, new product development and cost savings opportunities in the
future.
- Secure Additional Private Label Customers. The Company intends to
continue to grow its private label customer base and secure additional
private label customers by continuing to offer quality products,
competitive pricing, category management and superior customer service.
Management believes that AIPC's prospects for growth in the private label
market have been enhanced since Borden, historically the largest private
label supplier in North America, publicly announced its intention to exit
the private label pasta business in 1997.
- Continue Product Innovation. In 1995, the Company introduced Pasta
LaBella flavored pasta, a line of all natural, full-flavored pasta products
utilizing patented flavoring technology and AIPC's proprietary production
process. In addition to pursuing increased sales with institutional
customers, the Company is exploring potential sales and marketing alliances
to expand retail distribution of Pasta LaBella flavored pasta. AIPC also
intends to continue assisting its customers with innovative products and
packaging, and the development of additional value-added products intended
to generate higher margins than traditional pasta products.
PASTA INDUSTRY
North American pasta consumption exceeded 5.0 billion pounds in 1995 and is
expected to grow based on industry and trade sources and the Company's own
analysis. The pasta industry consists of two primary customer markets: (i)
Retail, which includes grocery stores, club stores and mass merchants that sell
branded and private label pasta to consumers; and (ii) Institutional, which
includes both foodservice distributors that supply restaurants, hotels, schools
and hospitals, as well as food processors that use pasta as a food ingredient.
In 1996, the supermarket portion of the Retail market accounted for
approximately 1.3 billion pounds, of which branded and private label pasta
accounted for 1.0 billion and 0.3 billion pounds, respectively. Foodservice
distributors, food processors and the U.S. government in the Institutional
market accounted for the remainder of the volume, approximately 3.7 billion
pounds, in 1996.
The expected increase in North American consumption is primarily
attributable to the widespread recognition that pasta is an inexpensive,
convenient and nutritious food. The U.S. Department of Agriculture places pasta
on the foundation level of its pyramid of recommended food groups. Products such
as flavored pasta, prepared sauces, boxed pasta dinners, and both frozen and
shelf-stable prepared pasta entrees support consumers' lifestyle demands for
convenient at-home meals. Pasta continues to grow in popularity in restaurants
as Americans continue to dine away from home more frequently.
Customer Markets
Retail. Hershey, Borden and CPC together represent a majority of the
branded Retail market. Hershey, which primarily competes in the branded Retail
market and whose retail brands include Ronzoni, San Giorgio, Skinner and
American Beauty, is the industry leader and produced 24.5% of the total pounds
sold in the branded Retail market for the 52 weeks ended June 30, 1997. Borden,
which produced 21.5% of the total pounds sold in the Retail market for the 52
weeks ended June 30, 1997, has announced its intention to shift its strategy to
focus on its branded pasta and sauce products, which include Creamette, Prince,
Catelli, Merlino's and Anthony's, and to exit private label pasta production and
sales. CPC participates in the Retail market with Mueller's, the oldest and
largest pasta brand in the United States. AIPC directly participates in the
branded Retail market by producing and distributing Pasta LaBella flavored pasta
and will indirectly participate in such market by processing and distributing
Mueller's brand pasta for CPC. During 1998, CPC will transfer substantially all
of its Mueller's brand pasta production to AIPC. See "-- Production and Supply
Agreements."
Between the first quarter of 1994 and the second quarter of 1997, sales of
private label pasta products increased from 18.6% to 21.5% of the total pounds
of pasta sold in the Retail market. Management believes that sales of private
label pasta products will continue to grow at a rate in excess of the overall
Retail pasta
34
<PAGE> 37
market. After Borden's departure from the private label market, AIPC will be one
of the leading suppliers in the remaining fragmented market. Management believes
that the private label category offers significant growth and profit
opportunities to retailers and efficient producers. Retailers often prefer
high-quality private label products to branded products because private label
products typically enable retailers to generate higher margins and maintain
greater control of in-store merchandising. While consumers traditionally have
viewed private label products as having lower quality than branded products,
management believes that new high-quality private label products have begun to
change this perception. Management attributes some of this change in the private
label market to the increasingly upscale image, improved packaging, higher
product quality and competitive prices of private label products.
Institutional. The Institutional market includes both foodservice
distributors that supply restaurants, hotels, schools and hospitals, as well as
food processors that use pasta as a food ingredient. Traditional foodservice
customers include businesses and organizations, such as Sysco and JP
Foodservice, Inc., that sell products to restaurants, healthcare facilities,
schools, hotels and industrial caterers. Most foodservice distributors obtain
their supply of pasta from third party producers such as AIPC. The foodservice
market is highly-fragmented and is served by numerous regional and local food
distributors, including both "traditional" foodservice customers and chain
restaurant customers. Sysco, the nation's largest foodservice marketer and
distributor of foodservice products and one of the nation's largest commercial
purchasers of pasta products, serves approximately 10% of the foodservice
customers in the United States and has more than double the revenues of the next
largest foodservice distributor.
The Institutional market also includes sales to food processors who use
pasta as an ingredient in their food products such as frozen dinner entrees and
side dishes, dry side dish mixes, canned soups and single-serve meals. Large
food processors that use pasta as a food ingredient include Kraft Foods,
American Home Food Products Corporation, Stouffers Corp., Campbell Soup Company,
ConAgra, Inc., Pillsbury and General Mills. The consistency and quality of the
color, starch release, texture, cooking consistency, and gluten and protein
content of pasta produced for food processors is crucial to their products'
success. As a result, food processors have stringent specifications for these
attributes.
The size of the Institutional market is affected by the number of food
processors that elect to produce pasta internally rather than outsourcing their
production. Historically, most pasta used by food processors was manufactured
internally for use in food processors' own products. Management believes,
however, that an increasing number of food processors may discontinue the
internal production of their own pasta and outsource their production to more
efficient producers such as AIPC.
Pasta Production Capacity
Management believes that pasta producers have historically rationalized
their existing production facilities. Within the past several years, however,
there has been an increase in some pasta producers' capital reinvestment. Upon
completion of the planned expansion, AIPC will have increased its production
capacity to 620 million pounds since commencing operations in 1988. Several
domestic pasta producers have recently completed production facility additions
or announced their intention to increase domestic production capacity. In
addition to AIPC's planned capital expansion, management believes that these
capacity additions represent more than 200 million pounds in aggregate. Dakota
Growers recently increased the capacity of its durum wheat mill and has
announced plans to complete a pasta production capacity expansion in excess of
100 million pounds by the end of 1997. Hershey is believed to have recently
added approximately 50 million pounds of pasta capacity to its facility in
Winchester, Virginia. In September 1997, Barilla announced plans to build a
pasta plant near Ames, Iowa with an estimated annual pasta capacity over 200
million pounds. Two major pasta producers have also recently announced planned
reductions in pasta production capacity. Borden announced that it will close or
sell five of its ten North American pasta plants by the end of 1997, and CPC
intends to eliminate its capacity of approximately 180 million pounds by the end
of 1997. AIPC and Dakota Growers are currently the only major pasta producers
that own vertically-integrated milling and pasta production facilities. Barilla
has announced that its new, vertically-integrated Iowa pasta plant will include
milling, production and warehouse facilities.
35
<PAGE> 38
Management estimates pasta imported from foreign producers during 1996
represented approximately 17% of the U.S. dry pasta market, and that of this
amount, approximately two-thirds originated from producers in Italy and Turkey.
The primary foreign suppliers of pasta with which the Company competes are
Barilla and De Cecco.
Pricing pressures from Turkish and Italian pasta producers aggressively
targeting the U.S. markets have adversely affected returns and earnings of some
U.S. producers in recent years. In 1996, pasta imported from Italy accounted for
approximately $140 million in sales, or around 8.0% of the U.S. pasta market. In
1996, a U.S. Department of Commerce investigation revealed that several Italian
and Turkish producers were engaging in unfair trade practices by selling pasta
at less than fair value in the U.S. markets and benefitting from subsidies from
their respective governments. Effective July 1996, the U.S. International Trade
Commission imposed anti-dumping duties ranging from 2.8% to 46.7% on Italian
imports and from 56.8% to 63.3% on Turkish imports, as well as countervailing
duties ranging from 1.2% to 11.2% on Italian imports and from 3.9% to 15.8% on
Turkish imports. Although Italian and Turkish importers still participate in the
major U.S. customer markets, management believes that these duties have
significantly reduced the volume of low-priced pasta from Italy and Turkey. See
"Risk Factors -- Competition."
Raw Materials
Pasta's primary ingredient is semolina, which is extracted from durum wheat
through a milling process. Almost all domestic pasta producers purchase semolina
from third party milling companies. Durum wheat is used exclusively for pasta.
Each variety of durum wheat has its own unique set of protein, gluten content,
moisture, density, color and other attributes which affect the quality and other
characteristics of the semolina. The Company blends semolina from different
wheat varieties as needed to meet customer specifications.
Durum wheat used in United States pasta production generally originates
from Canada, North Dakota, Montana, Arizona and California. Although durum wheat
can be purchased directly from farmers or grower-owned cooperatives, most
milling companies purchase durum wheat on a commodity exchange. AIPC and Dakota
Growers are the only major producers of pasta in North America that have
vertically integrated milling and production facilities. See "Raw Materials and
Supplies."
PRODUCTS
AIPC's product line, comprising over 1,000 stock-keeping units ("SKUs"),
includes long goods such as spaghetti, linguine, fettuccine, angel hair and
lasagna, and short goods such as elbow macaroni, mostaccioli, rigatoni, rotini,
ziti and egg noodles. In many instances, the Company produces pasta to its
customers' specifications. AIPC makes over 80 different shapes and sizes of
pasta products in over 160 package configurations, including bulk packages for
institutional customers and small individually-wrapped packages for retail sale
to individual consumers. AIPC contracts with third parties for the production of
certain pasta shapes, such as retail lasagna and canneloni, which are
specialized products, but which are necessary to offer customers a full range of
pasta products. Purchased pasta represented less than 2% of AIPC's total unit
volume in fiscal 1996.
In fiscal 1995, AIPC introduced a product line of all natural,
full-flavored pasta marketed under the Pasta LaBella brand. Pasta LaBella
flavored pasta is principally marketed as a branded product to grocery retailers
and to Sysco. AIPC's all-natural, full-flavored dry pasta is available in a
variety of flavors including tomato basil, lemon pepper, pesto, roasted garlic
and herb, roasted bell pepper/roasted garlic, and cracked black pepper.
Management believes that AIPC's use of patented flavoring ingredients under an
exclusive license and a proprietary manufacturing process allows the Company to
provide superior product quality and flavor delivery compared to competitive
flavored pasta products. Pasta LaBella flavored pasta was recognized as one of
the top 10 new products in the United States in 1996 by Food Processing
Magazine.
QUALITY
The Company believes that its state-of-the-art, Italian pasta production
equipment is capable of producing the highest quality pasta. AIPC's products are
produced to satisfy the specifications of the Company's customers as well as its
own product specifications, which management believes are among the highest in
the industry. The Company's pasta is distinguished by a rich, natural "wheaty"
taste and a
36
<PAGE> 39
consistently smooth and firm ("al dente") texture with a minimum amount of white
spots or dark specks. AIPC evaluates the quality of its products through: (i)
internal laboratory evaluation of AIPC products against competitive products on
physical characteristics, including color, speck count, shape and consistency,
and cooking performance, including starch release, protein content and bite; and
(ii) competitive product comparisons that AIPC's customers perform on a regular
basis.
The Company submits its production facilities to semi-annual inspections by
the American Institute of Baking ("AIB"), the leading United States baking, food
processing and allied industries evaluation agency for sanitation and food
safety. The Company consistently has achieved the AIB's highest "Superior"
rating. The Company also implemented a comprehensive Hazard Analysis Critical
Control Point ("HAACP") program five years ago to continuously monitor and
improve the safety, quality and cost-effectiveness of the Company's facilities
and products. The Company believes that having an AIB rating of "Superior" and
meeting HAACP standards have helped the Company attract new business and
strengthen existing customer relationships.
PRODUCTION AND SUPPLY AGREEMENTS
The Company has established itself as one of the largest producers of dry
pasta in North America by establishing strategic production, supply and
distribution arrangements with several food industry leaders, including CPC and
Sysco.
Under the CPC Agreement, CPC will close its current facilities dedicated to
the production of Mueller's brand pasta and, beginning in 1998, AIPC will become
the exclusive producer of Mueller's, with the exception of two specialty items
which CPC currently purchases from another supplier. CPC is a global food
company, and its Mueller's pasta line is the oldest and largest pasta brand in
the United States with an annual sales volume averaging approximately 200
million pounds over the last five years. AIPC will be paid on a "cost plus"
basis in an amount equal to total actual cost of production plus a guaranteed
profit per pound of pasta produced. CPC has guaranteed minimum purchase volumes
of 175 million pounds annually for nine years. AIPC may also benefit from
additional cost savings resulting from improved productivity. The term of the
contract is through December 31, 2006 with a three-year renewal term at the
option of CPC. Without CPC's consent, AIPC may not produce branded retail pasta
for Borden, Hershey or Barilla, and is limited to the production of an aggregate
of 12 million pounds of branded pasta products annually for other producers. The
CPC Agreement may be terminated by CPC upon certain events, including (i) a
failure by AIPC to satisfy certain minimum production requirements for any
reason other than the fault of CPC or events demonstrably beyond AIPC's control,
or (ii) AIPC's merger with, or sale of substantially all of its assets to,
Borden, Hershey or Barilla.
Pursuant to the Sysco Agreement, AIPC is the primary supplier of pasta for
Sysco and has the exclusive right to supply pasta to Sysco for sale under
Sysco's name. Sysco, which operates from approximately 65 operations and
distribution facilities nationwide, provides products and services to
approximately 230,000 restaurants, hotels, schools, hospitals, and other
institutions, as well as the U.S. government. For the nine-month fiscal year
ended September 30, 1996, sales attributed to Sysco represented approximately
27% of the Company's net revenues. Sysco recently exercised its option to renew
its agreement with AIPC for an additional three years through June 30, 2000, and
has options to renew the agreement for additional three-year periods through
June 30, 2006. AIPC products are sold to Sysco on a cost-plus basis, with annual
adjustments based on the prior year's costs. Under the Sysco Agreement, AIPC may
not supply pasta products to any business other than Sysco in the United States,
Mexico or Canada that operates as, or sells to, institutions and businesses
which provide food for consumption away from home (i.e. foodservice businesses)
without Sysco's prior consent. In 1996, Sysco honored the Company as one of the
10 best of its 1,300 suppliers. The Sysco Agreement may be terminated by Sysco
upon certain events, including a substantial casualty to or condemnation of
AIPC's Missouri plant.
RAW MATERIALS AND SUPPLIES
AIPC's ability to produce high-quality pasta generally begins with its
purchasing durum wheat directly from farmers and grower-owned cooperatives in
Canada, North Dakota, Montana, Arizona and California,
37
<PAGE> 40
rather than from grain exchanges. This direct purchasing method ensures that the
extracted semolina meets AIPC's specifications since each variety of durum wheat
has its own unique set of milling and pasta making characteristics. The Company
has several sources for durum wheat and is not dependent on any one supplier. As
a result, the Company believes that it has adequate sources of supply for durum
wheat. The Company occasionally buys and sells semolina to balance its milling
and production requirements.
Durum wheat is a cash crop whose average monthly market price has
fluctuated from a low of $5.18 per bushel to a high of $7.49 per bushel in the
last four years. Durum wheat does not have a related futures market to hedge
against such price fluctuations. The Company manages its durum wheat cost risk
through long-term contracts and other arrangements with its customers and
advance purchase contracts for durum wheat which are generally less than six
months' duration. Long-term supply agreements and other customer arrangements
which allow for the pass-through of durum wheat cost changes in certain
circumstances represented approximately 60% of AIPC's total revenue for the
nine-month period ended June 30, 1997. Management believes that the Company will
significantly increase the percentage of revenues pursuant to contracts which
include provisions for sales price adjustments as it begins to generate CPC
revenues in 1998. Between June 30, 1997 and October 6, 1997, the market price of
durum wheat increased by approximately 21% from $5.60 per bushel to $6.75 per
bushel. See "Risk Factors -- Raw Materials" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
AIPC purchases its packaging supplies, including poly-cellophane,
paperboard cartons, boxes and totes from third parties. Management believes the
Company has adequate sources of packaging supplies.
FACILITIES AND EXPANSION
Production Facilities. AIPC's pasta production plants are located near
Kansas City in Excelsior Springs, Missouri, and in Columbia, South Carolina. The
Company's facilities are strategically located to support North American
distribution of AIPC's products and benefit from the rail and interstate highway
infrastructure. At June 30, 1997, the Company's facilities had combined annual
milling and production capacity of approximately 300 million pounds of durum
semolina and 330 million pounds of pasta.
The Company has pursued a capacity expansion strategy over the past several
years. During 1994, the Company completed a $30.0 million expansion of the
Missouri plant, increasing production capacity more than 70% to 230 million
pounds per year and, at the same time, increased its durum wheat milling
capacity over 100% to support pasta production of approximately 300 million
pounds per year. In 1995, the Company added approximately 100 million pounds of
pasta capacity by constructing its South Carolina plant.
AIPC has commenced an $86.0 million capital expenditure program to increase
its current pasta production capacity by 90% from 330 million pounds per year to
620 million pounds per year in 1998. The additional capacity at the Missouri
facility will combine high-speed, high-output pasta production lines with the
ability to produce a full range of products, and will include a distribution
center expansion. The capital expenditures program also includes the
construction of a durum wheat mill in South Carolina which adjoins the existing
plant facility, a 200% increase in the facility's pasta production capacity, and
a doubling of the capacity of the South Carolina distribution facility. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Risk
Factors -- Substantial Planned Investment in Milling and Production Facilities."
The additional capacity will be used to produce Mueller's brand pasta and
take advantage of other market opportunities. By the second quarter of fiscal
1998, AIPC will assume production of substantially all of CPC's Mueller's pasta,
which management estimates will require a minimum production capacity of 200
million pounds a year. CPC's guaranteed annual minimum purchases of 175 million
pounds pursuant to the CPC Agreement will utilize approximately 60% of the
Company's newly-added capacity.
38
<PAGE> 41
The following chart illustrates the historical and budgeted growth of
AIPC's milling and pasta production capacity:
[Performance Graph]
Each of the Company's major capacity expansion programs has been completed on
schedule and within budget, and has delivered the targeted levels of output and
efficiency. See "Risk Factors -- Substantial Planned Investments in Milling and
Production Facilities" and "Management of Growth and Implementation of CPC
Business."
Milling and Pasta Production Processes. Durum wheat is currently delivered
to AIPC's mill in Missouri by railcar directly from the durum wheat elevators in
the northern United States and Canada under a long-term rail contract. The wheat
is then unloaded, blended and pre-cleaned. Next, the moisture content of the
wheat is raised to the optimal level required for milling (the "tempering
process"). The cleaned and tempered wheat is then conveyed to the mill where
grinding, sifting, and purifying processes extract the purest possible semolina.
The semolina milling is controlled from a central control room located in the
mill where a single AIPC team member monitors and directs the mill's entire
milling, cleaning and storage process. Semolina is then pneumatically
distributed from the mill to AIPC's pasta production facility in Missouri and,
through the use of a leased fleet of 33 dedicated railcars, transferred to South
Carolina.
After being mixed with water, the semolina is extruded into the desired
shapes and travels through computer-controlled high-temperature dryers and
stabilized at room temperature. The Company's entire pasta production process is
controlled by programmable logic controllers which enable all of the production
lines to be operated and monitored by minimal staff. The pasta is then packaged
in a wide variety of packaging configurations on highly-automated film, carton
and bulk packaging systems and forwarded through automated conveyors to the
distribution center to be palletized and stored prior to shipment.
39
<PAGE> 42
The Company's vertically-integrated milling and pasta production process is
depicted in the following chart:
AIPC'S MILLING AND PASTA PRODUCTION PROCESS
MILLING AND PASTA PRODUCTION PROCESS GRAPH
Distribution. The Company's three distribution centers are strategically
located in South Carolina, Missouri and Southern California to serve a national
market. The Company currently owns the distribution center adjoining its
Missouri plant and leases its distribution center in South Carolina as well as
space in a public warehouse in Pomona, California. The Company completed
construction of the integrated warehousing and distribution facilities at its
Missouri and South Carolina facilities during 1995. The warehousing and
distribution facilities are integrated with the Company's production facilities
which allows cased, finished products to be automatically conveyed via enclosed
case conveying systems from the production facilities to the distribution
centers for automated palletization and storage until shipping. The combination
of integrated facilities and multiple distribution centers enables AIPC to
realize significant distribution cost savings and provides lead time, fill rate
and inventory management advantages to its customers. The operation of the
Missouri and South Carolina distribution centers is outsourced under a long-term
agreement with Lanter Company, a firm specializing in warehouse and logistics
management services.
40
<PAGE> 43
SALES AND MARKETING
AIPC actively markets its products through approximately 15 internal sales
and marketing staff and approximately 30 independent food brokers and
distributors throughout the United States. AIPC's senior management is directly
involved in the selling process in all customer markets. The Company's sales and
marketing strategy is to provide superior quality, complete product offering,
distinctive packaging specifically tailored to customers' needs, competitive
pricing and superior customer service to attract new customers and grow existing
customers' pasta sales.
One of the Company's core strengths has been the development of strong
customer relationships and the establishment of a reputation as a technical and
service expert in the pasta field. As part of its overall customer service
strategy, AIPC uses its category management expertise to assist customers in
their supply management decisions regarding pasta and new products. The
Company's category management experts use on-line Nielsen's supermarket data to
drive pasta category growth by recommending pricing, SKU sets and shelf spacing
to both private label and branded customers. AIPC representatives also assist
food processors in incorporating AIPC's pasta as an ingredient in its customers'
food products. The Company sponsors an annual "Pasta Technology Forum" which is
a training and development program for its customers' production and new product
personnel. AIPC also produces and distributes a quarterly newsletter, the Pasta
Advisor, to its institutional customers which contains recommendations regarding
storage, conveying, cooking and ingredient combination. In addition to technical
education, the Company provides dedicated technical support to its customers by
making recommendations regarding the processing of pasta in their facilities.
AIPC believes that these value-added activities provide customers with a better
appreciation and awareness of the Company and its products.
The Company consistently demonstrates its commitment to customer service
through the development of enhanced customer service programs. Examples of these
programs include the creation by AIPC of an ECR model which uses EDI and vendor
replenishment programs to assist its key retail customers, and category
management services for its private label and branded customers. These programs
also enable the Company to more accurately forecast production and sales demand,
enabling higher utilization of production capacities and lower average unit
costs. AIPC has also created a dedicated sales force for Sysco, its largest
customer, to provide regional sales support.
MANAGEMENT INFORMATION SYSTEMS
The Company's production, distribution, sales and marketing operations are
supported by an IBM AS400-based computer system. The system utilizes licensed
BPCS manufacturing software which has been tailored to the Company's management
processes and integrates its production, purchasing, order entry, inventory
management, distribution and accounting systems. The Company's MIS were recently
upgraded in anticipation of the Company's growth and desire to continue to offer
its customers value-added, efficient services. The Company has invested
substantial amounts in EDI and ECR to streamline the order, invoicing and
inventory management functions. The Company believes that its recent hardware
and software upgrades have adequately addressed the systems operations issues
relating to the year 2000.
COMPETITION
The Company operates in a highly competitive environment against numerous
well-established national, regional and foreign companies, and many smaller
companies. The Company's competitors include both independent pasta producers
and pasta divisions and subsidiaries of large food products companies. The
Company competes in the procurement of raw materials, the development of new
products and product lines, the improvement and expansion of previously
introduced products and product lines and the production, marketing and
distribution of its products. AIPC's products compete with a broad range of food
products, both in the retail and institutional customer markets. Competition in
these markets generally is based on product quality and taste, pricing,
packaging and customer service and logistics capabilities. The Company believes
that it currently competes favorably with respect to these factors. See "Risk
Factors -- Competition" and "Business -- Pasta Industry."
41
<PAGE> 44
AIPC's direct competitors include large multi-national companies such as
Hershey and Borden and other competitors such as Dakota Growers, Philadelphia
Macaroni and Zerega's. The Company also competes against foreign companies such
as Italian pasta producers De Cecco and Barilla and competes, indirectly,
against food processors such as Kraft Foods, General Mills, Inc., American Home
Food Products Corporation, Campbell Soup Company and Stouffers Corp., that
produce pasta internally as an ingredient for use in their food products. See
"-- Industry."
TRADEMARKS AND PATENTS
The Company holds a number of federally registered and common law
trademarks which it considers to be of considerable value and importance to its
business including: AIPC American Italian Pasta Company, American Italian, and
Pasta LaBella. The Company has registered the AIPC American Italian Pasta
Company(R), Pasta LaBella(R), Montalcino(R) and other trademarks with the U.S.
Patent and Trademark Office. AIPC has filed a registration application with the
U.S. Patent and Trademark Office for the Calabria(TM) and Heartland(TM)
trademarks. A patent application is currently pending with respect to the
proprietary flavoring process for Pasta LaBella flavored pasta.
REGULATION
The Company is subject to various laws and regulations relating to the
operation of its production facilities, the production, packaging, labeling and
marketing of its products and pollution control, including air emissions, which
are administered by federal, state, and other governmental agencies. The
Company's production facilities are subject to inspection by the U.S. Food and
Drug Administration and Occupational Safety and Health Administration, the
Missouri Department of Natural Resources and the South Carolina Department of
Health and Environmental Control.
EMPLOYEES
As of June 30, 1997, the Company employed 287 full-time persons, of whom
134 were salaried employees and 153 were hourly employees. The Company's
employees are not represented by any labor unions. AIPC considers its employee
relations to be good.
LEGAL PROCEEDINGS
The Company currently is not a party to any material litigation nor is it
aware of any litigation threatened against it which, if commenced and adversely
determined, would likely have a material adverse effect upon the business or
financial condition of the Company.
42
<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
directors and executive officers of the Company as of the date of this
Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Horst W. Schroeder........................ 56 Chairman of the Board of Directors
Timothy S. Webster........................ 35 President and Chief Executive Officer;
Director
Norman F. Abreo........................... 47 Executive Vice President -- Operations
David E. Watson........................... 42 Executive Vice President and Chief
Financial Officer
David B. Potter........................... 38 Senior Vice President -- Procurement
Jonathan E. Baum.......................... 37 Director
David Y. Howe............................. 33 Director
Robert H. Niehaus......................... 42 Director
Amy S. Rosen.............................. 27 Director
James A. Schlindwein...................... 68 Director
Lawrence B. Sorrel........................ 38 Director
Richard C. Thompson....................... 46 Director
</TABLE>
Horst W. Schroeder has served as Chairman of the Board of Directors of the
Company since June 1991, and as a Director of the Company since August 1990.
Since 1990, Mr. Schroeder has been President of HWS & Associates, Inc., a Hilton
Head, South Carolina management consulting firm owned by Mr. Schroeder. Prior to
founding HWS & Associates, Mr. Schroeder served the Kellogg Company, a
manufacturer and marketer of ready-to-eat and other convenience food products,
in various capacities for more than 20 years, most recently as President and
Chief Operating Officer. He is a manager of PSF Holdings, L.L.C. and has served
as Chairman of the Board of its wholly-owned subsidiary, Premium Standard Farms,
Inc., a vertically-integrated pork producer, since 1996.
Timothy S. Webster has served as President of the Company since June 1991,
as President and Chief Executive Officer of the Company since May 1992, and as a
Director since June 1989. Mr. Webster joined the Company in April 1989, and
served as Chief Financial Officer from May 1989 to December 1990 and as Chief
Operating Officer from December 1990 to June 1991. In addition, in August 1997
Mr. Webster assumed responsibility for managing the Company's sales and
marketing functions. Prior to joining the Company, Mr. Webster was a manager
with the Entrepreneurial Services Group of Arthur Young and Company (a
predecessor firm to Ernst & Young LLP) from April 1987 to April 1989.
Norman F. Abreo joined the Company in December 1991, serving initially as
the Company's Vice President -- Manufacturing. He became Senior Vice President
- -- Operations in June 1995, and Executive Vice President -- Operations in June
1997. Prior to joining the Company, he was Plant Manager for the Coca-Cola
Enterprises, Inc. plant in New Orleans, Louisiana, from December 1987 to
December 1991; Director of Operations for Borden Pasta Group from December 1985
to December 1987; and Plant Manager of the Borden Pasta Group's New Orleans
facility from March 1979 to December 1985.
David E. Watson joined the Company in June 1994 as its Senior Vice
President and Chief Financial Officer. He was promoted to Executive Vice
President and Chief Financial Officer in June, 1997. Prior to joining AIPC, Mr.
Watson spent 18 years with the accounting firm of Arthur Andersen & Co., most
recently as partner-in-charge of its Kansas City and Omaha Business Consulting
Group practice. Mr. Watson is a certified public accountant.
David B. Potter joined the Company in 1993 as its Director of Procurement.
He was named Vice President in 1994 and Senior Vice President -- Procurement in
June 1997. Before joining the Company, Mr. Potter had worked in numerous areas
of Hallmark Cards and its subsidiary, Graphics International Trading Company,
from 1991 to 1993, most recently as Business Logistics Manager.
43
<PAGE> 46
Jonathan E. Baum has served as a Director of the Company since 1994. He has
been the Chairman and Chief Executive Officer of George K. Baum & Company, an
investment banking firm, since 1994. Previously, he had been a Vice President
with Salomon Brothers Inc.
David Y. Howe has served as a Director of the Company since 1995. He is a
Vice President of Citicorp Venture Capital, Ltd., a venture capital firm, where
he has been employed since 1993. From 1990 to 1993, he had been employed by
Butler Capital, a private investment company. He is also a director of Aetna
Industries, Inc., Brake-Pro, Inc., Cable Systems International, Inc.,
Copes-Vulcan, Inc., Pen-Tab Industries, Inc., Milk Specialties Company and
LifeStyle Furnishings, Ltd.
Robert H. Niehaus has served as a Director of the Company since 1992. He
has been a Managing Director of Morgan Stanley & Co. Incorporated since 1990. He
is also Managing Director and a Director of The Morgan Stanley Leveraged Equity
Fund II, Inc., the general partner of MSLEF, and Morgan Stanley Capital Partners
III, Inc., the general partner of the general partner of the MSCP Funds. He is
also a director of Fort James Corporation, Silgan Corporation, Silgan Holdings
Inc., Waterford Wedgewood UK, plc, of which he is the Chairman, and Waterford
Crystal Ltd.
Amy S. Rosen has served as a Director of the Company since April, 1997. She
is an Associate of Morgan Stanley & Co. Incorporated, where she has been
employed since 1994. Ms. Rosen also is an Associate of Morgan Stanley Capital
Partners III, Inc., the general partner of the general partner of the MSCP
Funds. Previously, she was employed by The Blackstone Group for two years.
James A. Schlindwein has served as a Director of the Company since 1995.
Prior to his retirement in September 1994, Mr. Schlindwein served as Executive
Vice President-Merchandising Services and Director of Sysco Corporation, a
national institutional foodservice distributor, where he had served since 1980.
He is also a director of Riser Foods, Inc.
Lawrence B. Sorrel has served as a Director of the Company since 1992. He
is a Managing Director of Morgan Stanley & Co. Incorporated where he has been
employed since 1986. He is also Managing Director and a Director of Morgan
Stanley Capital Partners III, Inc., the general partner of the general partner
of the MSCP Funds, and The Morgan Stanley Leveraged Equity Fund II, Inc., the
general partner of MSLEF. He is also a director of Emmis Broadcasting
Corporation, Vanguard Health Systems, Inc., LifeTrust America, Inc., and The
Compucare Company.
Richard C. Thompson has served as a Director of the Company since 1986. Mr.
Thompson is an experienced entrepreneur and, since 1993, has been President and
Chief Executive Officer of Thompson's Pet Pasta Products, Inc., a pet food
producer. He is the founder of the Company and served as its President from May
1986 to June 1991.
COMPOSITION OF BOARD OF DIRECTORS
Upon consummation of the Offering, it is anticipated that the Company's
Board of Directors will consist of nine directors, divided into three classes,
with the members of each class to serve for staggered three-year terms. The
initial term of the first class will expire at the annual meeting of
stockholders to be held in 1998, the initial term of the second class will
expire in 1999 and the initial term of the third class will expire in 2000.
Messrs. Schlindwein and Howe and Ms. Rosen will be included in the first class,
Messrs. Baum, Niehaus and Thompson will be included in the second class and
Messrs. Webster, Schroeder and Sorrel will be included in the third class.
Directors will hold office for a term of three years and will serve until their
successors are elected and qualified. Officers are elected annually by the Board
of Directors and serve until their successors are duly elected and qualified.
The Company intends to increase the size of the Board by adding two additional
independent directors in the future.
COMPENSATION OF DIRECTORS
Messrs. Schlindwein and Thompson currently are the only directors who
receive fees for serving as directors of the Company. Messrs. Schlindwein and
Thompson each receive a fee of $3,000 for attendance at each meeting of the
Board of Directors, with no additional amounts payable with respect to separate
44
<PAGE> 47
committee meetings. None of the other directors of the Company is paid
directors' fees for serving on the Board of Directors or its committees. All
directors are reimbursed for out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors and meetings of Board
committees.
COMMITTEES OF THE BOARD
Under the Company's By-laws, the Board of Directors may establish one or
more committees, appoint one or more members of the Board of Directors to serve
on each committee, fix the exact number of committee members, fill vacancies,
change the composition of the committee, impose or change the duties of the
committee and terminate the committee. The Board of Directors has established an
Audit Committee and a Compensation Committee. Each such committee has two or
more members who serve at the pleasure of the Board of Directors.
The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors with respect to the salaries, bonuses,
and other compensation paid to key employees and officers of the Company,
including the terms and conditions of their employment, and administers all
stock option and other benefit plans (except with respect to participation by
executive officers in stock option and other equity incentive plans of the
Company which will be made by the Board of Directors or a committee comprised
solely of outside directors, unless otherwise specified in the applicable plan
documents) affecting key employees' and officers' direct and indirect
remuneration. Currently, Messrs. Niehaus, Schroeder and Sorrel serve on the
Compensation Committee.
The Audit Committee is responsible for reviewing the Company's financial
statements, audit reports, internal financial controls and the services
performed by the Company's independent public accountants, and for making
recommendations with respect to those matters to the Board of Directors. Messrs.
Schlindwein and Baum serve on the Audit Committee.
45
<PAGE> 48
EXECUTIVE COMPENSATION
The following table summarizes compensation information with respect to the
President and Chief Executive Officer ("CEO") of the Company and each of the
Company's most highly-compensated executive officers for services rendered
during the fiscal year ended September 30, 1997 and the nine-month fiscal year
ended September 30, 1996 (collectively, with the CEO, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
FISCAL PERIOD COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
FISCAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD(1) SALARY($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION
--------------------------- --------- --------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Timothy S. Webster................. 1997 $282,596 (2) 84,622 $ 7,151(3)
President and 1996 185,615 $125,000 -- 4,967(3)
Chief Executive Officer
Horst W. Schroeder................. 1997 183,700 (2) 84,622 --
Chairman of the Board 1996 98,047 40,000 -- 330,000(4)
David E. Watson.................... 1997 159,931 (2) -- 5,244(5)
Executive Vice President and 1996 119,510 37,500 -- 4,484(5)
Chief Financial Officer
Norman F. Abreo.................... 1997 137,423 (2) -- 3,223(5)
Executive Vice 1996 99,856 37,500 -- 1,226(5)
President--Operations
David B. Potter.................... 1997 105,954 (2) 15,330 4,872(5)
Senior Vice 1996 78,000 29,000 -- 2,777(5)
President--Procurement
Daniel R. Keller................... 1997 165,923 -- 45,990 1,462(5)
Former Senior Vice President --
Sales and Marketing(6)
</TABLE>
- -------------------------
(1) For purposes of the foregoing table, the Company's 1996 fiscal year extended
from January 1, 1996 until September 30, 1996 and the Company's 1997 fiscal
year extended from October 1, 1996 to September 30, 1997.
(2) The Company has not yet determined the amount of bonuses payable for the
1997 fiscal year.
(3) Includes payments under the American Italian Pasta Company Retirement
Savings Plan and premiums in the amount of $518 paid by the Company on a
split-dollar life insurance policy.
(4) Represents a bonus which Mr. Schroeder is required to repay to the extent
that he provides less than 30 days of service during any calendar year
ending on or prior to December 31, 1998. Mr. Schroeder's service during the
1996 and 1997 fiscal years resulted in $82,000 and $110,000, respectively,
of such bonus being no longer subject to such contingent repayment
obligation.
(5) Represents payments under the American Italian Pasta Company Retirement
Savings Plan.
(6) Mr. Keller served in such capacity from October 1996 to August 1997, when
his employment with the Company terminated. All of his options were
cancelled in connection with such termination of employment.
46
<PAGE> 49
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during the fiscal year
ended September 30, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED 1997 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Timothy S. Webster............... 84,622 32.9% $ 7.02 4/15/07 $373,593 $946,757
Horst W. Schroeder............... 84,622 32.9 7.02 4/15/07 373,593 946,757
David E. Watson.................. -- -- -- -- -- --
Norman F. Abreo.................. -- -- -- -- -- --
David B. Potter.................. 15,330 6.0 12.23 1/07/07 117,909 298,804
Daniel R. Keller(2).............. 45,990 17.9 12.23 10/25/06 353,727 896,413
</TABLE>
- -------------------------
(1) The amounts shown as potential realizable values are based on assumed
annualized rates of appreciation in the price of the Common Stock of five
percent and ten percent over the term of the options, as set forth in the
rules of the Securities and Exchange Commission. Actual gains, if any, on
stock option exercises are dependent upon the future performance of the
Common Stock. There can be no assurance that the potential realizable values
reflected in this table will be achieved.
(2) All such options were cancelled in connection with Mr. Keller's termination
of employment in August 1997.
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers that were outstanding at
September 30, 1997:
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME UPON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy S. Webster...... -- -- 263,169 136,953 $2,826,565 $1,008,823
Horst W. Schroeder...... -- -- 263,169 136,953 2,826,565 1,008,823
David E. Watson......... -- -- 44,899 44,752 367,469 300,835
Norman F. Abreo......... -- -- 53,937 35,713 467,617 200,688
David B. Potter......... -- -- 9,811 20,849 81,810 78,583
Daniel R. Keller........ -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on the assumed initial public offering price of $16 per share.
EMPLOYMENT AGREEMENTS
Mr. Webster. Mr. Webster has entered into an employment agreement with the
Company effective upon the consummation of the Offering and terminating
September 30, 2002. Under the agreement, Mr. Webster is entitled to an annual
base salary of $330,000, subject to annual adjustment by the Board. Mr. Webster
is also eligible to receive annual bonuses at the discretion of the Board under
the Company's 1996 Salaried Bonus Plan (the "Bonus Plan"). Upon consummation of
the Offering, Mr. Webster is to be granted options to purchase shares of Class A
Common Stock equal to 3% of the shares of Common Stock outstanding immediately
prior to the Offering, on a fully diluted basis, at the initial public offering
price. If Mr. Webster's employment is terminated without cause, due to his
disability or if he resigns for good reason, he is to receive payments equal to
two times his then-current base salary and bonus. Mr. Webster has agreed not to
compete with the Company for two years after termination of employment, subject
to the receipt by Mr. Webster of certain severence payments, in some cases at
the election of the Company. All stock options awarded to Mr. Webster will vest
(i) immediately upon a termination of his employment without cause or his
resignation for good reason; (ii) if the employment agreement expires and the
Company does not offer Mr. Webster a new
47
<PAGE> 50
agreement on terms no less favorable than those in the current agreement; or
(iii) upon a change of control (as defined in the agreement). The Company has
agreed to nominate Mr. Webster for election to its Board of Directors in
accordance with the terms of the Shareholders Agreement.
Mr. Schroeder. Mr. Schroeder has entered into an employment agreement with
the Company effective upon the consummation of the Offering and terminating the
third anniversary of the Offering. Under the agreement, Mr. Schroeder will serve
as Chairman of the Board and is entitled to receive base compensation of $4,000
per day of service to the Company, subject to a minimum payment of $120,000 per
year. Pursuant to a prior agreement, the Company paid to Mr. Schroeder a signing
bonus of $330,000 on January 1, 1996. In the event Mr. Schroeder does not render
services to the Company through December 31, 1998 because he voluntarily
terminates, refuses to provide services under his current agreement, or is
terminated for cause, Mr. Schroeder is required to repay the portion of the
signing bonus which relates to the period of the original term for which he does
not render services. Mr. Schroeder is also eligible to participate in the
Company's Bonus Plan. If Mr. Schroeder terminates his agreement for good reason,
including a "change of control" as defined in the Shareholders Agreement, dated
October 30, 1992 by and among the Company and its shareholders, he is entitled
to receive payment of all unpaid amounts due for service rendered, as well as an
additional amount equal to the unpaid balance due for the remainder of the term
of the agreement and an additional payment equal to $2,000 multiplied by the
number of days of service remaining under the term, which in no event shall be
more than 30 days during any calendar year. In addition, upon termination of
employment for good reason, the unvested portion of Mr. Schroeder's options
under the Company's stock option plans will become immediately vested. Upon the
closing of the Offering, Mr. Schroeder will be granted options to purchase
shares of the Company's Class A Common Stock equal to at least 2% of the
Company's outstanding Common Stock, on a fully-diluted basis, at the initial
public offering price. Mr. Schroeder has agreed not to compete with the Company
for a period of two years after termination of his employment.
Messrs. Watson, Abreo and Potter. Messrs. Watson, Abreo and Potter have
entered into employment agreements with the Company effective upon the
consummation of the Offering and terminating on the third anniversary of the
Offering. Such agreements are renewable automatically for successive one-year
terms, unless the Company gives the employee at least six months' prior written
notice of non-renewal. The agreements entitle Messrs. Watson, Abreo and Potter
to annual base salaries of $180,000, $160,000 and $125,000, respectively
(subject to annual merit increase reviews by the Board of Directors), and annual
bonuses at the discretion of the Board of Directors in accordance with the terms
of the Bonus Plan. Upon the consummation of the Offering, Messrs. Watson, Abreo
and Potter will each receive options to purchase 61,320, 61,320 and 33,726
shares, respectively, of Class A Common Stock at the initial public offering
price. In the event of termination of employment without cause or resignation
for good reason, or in the event their employment is terminated by the Company
without cause within six months after a change in control, Messrs. Watson, Abreo
and Potter are each entitled to the greater of (i) one-year's annual base salary
and bonus or (ii) annual base salary and bonus for the remainder of the initial
employment term under their respective employment agreements. The employment
agreements also contain one-year covenants not to compete after any termination
of employment. All stock options awarded to each of Messrs. Watson, Abreo and
Potter will vest immediately upon (i) resignation for good reason or (ii) a
change in control of the Company.
SEVERANCE AGREEMENT
In connection with Mr. Daniel Keller's resignation as the Company's Senior
Vice President -- Sales and Marketing effective August 29, 1997, the Company and
Mr. Keller entered into a severance agreement pursuant to which the Company is
to pay Mr. Keller an amount equal to $90,000 and to forgive Mr. Keller's
remaining relocation loan balance in the amount of $30,330. In addition, the
Company agreed to waive its repurchase option regarding the 3,563 shares of
Class A Common Stock owned by Mr. Keller in exchange for his repayment of the
remaining balance due under the promissory note relating to his purchase of the
shares.
48
<PAGE> 51
1996 SALARIED BONUS PLAN
The Company maintains the Bonus Plan for certain salaried employees of the
Company, including the Named Executive Officers. The Bonus Plan permits these
employees to earn cash performance bonus awards of up to a percentage of their
respective salaries as determined by the Board of Directors, or by management on
the Board's behalf. The amount of any bonus is based upon the Company's
performance and the individual performance of such participant. See
"Management--Executive Compensation."
STOCK OPTION PLANS
1992 NON-STATUTORY STOCK OPTION PLAN
On October 29, 1992, the Company's Board of Directors and stockholders
adopted the American Italian Pasta Company Non-Statutory Stock Option Plan (the
"1992 Plan"). The purpose of the 1992 Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in stock ownership by
officers and other key employees of the Company.
The 1992 Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the power and sole discretion to
determine the persons to whom options are granted and the number of shares
covered by those options, subject in each case to the limitations set forth in
the 1992 Plan. Options may be granted under the 1992 Plan only to officers and
key employees of the Company. The period during which an option may be exercised
(not to exceed 13 years), and the time at which it becomes exercisable, is fixed
by the Compensation Committee at the time the option is granted. Options granted
under the 1992 Plan are not transferable by the holder other than by will or the
laws of descent and distribution.
The number of shares which may be issued and sold pursuant to options
granted under the 1992 Plan may not exceed 1,201,880 shares (subject to
adjustment for stock dividends, stock splits, combinations or reclassifications
of shares, or similar transactions). No consideration is paid to the Company by
any optionee in exchange for the grant of an option. The per share exercise
price for an option granted under the 1992 Plan is determined by the
Compensation Committee.
Certain provisions of the 1992 Plan may have the effect of discouraging or
delaying possible takeover bids. In the event of a "Change of Control," all of
the outstanding options automatically become immediately exercisable in full. A
"Change of Control" is generally defined to take place when disclosure of such a
change would be required by the proxy rules promulgated by the Securities and
Exchange Commission or when (i) certain persons acquire beneficial ownership of
25% or more of the combined voting power of the Company's voting securities,
(ii) less than a majority of the directors are persons who were either nominated
or selected by the Board of Directors, (iii) a merger involving the Company in
which the Company's stockholders own less than 80% of the voting stock of the
surviving corporation; or (iv) a liquidation of the Company or sale of
substantially all the assets of the Company occurs. In the event that the
Company is not the surviving corporation of any merger, consolidation,
reorganization or acquisition by another corporation, outstanding options under
the 1992 Plan may be assumed, or replaced with new options of comparable value,
by the surviving corporation. If the surviving corporation does not assume or
replace outstanding options, or in the event the Company is liquidated or
dissolved, then subject to certain limitations, each holder of outstanding
options may exercise all or part of such options (even if the options would not
otherwise have been exercisable in full) during the period beginning 30 days
before the event triggering the acceleration, and ending on the day before such
event.
Generally, the exercise price of an option is at least equal to the fair
market value of the Common Stock on the date of grant. As of the date of this
Prospectus, options to purchase 1,132,049 shares of Common Stock at exercise
prices ranging from $2.33 to $12.23 per share (with a weighted average exercise
price of $6.68 per share) were issued and outstanding under the 1992 Plan. The
outstanding options under the 1992 Plan expire at dates ranging from October
2002 to April 2007. None of the executive officers of the Company have exercised
any options prior to the date of this Prospectus.
49
<PAGE> 52
1993 NON-QUALIFIED STOCK OPTION PLAN
The American Italian Pasta Company 1993 Non-Qualified Stock Option Plan
(the "1993 Plan") was adopted by the Board of Directors and approved by the
stockholders of the Company effective December 8, 1993. The 1993 Plan was
adopted to compensate and provide incentives for mid-level managers of the
Company.
The 1993 Plan is also administered by the Compensation Committee. The
Compensation Committee has full and final authority in its discretion, subject
to the provisions of the 1993 Plan and applicable law, to determine the
individuals to whom and the time or times at which options shall be granted and
the number of shares of Common Stock covered by each option. Options may be
granted under the 1993 Plan to mid-level management. The period during which an
option may be exercised (not to exceed ten years), and the time at which it
becomes exercisable is fixed by the Compensation Committee at the time the
option is granted. Options granted under the 1993 Plan are not transferrable by
the holder other than by will or the laws of dissent and distribution.
The number of shares which may be issued and sold pursuant to options
granted under the 1993 Plan may not exceed 82,783 shares (subject to adjustment
for stock dividends, stock splits, combinations or reclassifications of shares
or similar transactions). No consideration is paid to the Company by any
optionee in exchange for the grant of an option. The per share exercise price
for an option granted under the 1993 Plan is determined by the Compensation
Committee.
In the event of any merger, recapitalization, consolidation, split-up,
spin-off, repurchase, distribution or similar transaction effecting the Common
Stock, the Compensation Committee may take such action as in its sole discretion
that deems appropriate. The Compensation Committee may authorize the issuance or
assumption of options or similar rights in connection with any such transaction
whether or not the Company is a surviving or continuing corporation, and upon
such terms and conditions as it may deem appropriate.
The exercise price of an option is generally at least equal to the fair
market value of the Common Stock on the date of grant. As of the date of this
Prospectus, options to purchase 46,665 shares of Common Stock at exercise prices
ranging from $4.92 to $12.23 per share (with a weighted average exercise price
of $10.28 per share) were issued and outstanding under the 1993 Plan. The
outstanding options under the 1993 Plan expire at dates ranging from December
2003 to December 2006.
1997 EQUITY INCENTIVE PLAN
The Company has adopted the American Italian Pasta Company 1997 Equity
Incentive Plan (the "Equity Incentive Plan" or "1997 Plan"). Under the 1997
Plan, the Board or a committee designated by the Board (the Board or committee,
as the case may be, the "Committee") is authorized to grant nonqualified stock
options, incentive stock options, reload options, stock appreciation rights
("SARs"), shares of restricted Common Stock ("restricted shares"), performance
shares, performance units and shares of Common Stock awarded as a bonus ("bonus
shares") (all of the foregoing collectively, "Awards"). There are 2,000,000
shares of Common Stock reserved for issuance under the Equity Incentive Plan.
Eligibility and Conditions of Grants. All employees (including officers),
directors and consultants of the Company or any subsidiary are eligible to
receive Awards at the discretion of the Committee. The Committee is authorized,
subject to certain limits specified in the Equity Incentive Plan, to determine
to whom and on what terms and conditions Awards shall be made including, but not
limited to, the vesting and term of options.
Stock Options. The option exercise price must be determined by the
Committee at the time of grant and set forth in the award agreement, but such
exercise price must be at least 100% of the fair market value of a share of
Common Stock on the date of grant. (In the case of options to be granted in
connection with the Offering, such fair market value will equal the price at
which the Class A Common Stock is offered to the public.) The option exercise
price may be paid by any one or more of the following in the discretion of the
Committee: (i) cash, (ii) check, (iii) wire transfer, (iv) shares of Common
Stock that have been held for at least 6 months or that were purchased on the
open market, or (v) a "cashless" exercise pursuant to a sale through a broker of
all or a portion of the shares. The Committee also has discretion to have the
Company
50
<PAGE> 53
make or guarantee loans to the grantees for the exercise price. The Committee
will determine the term and vesting schedule for options at the time of grant.
Options can be granted as either nonstatutory options (pursuant to which
grantees would receive taxable income, and the Company would receive a
compensation expense deduction, when options are exercised) or as incentive
stock options (ISOs) (which, subject to certain conditions, would offer more
favorable tax consequences to grantees, but not the Company).
Stock Appreciation Rights. Upon exercise of a stock appreciation right, the
grantee shall receive a payment equal to the appreciation in value of the Common
Stock between the grant date and the exercise date. The benefit will be payable
in cash or Common Stock.
Restricted Shares. Restricted shares will be forfeited unless the
conditions set by the Committee at the time of grant are satisfied or are
waived. The Committee will determine whether or not a grantee shall be required
to pay for such restricted shares and, if so, what such price shall be.
Performance Shares/Performance Units. To the extent that the performance
goals specified by the Committee in a grant of performance shares or performance
units have been achieved, then a benefit shall be paid after the end of the
performance-measuring period specified by the Committee. The amount of the
benefit of performance shares is based on the percentage attainment of the
performance goals multiplied by the value of a share of Common Stock at the end
of the performance period. The value of performance units is based on the
achievement of performance goals multiplied by the unit value stabilized by the
Committee at the time of grant. No benefit is payable on either performance
shares or performance units if the minimum performance goals have not been met.
The benefit will be payable in cash or Common Stock.
Bonus Shares. Bonus shares can be granted without cost and without
restriction in amounts and subject to such terms and conditions as the Committee
may in its discretion determine.
Other. Options and stock appreciation rights may have a maximum term of 10
years. The effect of a change of control, the termination of a grantee's
employment or the death or permanent disability of a grantee will be determined
by the Committee at the time of grant and be set forth in the award agreement.
Both Awards and Shares acquired pursuant to the exercise or vesting of Awards
are subject to transfer restrictions as set forth in the 1997 Plan. The Plan may
be amended by the Board without: (i) stockholder approval except in the event of
an increase in the number of shares available for Awards; (ii) the consent of
the Award holder unless such amendment would adversely affect such holder; or
(iii) as otherwise may be required under stock exchange listing requirements or
any other regulatory or legal requirement. The Equity Incentive Plan will
terminate when shares available for grant under the plan have been exhausted,
except in no event will incentive stock options be granted on or after the 10th
anniversary of the earlier of (i) the date the Equity Incentive Plan was
adopted; and (ii) the date the Equity Incentive Plan was approved by the
Stockholders of the Company. Shares acquired pursuant to the 1997 Plan by
persons who are parties to the Stockholders Agreement will be subject to certain
restrictions under the Stockholders Agreement. In addition, the Compensation
Committee may, in its discretion, condition the grant of any Award under the
1997 Plan on the consent of the recipient of such Award to become bound by the
Stockholders Agreement.
401(K) PROFIT SHARING PLAN
The Company adopted the American Italian Pasta Company Retirement Savings
Plan (the "401(k) Plan") effective January 1, 1992. In general, employees of the
Company who have completed one year of service (as defined in the 401(k) Plan)
are eligible to participate in the 401(k) Plan. Participants may make
contributions to the 401(k) Plan by voluntarily reducing their salary from the
Company up to a maximum of 12% of total compensation or $9,500 (or such higher
amount as is prescribed by the Secretary of the Treasury for cost of living
adjustments), whichever is less, and the Company matches such contributions to
the extent of 50% of the first 6% of a participant's salary reduction. The
Company's matching contributions vest 25% per year and are 100% vested after 4
years of service. In addition to matching contributions, the Company may
contribute additional amounts determined by it in its sole discretion which are
allocated to a participant's account in the proportion that such participant's
compensation bears to the total compensation of all participants for the plan
year. These additional contributions vest in the same manner as the matching
51
<PAGE> 54
contributions. Subject to certain conditions and limitations, participants of
the 401(k) Plan may elect to invest up to 50% of their matching contribution
accounts into shares of Common Stock of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All compensation decisions during the fiscal period ended September 30,
1996 for each of the Named Executive Officers were made by the Compensation
Committee of the Board of Directors. Mr. Schroeder, Chairman of the Board, is a
member of the Compensation Committee. See "Certain Relationships and Related
Transactions."
Following the consummation of the Offering, decisions with respect to the
base salary and cash bonuses paid to executive officers will be made by the
Compensation Committee and decisions with respect to the participation of
executive officers in stock option and other equity incentive plans of the
Company will be made by the Board of Directors or a committee comprised solely
of outside directors.
52
<PAGE> 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
Effective upon the consummation of the Offering, the Company, the Morgan
Stanley Stockholders, Citicorp Venture Capital, Ltd. and CCT Partners III, L.P.
(collectively "Citicorp"), affiliated entities of George K. Baum & Company
("GKB"), and Messrs. Schroeder, Schlindwein, Thompson, Webster, Watson, Abreo
and Potter and certain other existing stockholders of the Company (collectively,
the "Existing Stockholders") have amended their existing Stockholders Agreement,
which sets forth certain rights and obligations of such Existing Stockholders.
The amended Stockholders Agreement provides that until December 31, 1998
Existing Stockholders (other than the Morgan Stanley Stockholders and certain
management stockholders) may not sell or pledge any shares of Common Stock
except through the exercise of their "piggyback" registration rights, to certain
permitted transferees, or concurrently with certain private sales of Common
Stock by the Morgan Stanley Stockholders. After December 31, 1998, the Existing
Stockholders (other than the Morgan Stanley Stockholders and certain employee
shareholders) will also be entitled to sell their shares in market transactions
and through the exercise of their "demand" registration rights and Citicorp and
Mr. Thompson will also be permitted to sell shares of Common Stock in private
transactions, subject to the Company's right of first refusal. The amended
Stockholders Agreement will not limit sales by the Morgan Stanley Stockholders.
The amended Stockholders Agreement grants the Existing Stockholders certain
demand registration rights. In addition, the Existing Stockholders are entitled,
subject to certain limitations, to register shares of Common Stock in connection
with certain registration statements filed by the Company for its own account or
the account of its stockholders. The amended Stockholders Agreement will contain
customary terms and provisions with respect to, among other things, registration
procedures and certain rights to indemnification granted by the parties
thereunder in connection with any such registration.
Pursuant to the Stockholders Agreement (as amended and restated effective
upon the consummation of the Offering), MSLEF II has the right to designate two
director nominees so long as its owns at least 25% of the outstanding Common
Stock or one director nominee so long as it owns at least 5% but less than 25%
of the outstanding Common Stock. In addition, MSCP has the right to designate
two director nominees so long as it owns at least 35% of the outstanding Common
Stock or one director nominee so long as it owns at least 5% but less than 35%
of the outstanding Common Stock. Whenever MSLEF II and MSCP individually own
less than 5% of the outstanding Common Stock, they will jointly be entitled to
designate one director nominee so long as the Morgan Stanley Stockholders
beneficially own, in the aggregate, at least 5% of the outstanding Common Stock.
The number of directors designated by the Morgan Stanley Stockholders will
increase proportionately if the size of the Board of Directors is increased in
the future. In addition, the Stockholders Agreement will provide that the
Chairman of the Board and the President and Chief Executive Officer shall also
be designated as director nominees. The Existing Stockholders will agree to vote
all of their shares of Class A Common Stock in favor of the director nominees
designated pursuant to the Stockholders Agreement. At least two members of the
Board of Directors will be independent directors. So long as the Morgan Stanley
Stockholders own 10% of the outstanding shares of Common Stock, the Morgan
Stanley Stockholders may designate one member of each Board committee.
The amended Stockholders Agreement provides that so long as the Morgan
Stanley Stockholders own at least 25% of the outstanding shares of Common Stock,
neither the Company nor its subsidiaries (if any) will take any of the following
significant actions without the approval of the Board of Directors and the
Morgan Stanley Stockholders: (i) the appointment or removal of the Chairman of
the Board; (ii) any merger, consolidation or other similar business combination
(except for certain subsidiary-level mergers involving acquisitions valued below
$30 million); (iii) any disposition of a majority of the Company's tangible
assets; (iv) subject to certain exceptions, any change in the authorized capital
or recapitalization, or the creation of any new classes of capital stock, or the
sale, distribution, exchange, redemption of capital stock or capital stock
equivalents; (v) any amendment to the charter or by-laws or any change in
jurisdiction of incorporation; (vi) the approval of any dissolution or plan of
liquidation; (vii) any general assignment for the benefit of creditors or the
institution of any bankruptcy or insolvency proceeding; (viii) the declaration
of any dividend or any redemption or repurchase of any such capital stock
(except dividends paid-in-kind and repurchases
53
<PAGE> 56
made pursuant to employee benefit plans or employment agreements); (ix) in
certain circumstances, the creation, issuance, assumption, guarantee or
incurrence of indebtedness that increases the aggregate amount of indebtedness
existing on the date of the amended Stockholders Agreement by at least $30
million; (x) the termination of Ernst & Young LLP or the selection of another
auditor; (xi) any strategic acquisition of, or investment in the assets or a
business of, a third party with a fair market value of $30 million or more;
(xii) acquisition or construction of new pasta production facilities with a cost
in excess of $30 million; (xiii) any adoption of a shareholder rights plan; or
(xiv) any commitment to do any of the foregoing actions. In addition, as long as
the Morgan Stanley Stockholders own at least 25% of the outstanding Common
Stock, at least one of the directors designated by the Morgan Stanley
Stockholders must approve the appointment of the Chief Executive Officer or the
Chief Financial Officer.
The amended Stockholders Agreement provides that certain transfers of
shares by the Existing Stockholders (other than the Morgan Stanley Stockholders)
are subject to the approval of the Board of Directors and, for so long as the
Morgan Stanley Stockholders own at least 10% of the shares of Common Stock, the
Morgan Stanley Stockholders.
After giving effect to the Offering, the Morgan Stanley Stockholders will
own approximately 39.6% of the Common Stock of the Company. The Company's
Charter provides that, if at any time after consumation of the Offering, the
Morgan Stanley Stockholders own in excess of 49% of the outstanding Class A
Common Stock, such excess shares will be automatically converted into an equal
number of shares of Class B Common Stock.
1997 PRIVATE EQUITY FINANCING
In April 1997, the Company sold an aggregate of 3,174,528 shares of Old
Class A Common Stock (as defined in "Description of Capital Stock -- General")
to current stockholders of the Company for an aggregate purchase price of
$22,291,947, or $7.02 per share, determined by an independent valuation firm to
be fair value for the shares. The MSCP Funds purchased a total of 2,563,323
shares for $18,000,000. Affiliated entities of GKB, including Excelsior
Investors, LLC ("Excelsior") in which Mr. Thompson has a minority interest,
purchased 427,219 shares for $2,999,861. These shares include 330,952 shares
purchased by Excelsior. Mr. Schroeder, a Director of the Company, purchased
49,056 shares for $344,480. Mr. Schlindwein, also a Director of the Company, and
his wife purchased 28,483 shares for $200,000, individually and indirectly
through JSS Management Company, Ltd., of which each of Mr. and Mrs. Schlindwein
are general partners. In addition, a group of executive officers of the Company
contributed an aggregate of $729,996 to the Company for 103,957 shares,
including $142,159 by Mr. Webster, $298,535 by Mr. Watson, $36,472 by Mr. Abreo
and $91,472 by Mr. Potter. In connection with these sales and purchases, the
Company loaned an aggregate of $297,513 to these executive officers to finance
their stock purchases, including $112,159 to Mr. Webster, $48,535 to Mr. Watson,
$36,472 to Mr. Abreo and $21,472 to Mr. Potter. Each of these loans are
evidenced by a promissory note made payable to the Company and secured by shares
of Old Class A Common Stock. Such loans are to be repaid over a period of three
years commencing upon termination of the transfer restrictions applicable to
such shares under the Stockholders Agreement. Such loans bear interest at the
then applicable federal rate.
FINANCIAL ADVISORY SERVICES
Messrs. Niehaus and Sorrel and Ms. Rosen, all Directors of the Company, are
employed by Morgan Stanley & Co. Incorporated. In 1997, Morgan Stanley Senior
Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated, one of the
U.S. Underwriters, served as the documentation agent under the agreements
relating to the Company's Credit Facility, and acted as an arranger for the
Credit Facility for which it received a fee in the amount of $311,875.
Since 1994, the Company has paid fees to George K. Baum & Company's
Investment Banking Division for investment banking and financial advisory
services and has paid George K. Baum & Company Professional Investment Advisors
Division fees for investment advice provided with respect to the 401(k) Plan.
54
<PAGE> 57
Jonathan E. Baum, a Director of the Company, owns all voting shares of George K.
Baum Holdings, Inc., which owns 100% of George K. Baum & Company, one of the
U.S. and International Underwriters.
MANAGEMENT INDEBTEDNESS
In April 1995 and April 1997, the Company loaned funds to Messrs. Webster,
Watson, Abreo and Potter to purchase shares of Old Common Stock and Old Class A
Common Stock at prices ranging between $4.92 and $7.02 per share, respectively.
Each loan was evidenced by a promissory note bearing interest at the then
applicable federal rate and payable in equal installments over three years
commencing upon termination of the transfer restrictions applicable to such
shares under the Stockholders Agreement. The table below sets forth the
aggregate number of shares purchased with funds loaned by the Company, the
original aggregate loan amounts, and the aggregate loan balances as of June 30,
1997.
<TABLE>
<CAPTION>
NUMBER OF ORIGINAL LOAN LOAN BALANCE AT
EXECUTIVE OFFICER SHARES BALANCE JUNE 30, 1997
- ----------------- --------- ------------- ---------------
<S> <C> <C> <C>
Timothy S. Webster...................................... 21,339 $138,559 $120,959
David E. Watson......................................... 14,269 84,735 60,602
Norman F. Abreo......................................... 7,217 46,422 39,789
David B. Potter......................................... 5,083 31,422 24,789
</TABLE>
CONSULTING AGREEMENT WITH HWS & ASSOCIATES, INC.
Pursuant to a consulting agreement between the Company and HWS &
Associates, Inc. ("HWS"), a management consulting firm of which Mr. Schroeder,
Chairman of the Board of Directors, is the sole owner, the Company paid to HWS
$301,197 during fiscal 1994, and $133,359 during fiscal 1995, respectively for
management consulting services performed and travel expenses incurred on behalf
of the Company. The consulting arrangement terminated January 1, 1996 upon Mr.
Schroeder's execution of his employment agreement with the Company.
The Company's policy is that all transactions between the Company and its
executive officers, directors and principal stockholders be on terms no less
favorable than could be obtained from unaffiliated third parties or are subject
to the approval of the Company's disinterested directors.
PRODUCT SALES
The Company sells milling by-products to Thompson's Pet Pasta Products,
Inc., of which Richard C. Thompson, a director of the Company, is the President
and Chief Executive Officer. Such sales were $357,000 and $529,000 for the
nine-month fiscal period ended September 30, 1996 and the nine-month period
ended June 30, 1997, respectively. Such sales were on substantially the same
terms as the Company sells such products to unaffiliated third parties.
55
<PAGE> 58
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus,
before and after giving effect to the sale of the shares of Class A Common Stock
offered hereby, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) the
Selling Stockholders, (iii) each director of the Company, (iv) each of the Named
Executive Officers and (v) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES BENEFICIALLY OWNED
OFFERING AFTER THE OFFERING
---------------------- ------------------------------------------------------------------
CLASS A CLASS B TOTAL
CLASS A CLASS A COMMON STOCK(1)(2) COMMON STOCK(1) COMMON STOCK(1)(5)
COMMON STOCK(1) SHARES
NAME OF BENEFICIAL ---------------------- BEING ---------------------- ---------------- ----------------------
OWNER NUMBER PERCENT(3) OFFERED(2) NUMBER PERCENT(4) NUMBER PERCENT NUMBER PERCENT(5)
- -------------------- --------- ---------- ---------- --------- ---------- ------ ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Morgan Stanley
Leveraged Equity
Fund II, L.P.(6)... 6,038,027 52.7% 1,375,893 4,662,134 27.8% -- -- 4,662,134 27.8%
1221 Avenue of the
Americas
New York, NY 10020
Morgan Stanley
Capital Partners
III, L.P.(6)....... 2,563,322 22.4 584,107 1,979,215 14.6 -- -- 1,979,215 11.8%
1221 Avenue of the
Americas
New York, NY 10020
Citicorp Venture
Capital, Ltd.(7)... 1,047,298 9.1 -- 1,047,298 6.2 -- -- 1,047,297 6.2
399 Park Avenue
New York, NY 10043
Richard C.
Thompson(8)........ 959,849 8.4 630,000 329,849 2.0 -- -- 329,849 2.2
16 Kansas Avenue
Kansas City, KS
66105
Horst W.
Schroeder(9)(10)... 422,461 3.6 -- 422,461 2.5 -- -- 422,461 2.5
Jonathan E.
Baum(11)........... 427,219 3.7 -- 427,219 2.5 -- -- 427,219 2.5
David Y. Howe....... -- -- -- -- -- -- -- -- --
Robert H. Niehaus... -- -- -- -- -- -- -- -- --
Amy S. Rosen........ -- -- -- -- -- -- -- -- --
James A.
Schlindwein(12).... 41,686 * -- 41,686 * -- -- 41,686 *
Lawrence B.
Sorrel............. -- -- -- -- -- -- -- -- --
Timothy S.
Webster(10)(13).... 326,127 2.8 -- 326,127 1.9 -- -- 326,127 1.9
David E.
Watson(10)......... 94,771 * -- 94,771 * -- -- 94,771 *
Norman F.
Abreo(10).......... 70,193 * -- 70,193 * -- -- 70,193 *
David B.
Potter(10)......... 24,859 * -- 24,859 * -- -- 24,859 *
All directors and
executive officers
as a group (12
persons)(10)....... 2,367,165 20.6 630,000 1,737,165 10.4 -- -- 1,737,165 10.4
</TABLE>
- -------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options and warrants held by that person that are currently
exercisable or will become exercisable within 60 days of the date of this
Prospectus are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as otherwise indicated in a footnote to this table or
as to be provided in the Stockholders Agreement (see "Certain Relationships
and Related Transactions -- Stockholders Agreement"), the persons in this
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Assuming no exercise of
the U.S. Underwriters over-allotment option, an aggregate of 8,876,056
shares (52.9% of the shares to be outstanding after the Offering) will be
subject to the Stockholders Agreement.
(2) The Company and certain stockholders have granted an option to the U.S.
Underwriters to purchase up to an aggregate of 1,185,000 shares of Class A
Common Stock to cover over-allotments, if any. Such
56
<PAGE> 59
shares will not be sold unless the U.S. Underwriters exercise the over-allotment
option, and the above table assumes that such over-allotment option will not be
exercised.
(3) Based upon 11,466,056 shares of Class A Common Stock outstanding, plus
shares of Class A Common Stock issuable upon exercise of options, warrants
and convertible securities which are included in the number of shares
beneficially owned by such person.
(4) Based upon 16,776,056 shares of Class A Common Stock to be outstanding upon
the consummation of the Offering, plus shares of Class A Common Stock
issuable upon exercise of options, warrants and convertible securities
which are included in the number of shares beneficially owned by such
person.
(5) Based upon 16,776,056 shares of Common Stock to be outstanding upon the
consummation of the Offering, plus shares of Common Stock issuable upon
exercise of options, warrants and convertible securities which are included
in the number of shares beneficially owned by such person.
(6) The general partner of MSLEF and the general partner of the general partner
of the MSCP Funds are wholly owned subsidiaries of MSDWD, the parent of
Morgan Stanley & Co. Incorporated.
(7) The shares beneficially owned by Citicorp Venture Capital, Ltd. include
157,103 shares held by an affiliate of Citicorp.
(8) All of such shares are held by Thompson Holdings, L.P., a limited
partnership of which Mr. Thompson is the only limited partner. Mr. Thompson
is also the president of the corporation which is the general partner of
the limited partnership.
(9) The shares beneficially owned by Mr. Schroeder include 49,056 shares held
by The Living Trust of Horst W. Schroeder and 11,406 shares held by The
Living Trust of Gisela I. Schroeder for the benefit of Mr. and Ms.
Schroeder, respectively, and members of their family, as well as 3,066
shares held by each of Bernd Schroeder and Isabel Lange, children of Mr.
and Ms. Schroeder. Mr. Schroeder has voting power, but not investment
power, with respect to all of these shares.
(10) Includes options that are currently exercisable or will become exercisable
within 60 days of the date of this Prospectus to purchase shares of Class A
Common Stock as follows: Mr. Schroeder (290,358 shares), Mr. Webster
(290,358 shares), Mr. Watson (44,899 shares), Mr. Abreo (62,976 shares),
Mr. Potter (9,811 shares), and all executive officers and directors as a
group (698,402 shares).
(11) Includes 90,748 shares held by George K. Baum Capital Partners, L.P., 5,519
shares held by George K. Baum Employee Equity Fund, L.P. and 330,952 shares
held by Excelsior Investors, LLC, the managing member of which is George K.
Baum Merchant Banc, LLC. As an officer and/or equity owner of the entities
holding such shares, Mr. Baum has voting power with respect to such shares.
Except to the extent of his equity interest in the entities holding such
shares, Mr. Baum disclaims beneficial ownership of such shares.
(12) Includes 27,441 shares held by JSS Management Company, Ltd. of which Mr.
Schlindwein is an officer and equity owner and has voting power with
respect to such shares.
(13) Includes 14,435 shares beneficially owned by Mr. Webster which are held in
various trusts for the benefit of Mr. Webster's family members, as well as
certain members of Mr. Webster's extended family. Mr. Webster has voting
power, but not investment power, with respect to all of such shares.
57
<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
Prior to the Recapitalization, the Company's authorized capital stock
consisted of 1,600,000 shares of Class A common stock, par value $.01 per share
(the "Old Class A Common Stock"), and 2,100,000 shares of common stock, without
par value (the "Old Common Stock"). The Old Class A Common Stock had a
liquidation preference over the Old Common Stock equal to the greater of the per
share purchase price of the Old Class A Common Stock or the amount holders of
Old Common Stock are entitled to upon the liquidation.
After giving effect to the Company's amendment and restatement of the
Charter prior to this Offering, the authorized capital stock of the Company
consists of 75,000,000 shares of Class A Common Stock, 25,000,000 shares of
Class B Common Stock, and 10,000,000 shares of preferred stock, par value $.001
per share, issuable in series (the "Preferred Stock"). In connection with such
amendment and restatement of the Charter, the Company effected the
Recapitalization pursuant to which each outstanding share of Old Common Stock
and Old Class A Common Stock outstanding immediately prior to the
Recapitalization has been converted into 6.132043 shares of Class A Common
Stock. From time to time, shares of Class A Common Stock held by the Morgan
Stanley Stockholders will automatically be converted pursuant to the amended
Charter into shares of Class B Common Stock on a one-for-one basis, pro rata in
proportion to the number of shares of Class A Common Stock held by all Morgan
Stanley Stockholders, to the extent necessary so that the Morgan Stanley
Stockholders do not in the aggregate own more than 49% of the then-outstanding
shares of Class A Common Stock. See "-- Common Stock -- Class A Common Stock."
This limitation on the ownership of Class A Common Stock is intended to enhance
the flexibility of the Company in entering into possible future business
combinations on terms favorable to the Company and its stockholders.
The following discussion is a summary of the more detailed provisions of
the Charter and By-Laws of the Company, forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part, and
of the applicable provisions of the DGCL. The term "Morgan Stanley Stockholders"
as referenced herein under the caption "Description of Capital Stock" shall have
the meaning given to it in the Company's Charter.
COMMON STOCK
After giving effect to the Offering, the Morgan Stanley Stockholders will
own, in the aggregate, 39.6% of the outstanding Class A Common Stock of the
Company and the Company will have 16,776,056 shares of Class A Common Stock
outstanding, assuming no outstanding options are exercised.
Class A Common Stock. Holders of Class A Common Stock are entitled to one
vote for each share of Class A Common Stock on each matter submitted to a vote
of stockholders, including the election of directors. See "Certain Relationships
and Related Transactions -- Stockholders Agreement." Holders of Class A Common
Stock are not entitled to cumulative voting. Shares of Class A Common Stock have
no preemptive or other subscription rights. Shares of Class A Common Stock are
convertible only by the Morgan Stanley Stockholders into an equal number of
shares of Class B Common Stock; they are not convertible by any other holders.
After the consummation of the Offering, shares of Class A Common Stock held by
the Morgan Stanley Stockholders will, to the extent necessary so that the Morgan
Stanley Stockholders do not own more than 49% of the outstanding shares of Class
A Common Stock, be converted automatically into shares of Class B Common Stock
on a one-for-one basis, pro rata in proportion to the number of shares of Class
A Common Stock held by all Morgan Stanley Stockholders. In addition, shares of
Class A Common Stock held by the Morgan Stanley Stockholders are convertible
into an equal number of shares of Class B Common Stock, at the option of the
holder.
58
<PAGE> 61
Class B Common Stock. Under the Charter, as amended, Class B Common Stock
may be held only by Morgan Stanley Stockholders. Holders of Class B Common Stock
have no right to vote on matters submitted to a vote of stockholders, except (i)
as otherwise required by law and (ii) that the holders of Class B Common Stock
shall have the right to vote as a class on any amendment, repeal or modification
to the Charter that adversely affects the powers, preferences or special rights
of the holders of the Class B Common Stock. Shares of Class B Common Stock have
no preemptive or other subscription rights and are convertible into an equal
number of shares of Class A Common Stock (x) at the option of the holder thereof
(but, after the consummation of the Offering, only to the extent that, following
such conversion, the Morgan Stanley Stockholders will not, in the aggregate, own
more than 49% of the outstanding shares of Class A Common Stock) and (y)
automatically upon the transfer of such shares by any Morgan Stanley Stockholder
to a person that is not a Morgan Stanley Stockholder.
Dividends. All holders of Common Stock are entitled to receive such
dividends or other distributions, if any, as may be declared from time to time
by the Board of Directors in its discretion out of funds legally available
therefor, subject to the prior rights of any Preferred Stock then outstanding,
and to share equally, share for share, in such dividends or other distributions
as if all shares of Common Stock were a single class. Dividends or other
distributions declared or paid in shares of Common Stock, or options, warrants
or rights to acquire such stock or securities convertible into or exchangeable
for shares of such stock, are payable to all of the holders of Common Stock
ratably according to the number of shares held by them, in shares of Class A
Common Stock to holders of that class of stock and in shares of Class B Common
Stock to holders of that class of stock. Delaware law generally requires that
dividends be paid only out of the Company's surplus or current net profits in
accordance with the DGCL. See "Dividend Policy."
Liquidation. Subject to the rights of any holders of Preferred Stock
outstanding, upon the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share equally and ratably in the assets
available for distribution after payments are made to the Company's creditors.
Other. Holders of Common Stock have no preemptive, subscription or
redemption rights. The outstanding shares of Common Stock are, and the shares of
Class A Common Stock offered by the Company hereby will be, when issued and paid
for, fully paid and nonassessable.
PREFERRED STOCK
The Company's Charter provides that the Board of Directors is authorized,
subject to certain limitations prescribed by law, without further stockholder
approval, to issue from time to time up to an aggregate of 10,000,000 shares of
Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future. The Company has
no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The provisions of the Company's Charter, By-Laws and Delaware statutory law
described in this section may delay or make more difficult acquisitions or
changes in control of the Company that are not approved by the Board of
Directors. See "Risk Factors -- Possible Anti-takeover Effect of Certain
Charter, By-law and Statutory Provisions."
The Company is subject to the provisions of Section 203 of the DGCL.
Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of
59
<PAGE> 62
the Board of Directors or unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.
The Charter provides for the division of the Board of Directors into three
classes as nearly equal in size as possible with staggered three-year terms. See
"Management." Except as may be provided in any class or series of Preferred
Stock with respect to any directors elected by the holders of such class or
series, any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least two-thirds of the voting power of all of the shares of
capital stock of the corporation then entitled to vote generally in the election
of directors, voting together as a single class, unless the removal of a
director has been requested by a shareholder who designated such director as a
nominee for election pursuant to the Stockholders Agreement, in which case such
director can be removed with or without cause by the affirmative vote of holders
of a simple majority of such shares.
The Company's Charter provides that special meetings of the stockholders
may be called at any time by resolution of the Board of Directors, the Chairman
of the Board, or the Chief Executive Officer, but may not be called by other
persons. The Charter also provides that any stockholder action may not be taken
by written consent of stockholders without a meeting, unless the action to be
effected by written consent of stockholders and the taking of such action by
written consent have been approved in advance by the Board of Directors or
unless the shareholder action involves the removal of a director nominated
pursuant to the Stockholders Agreement and the person who nominated such
director pursuant to the Stockholders Agreement votes in favor of the removal of
such director pursuant to such written consent.
The Charter further provides that stockholders may make, alter, amend, add
to or repeal the By-laws only if, in addition to any vote of the holders of any
class or series of capital stock of the Corporation required by law or the
Charter, such action is approved by the affirmative vote of the holders of at
least 80% of the voting power of all of the then outstanding shares of capital
stock of the Company entitled to vote generally in the election of directors,
voting together as a single class. The affirmative approval of at least 80% of
the voting power of all of the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, is also required to reduce or eliminate the number
of authorized shares of any capital stock set forth in the Charter or to amend,
repeal or adopt any provision inconsistent with specified provisions of the
Charter.
As permitted by DGCL, the Charter provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director by reason of any act or
omission, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, (iv) for any transaction from which
the director shall derive an improper personal benefit or (v) to any extent that
such liability shall not be limited or eliminated by virtue of the provisions of
Section 102(b)(7) of the DGCL or any successor thereof. In addition, the Charter
provides that the Company shall, to the fullest extent authorized by the DGCL,
as amended from time to time, indemnify and hold harmless all directors and
officers against all expense, liability and loss reasonably incurred or suffered
by such indemnitee in connection therewith. Such indemnification shall continue
as to an indemnitee who has ceased to be a director or officer and shall inure
to the benefit of the indemnitee's heirs, executors and administrators. The
right to indemnification includes the right to be advanced funds from the
Company for expenses incurred in defending any proceeding for which a right to
indemnification is applicable.
STOCKHOLDERS AGREEMENT
Pursuant to the amended Stockholders Agreement, one of the Morgan Stanley
Stockholders, MSLEF II, has the right to designate two director nominees so long
as it owns at least 25% of the outstanding Common Stock or one director nominee
so long as it owns at least 5% but less than 25% of the outstanding Common
60
<PAGE> 63
Stock. In addition, another Morgan Stanley Stockholder, MSCP, has the right to
designate two director nominees so long as it owns at least 35% of the
outstanding Common Stock or one director nominee so long as it owns at least 5%
but less than 35% of the outstanding Common Stock. Whenever MSLEF II and MSCP
individually own less than 5% of the outstanding Common Stock, they shall
jointly be entitled to designate one director nominee as long as the Morgan
Stanley Shareholders beneficially own, in the aggregate, at least 5% of the
outstanding Common Stock. The number of directors designated by the Morgan
Stanley Stockholders will increase proportionately if the size of the Board of
Directors is increased in the future. In addition, the amended Stockholders
Agreement provides that so long as the Morgan Stanley Stockholders own at least
25% of the outstanding shares of Common Stock, certain significant corporate
actions will be subject to their approval in addition to that of the Company's
Board of Directors. See "Certain Relationships and Related
Transactions -- Stockholders Agreement."
LISTING
The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange under the symbol "PLB."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is UMB Bank, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Sales of substantial numbers of shares of Common Stock into the
public market after the Offering, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock
prevailing from time to time or could impair the Company's future ability to
obtain capital through an offering of equity securities. The Company cannot
predict the effect, if any, that sales of shares of Common Stock, or the
availability of such shares for future sales, will have on future market prices
of the Common Stock. Such sales also may make it more difficult for the Company
to sell equity securities in the future at the time and price it deems
appropriate.
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 16,776,056 shares of Common Stock assuming no exercise of the U.S.
Underwriters' over-allotment option and no exercise of outstanding stock
options. Of these shares, all of the 7,900,000 shares of Common Stock sold in
the Offering will be freely tradable without restriction or further registration
under the Securities Act by persons other than "affiliates" of the Company as
that term is defined in Rule 144 under the Securities Act (the "Affiliates").
The remaining 8,876,056 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act (the "Restricted Shares"). These Restricted Shares were acquired in
transactions exempt from registration under the Securities Act and may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, such as Rule 144, Rule 144(k) or
Rule 701 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated in accordance with the Rule) who has beneficially
owned Restricted Shares for at least one year or any person who may be deemed an
affiliate of the Company is entitled, subject to certain conditions, to sell
within any three-month period a number of shares of which does not exceed the
greater of (i) one percent of the Company's then outstanding shares of Common
Stock (approximately 167,761 shares immediately after the Offering, assuming no
exercise of the U.S. Underwriters' over-allotment option and no exercise of
outstanding stock options) or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale and notice requirements and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated in accordance with the Rule) who is not an
"affiliate" of the Company at any time during the 90 days preceding a sale and
who beneficially owns shares that were not acquired from the Company or an
affiliate of the Company within the past two years is entitled to sell such
shares under Rule 144(k) without regard to volume limitations, manner of sale
provisions, notice requirements or the
61
<PAGE> 64
availability of current public information on the Company. In general, under
Rule 701 as currently in effect, any employee, consultant or advisor of the
Company who purchased shares from the Company in connection with a compensatory
stock or option plan or other written agreement is eligible to resell such
shares 90 days after the effective date of this Offering in reliance on Rule
144, but without compliance with certain restrictions, including the holding
period, contained in Rule 144. The Commission has proposed an amendment to Rule
144 which may further liberalize the provisions of Rule 144.
Beginning 180 days after the date of this Prospectus, 8,220,330 of the
Restricted Shares will be eligible for sale on the public market under Rule 144,
provided the conditions of that rule have been met. All of such Restricted
Shares are subject to lock-up agreements with the Underwriters that prohibit
their sale or other disposition for 180 days from the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters (except with respect to shares of Common Stock held by the
Morgan Stanley Stockholders, for which prior written consent of all the U.S.
Representatives is required).
Pursuant to the Stockholders Agreement, the Company has granted the
Existing Stockholders certain "demand" registration rights with respect to the
shares of Common Stock held by the Existing Stockholders. In addition to such
demand rights, the Existing Stockholders will be entitled, subject to certain
limitations, to register shares of Common Stock in connection with a
registration statement prepared by the Company. See "Certain Relationships and
Related Transactions -- Stockholders Agreement." Each of the Existing
Stockholders has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters (except with respect to
shares of Common Stock held by the Morgan Stanley Stockholders, without the
prior written consent of all the U.S. Representatives), it will not, during the
period ending 180 days after the date of this Prospectus, make any demand for,
or exercise any right with respect to, the registration of any shares of Class A
Common Stock or any security convertible into or exercisable or exchangeable for
Class A Common Stock.
Existing Stockholders other than the Morgan Stanley Stockholders may not
sell or pledge any shares of Common Stock except in the circumstances permitted
by the Stockholders Agreement. See "Certain Relationships and Related
Transactions." Subject to the lock-up period describe above, the Morgan Stanley
Stockholders may choose to dispose of the Common Stock owned by them. The timing
of such sales or other dispositions by such stockholders (which could include
distributions to the Morgan Stanley Stockholders' limited partners) will depend
on market and other conditions, but could occur relatively soon after the
lock-up period, including pursuant to the exercise of their registration rights.
The Morgan Stanley Stockholders are unable to predict the timing of sales by any
of their limited partners in the event of a distribution to them. Such
dispositions could be privately negotiated transactions or public sales.
62
<PAGE> 65
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
In the opinion of Sonnenschein Nath & Rosenthal, the following is a summary
of certain of the material United States federal income and estate tax
consequences of the ownership and disposition of Class A Common Stock applicable
to "Non-United States Holders." A "Non-United States Holder" is any beneficial
owner of Class A Common Stock that, for United States federal income or estate
tax purposes, as the case may be, is a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust as such terms
are defined in the Internal Revenue Code of 1986, as amended (the "Code"). This
summary is based on the Code and administrative and judicial interpretations as
of the date hereof, all of which are subject to change either retroactively or
prospectively. This summary does not address all aspects of United States
federal income and estate taxation that may be relevant to Non-United States
Holders in light of their particular circumstances (such as certain tax
consequences applicable to United States expatriates and pass-through entities)
and does not address any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction or the application of a particular tax
treaty. Prospective investors are urged to consult their tax advisors regarding
the United States federal, state and local income and other tax consequences,
and the non-United States tax consequences, of owning and disposing of Class A
Common Stock.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted in their present form, could
revise in certain respects the rules applicable to Non-United States Holders of
Class A Common Stock. The Proposed Regulations are generally proposed to be
effective with respect to payments made after December 31, 1997, subject to
certain transition rules. It cannot be predicted at this time whether the
Proposed Regulations will be adopted as proposed or what modifications, if any,
may be made to them. The summary below is not intended to include a complete
discussion of the provisions of the Proposed Regulations, and prospective
investors are urged to consult their tax advisors with respect to the effect the
Proposed Regulations may have if adopted.
DIVIDENDS
Subject to the discussion below, any dividend paid to a Non-United States
Holder generally will be subject to United States withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. For purposes of determining whether tax
is to be withheld at a 30% rate, or at a reduced rate as specified by an
applicable tax treaty, under current United States Treasury Regulations the
Company ordinarily will presume that dividends paid to a holder with an address
in a foreign country are paid to a resident of such country absent knowledge
that such presumption is not warranted. Under such Regulations, dividends paid
to a holder with an address within the United States generally will be presumed
to be paid to a holder who is not a Non-United States Holder and will not be
subject to the 30% withholding tax, unless the Company has actual knowledge that
the holder is a Non-United States Holder.
The Proposed Regulations would provide for certain presumptions (which
differ from those described above) upon which the Company may generally rely to
determine whether, in the absence of certain documentation, a holder should be
treated as a Non-United States Holder for purposes of the 30% withholding tax
described above. The presumptions would not apply for purposes of granting a
reduced rate of withholding under a treaty. Under the Proposed Regulations, to
obtain a reduced rate of withholding under a treaty a Non-United States Holder
would be required either (i) to provide an Internal Revenue Service Form W-8
certifying such Non-United States Holder's entitlement to benefits under a
treaty together with, in certain circumstances, additional information or (ii)
satisfy certain other applicable certification requirements. The Proposed
Regulations also would provide special rules to determine whether, for purposes
of determining the applicability of a tax treaty and for purposes of the 30%
withholding tax described above, dividends paid to a Non-United States Holder
that is an entity should be treated as paid to the entity or those holding an
interest in that entity.
63
<PAGE> 66
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from withholding tax. However, such effectively
connected dividends are subject to regular United States income tax in the same
manner as if the Non-United States Holder were a United States person for
federal income tax purposes. Effectively connected dividends may be subject to a
different treatment under an applicable tax treaty depending on whether such
dividends are attributable to a permanent establishment of the Non-United States
Holder in the United States. A Non-United States Holder may claim exemption from
withholding under the effectively connected income exception by filing Internal
Revenue Service Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected With the Conduct of a Trade or Business in the United
States) each year with the Company or its paying agent prior to the payment of
the dividends for such year. The Proposed Regulations would replace Form 4224
with Form W-8 and certain additional information. Effectively connected
dividends received by a corporate Non-United States Holder may be subject to an
additional "branch profits tax" at a rate of 30% (or such lower rate as may be
specified by an applicable tax treaty) of such corporate Non-United States
Holder's effectively connected earnings and profits, subject to certain
adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service ("IRS").
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of Class A Common Stock unless (i) such gain is effectively
connected with a United States trade or business of the Non-United States
Holder; (ii) the Non-United States Holder is a non-resident alien individual who
holds the Class A Common Stock as a capital asset, is present in the United
States for a period or periods aggregating 183 days or more during the calendar
year in which such sale or disposition occurs, and either the non-resident alien
individual has a "tax home" in the United States or the sale is attributable to
an office or other fixed place of business maintained by the non-resident alien
individual in the United States; or (iii) the Company is or has been a "United
States real property holding corporation" for federal income tax purposes at any
time within the shorter of the five-year period ending on the date of the
disposition or such holder's holding period (the "determination period"). The
Company has determined that it is not, and does not anticipate becoming a
"United States real property holding corporation" for federal income tax
purposes. Even if the Company is a United States real property holding
corporation for federal income tax purposes at any time during the determination
period, the disposition of Class A Common Stock by a Non-United States Holder
that did not own more than five percent of the Class A Common Stock during the
determination period will not be treated as a disposition of an interest in a
United States real property holding corporation if the Class A Common Stock is
treated as "regularly traded on an established securities market" during the
calendar year. Non-United States Holders should consult applicable tax treaties,
which might result in a United States federal income tax treatment on the sale
or other disposition of Class A Common Stock different than as described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
The information reporting requirements apply regardless of whether withholding
was reduced by an applicable tax treaty or if withholding was not required
because the dividends were effectively connected with a trade or business in the
United States of the Non-United States Holder. A similar report is sent to the
holder. Pursuant to tax treaties or other agreements, the IRS may make its
reports available to tax authorities in the recipient's country of residence.
Under current United States Treasury Regulations, unless the Company has
actual knowledge that a holder is a Non-United States Holder, dividends paid to
a holder at an address within the United States may be subject to backup
withholding at a rate of 31% and additional information reporting if the holder
is not an "exempt recipient" as defined in Treasury Regulations (which includes
corporations) and fails to provide a
64
<PAGE> 67
correct taxpayer identification number and other information to the Company.
Backup withholding and such additional information reporting will generally not
apply to dividends paid to holders at an address outside the United States
(unless the Company has knowledge that the holder is a United States person) or
to dividends paid to Non-United States Holders that are either subject to the
United States withholding tax (whether at 30% or a reduced rate) or that are
exempt from such withholding because such dividends constitute effectively
connected income.
Under current United States Treasury Regulations, proceeds from the
disposition of Class A Common Stock by a Non-United States Holder effected by or
through a United States office of a broker will be subject to information
reporting and to backup withholding at a rate of 31% of the gross proceeds
unless such Non-United States Holder certifies under penalties of perjury as to
its name, address and status as a Non-United States Holder or otherwise
establishes an exemption. Generally, United States information reporting and
backup withholding will not apply to a payment of disposition proceeds if the
transaction is effected outside the United States by or through a non-United
States office of a broker. However, United States information reporting
requirements (but not backup withholding) will apply to a payment of disposition
proceeds where the transaction is effected outside the United States if (a) the
disposition is made through an office outside the United States of a broker that
is either (i) a United States person for United States federal income tax
purposes, (ii) a "controlled foreign corporation" for United States federal
income tax purposes or (iii) a foreign person which derives 50% or more of its
gross income for certain periods from the conduct of a United States trade or
business and (b) the broker fails to maintain documentary evidence in its files
that the holder is a Non-United States Holder and that certain conditions are
met or that the holder otherwise is entitled to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules
applicable to proceeds from Class A Common Stock in certain respects. Among
other things, the Proposed Regulations would provide certain presumptions and
other rules under which Non-United States Holders may be subject to backup
withholding and related information reporting in the absence of required
certifications.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided that the required documents are
filed with the IRS.
ESTATE TAX
An individual Non-United States Holder who is treated as the owner of Class
A Common Stock at the time of such individual's death or has made certain
lifetime transfers of an interest in Class A Common Stock will be required to
include the value of such Class A Common Stock in such individual's gross estate
for United States federal estate tax purposes and may be subject to United
States federal estate tax, unless an applicable tax treaty provides otherwise.
65
<PAGE> 68
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, BT Alex. Brown, Goldman,
Sachs & Co. and George K. Baum & Company are acting as U.S. Representatives, and
the International Underwriters named below for whom Morgan Stanley & Co.
International Limited, BT Alex. Brown International, a division of Bankers Trust
International PLC, Goldman Sachs International and George K. Baum & Company are
acting as International Representatives, have severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective numbers of
shares of Class A Common Stock set forth opposite the names of such Underwriters
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
BT Alex. Brown............................................
Goldman, Sachs & Co. .....................................
George K. Baum & Company..................................
---------
Subtotal............................................... 6,320,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................
BT Alex. Brown International, a division of Bankers Trust
International PLC......................................
Goldman Sachs International...............................
George K. Baum & Company..................................
---------
Subtotal............................................... 1,580,000
---------
Total.................................................. 7,900,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Class A Common Stock offered
hereby are subject to the approval of certain legal matters by their counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of the shares of Class A Common Stock offered hereby (other than those
covered by the U.S. Underwriters' over-allotment option described below) if any
such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any
66
<PAGE> 69
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased by
the Underwriters under the Underwriting Agreement are referred to herein as the
"Shares".
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
67
<PAGE> 70
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
Certain Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of 1,185,000 additional shares of Class A Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Class A Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Class A Common Stock as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
shares of Class A Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters (except with
respect to shares of Common Stock held by the Morgan Stanley Stockholders, for
which prior written consent of all the U.S. Representatives is required), it
will not, during the period ending 180 days after the date of this Prospectus,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock (provided that such
shares or securities are either owned on the date of this Prospectus or are
hereinafter acquired prior to the Offering) or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Class A Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Class A Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of the
Shares to the Underwriters, (y) the issuance by the Company of shares of Common
Stock upon the exercise of an option or a warrant or the conversion of a
security outstanding on the date of this Prospectus or (z) transactions by any
person other than the Company relating to shares of Class A Common Stock or
other securities acquired in open market transactions after the consummation of
the offering of the Shares.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
over-allot in connection with the Offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Class A Common Stock
in the Offering, if the syndicate repurchases previously distributed Class A
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Upon consummation of the Offering, affiliates of Morgan Stanley & Co.
Incorporated and Morgan Stanley & Co. International Limited will own 39.6% of
the Common Stock. No affiliates of Morgan Stanley &
68
<PAGE> 71
Co. Incorporated and Morgan Stanley & Co. International Limited will be selling
shares of Class A Common Stock in the Offering. Currently, affiliates of Morgan
Stanley & Co. Incorporated and Morgan Stanley & Co. International Limited have
designated three members to the Board of Directors (Messrs. Niehaus and Sorrel
and Ms. Rosen). Messrs. Niehaus and Sorrel and Ms. Rosen are employees of Morgan
Stanley & Co. Incorporated. See "Management." From time to time, Morgan Stanley
& Co. Incorporated and its affiliates have provided, and continue to provide,
investment banking and financial advisory services to the Company for which they
have received customary fees and commissions.
Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley & Co.
Incorporated, one of the U.S. Underwriters, is the documentation agent under the
agreements relating to the Company's Credit Facility, and acted as arranger for
the Credit Facility for which it received a customary fee. Morgan Senior
Funding, Inc. also provides other general financing and banking services to the
Company and its affiliates from time to time. Bankers Trust Company, an
affiliate of BT Alex. Brown (which is one of the U.S. Underwriters) and BT Alex.
Brown International (which is one of the International Underwriters), is
administrative agent and a lender under the Company's Credit Facility.
The Class A Common Stock has been approved for listing, subject to notice
of issuance, on the New York Stock Exchange under the symbol "PLB." In order to
meet the requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to meet the New York Stock Exchange's
minimum distribution, issuance and aggregate market value requirements.
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the factors
to be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
Because the partial repayment of the Credit Facility will cause a
substantial portion of the proceeds from the Offering to be paid to affiliates
of members of the National Association of Securities Dealers, Inc. ("NASD")
which members may participate in the U.S. Offering, the U.S. Offering is being
conducted in accordance with the requirements of Rule 2710(c)(8) of the NASD
Conduct Rules. The initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, Goldman, Sachs & Co. will serve in such role. In connection with
the U.S. Offering, Goldman, Sachs & Co. in its role as qualified independent
underwriter has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part.
From time to time, George K. Baum & Company has provided, and continues to
provide, investment banking and financial advisory services to the Company for
which it has received customary fees and commissions. Upon consummation of the
Offering, one of the Company's seven directors will be a director of George K.
Baum & Company.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby and
certain other matters will be passed upon for the Company by Sonnenschein Nath &
Rosenthal, Kansas City, Missouri. Certain legal matters will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Davis Polk &
Wardwell has performed, and will continue to perform, legal services for the
Morgan Stanley Stockholders and has acted as counsel to the Morgan Stanley
Stockholders in connection with their investments in the Company.
69
<PAGE> 72
EXPERTS
The financial statements of the Company at December 31, 1995, September 30,
1996, and June 30, 1997, and for each of the two years in the period ended
December 31, 1995, for the nine-month fiscal period ended September 30, 1996 and
the nine-month period ended June 30, 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Securities and
Exchange Commission (the "Commission") on Form S-1 under the Securities Act with
respect to the shares of Class A Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in schedules and exhibits to the Registration Statement as
permitted by rules of the Commission. For further information with respect to
the Company and the Class A Common Stock offered hereby, reference is made to
such Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete. With respect to each such
contract or other document filed as a part of or otherwise incorporated in the
Registration Statement, reference is made to the exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Following the consummation of this Offering, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith will file reports, proxy statements and
other information with the Commission. The Registration Statement, including the
schedules and exhibits thereto, as well as such reports, proxy statements and
other information filed by the Company can be inspected, without charge, and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices maintained by the Commission at Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can also be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, registration statements and certain other filings made with
the Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
Following the consummation of this Offering, the Company intends to furnish
to its stockholders annual reports containing financial statements audited by an
independent certified public accounting firm and quarterly reports for each of
the first three quarters of each fiscal year containing unaudited financial
information.
70
<PAGE> 73
AMERICAN ITALIAN PASTA COMPANY
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets at December 31, 1995, September 30, 1996 and
June 30, 1997............................................. F-3
Statements of Operations for the years ended December 31,
1994 and 1995, the fiscal nine-months ended September 30,
1996 and the nine-months ended June 30, 1997.............. F-4
Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995, the fiscal nine-months ended
September 30, 1996 and the nine-months ended June 30,
1997...................................................... F-5
Statements of Cash Flows for the years ended December 31,
1994 and 1995, the fiscal nine-months ended September 30,
1996 and the nine-months ended June 30, 1997.............. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Italian Pasta Company
We have audited the accompanying balance sheets of American Italian Pasta
Company (the Company) as of December 31, 1995, September 30, 1996 and June 30,
1997, and the related statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995, the nine-
month fiscal period ended September 30, 1996 and the nine-month period ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Italian Pasta
Company at December 31, 1995, September 30, 1996 and June 30, 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995, the nine-month fiscal period ended September 30,
1996 and the nine-month period ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
July 25, 1997 except
Note 12, as to which
the date is October 7, 1997
F-2
<PAGE> 75
AMERICAN ITALIAN PASTA COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------ ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS (Note 2)
Current assets:
Cash and temporary investments.......................... $ 18 $ 1,818 $ 2,612
Trade and other receivables............................. 10,709 12,494 11,616
Prepaid expenses and deposits........................... 927 1,879 2,201
Inventory............................................... 12,544 14,374 11,619
Deferred income taxes (Note 3).......................... 339 269 213
-------- -------- --------
Total current assets...................................... 24,537 30,834 28,261
Property, plant and equipment:
Land and improvements................................... 4,379 4,413 4,540
Buildings............................................... 37,382 37,491 37,491
Plant and mill equipment................................ 78,850 81,461 83,702
Furniture, fixtures and equipment....................... 3,348 3,635 4,477
-------- -------- --------
123,959 127,000 130,210
Accumulated depreciation................................ (18,580) (23,247) (27,790)
-------- -------- --------
105,379 103,753 102,420
Construction in progress................................ -- -- 7,839
-------- -------- --------
Total property, plant and equipment....................... 105,379 103,753 110,259
Deferred income taxes (Note 3)............................ 1,821 4,479 2,730
Other assets.............................................. 3,687 2,622 4,212
-------- -------- --------
Total assets.............................................. $135,424 $141,688 $145,462
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 12,102 $ 7,193 $ 6,550
Accrued expenses........................................ 2,694 3,664 4,750
Current maturities of long-term debt (Note 2)........... 3,109 8,078 3,685
Revolving line of credit facility (Note 2).............. -- 13,500 --
-------- -------- --------
Total current liabilities................................. 17,905 32,435 14,985
Long-term debt (Note 2)................................... 97,452 93,284 89,500
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares 10,000,000......................... -- -- --
Class A common stock, $.001 par value:
Authorized shares -- 75,000,000...................... 8 8 11
Class B common stock, $.001 par value:
Authorized shares -- 25,000,000...................... -- -- --
Additional paid-in capital.............................. 32,971 33,071 55,324
Notes receivable from officers.......................... -- -- (298)
Accumulated deficit..................................... (12,912) (17,110) (14,060)
-------- -------- --------
Total stockholders' equity................................ 20,067 15,969 40,977
-------- -------- --------
Total liabilities and stockholders' equity................ $135,424 $141,688 $145,462
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 76
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30,
------------------ ---------------------- ----------------------
1994 1995 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues (Note 5)................... $69,465 $92,903 $63,828 $92,074 $86,514 $93,616
Cost of goods sold.................. 54,393 73,851 51,601 68,555 65,697 67,821
Plant expansion costs (Note 8)...... 484 2,065 1,640 -- 425 --
------- ------- ------- ------- ------- -------
Gross profit........................ 14,588 16,987 10,587 23,519 20,392 25,795
Selling and marketing expense,
including product introduction
costs (Note 10)................... 3,792 5,303 3,656 16,798 11,236 10,212
General and administrative
expense........................... 1,951 2,930 2,048 2,805 2,741 2,855
------- ------- ------- ------- ------- -------
Operating profit.................... 8,845 8,754 4,883 3,916 6,415 12,728
Interest expense, net............... 4,975 8,008 5,261 8,023 8,030 7,800
------- ------- ------- ------- ------- -------
Income (loss) before income tax
expense (benefit) and
extraordinary item................ 3,870 746 (378) (4,107) (1,615) 4,928
Income tax expense (benefit) (Note
3)................................ 1,484 270 (147) (1,556) (642) 1,878
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item.............................. 2,386 476 (231) (2,551) (973) 3,050
Extraordinary item:
Loss due to early extinguishment
of long-term debt, net of
income taxes (Note 2).......... (204) -- -- (1,647) (1,647) --
------- ------- ------- ------- ------- -------
Net income (loss)................... $ 2,182 $ 476 $ (231) $(4,198) $(2,620) $ 3,050
======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Before extraordinary item........... $ 0.23 $ 0.05 $ (0.25) $ 0.25
Extraordinary item.................. (0.02) -- (0.16) --
------- ------- ------- -------
Total............................... $ 0.21 $ 0.05 $ (0.41) $ 0.25
======= ======= ======= =======
Weighted-average common shares
outstanding....................... 10,231 10,275 10,303 12,160
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 77
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
CLASS A CLASS A ADDITIONAL RECEIVABLE TOTAL
COMMON COMMON PAID-IN FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL OFFICERS COMPENSATION DEFICIT EQUITY
------- ------- ---------- ---------- ------------ ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993... 8,179,832 $ 8 $32,679 $ -- $(144) $(15,570) $16,973
Compensation related to stock
options vesting in 1994.... -- -- -- -- 144 -- 144
Issuance of 21,401 shares of
Class A Common stock....... 21,401 -- 102 -- -- -- 102
Net income................... -- -- -- -- -- 2,182 2,182
---------- --- ------- ----- ----- -------- -------
Balance at December 31, 1994... 8,201,233 8 32,781 -- -- (13,388) 19,401
Issuance of 38,767 shares of
Class A Common stock....... 38,767 -- 190 -- -- -- 190
Net income................... -- -- -- -- -- 476 476
---------- --- ------- ----- ----- -------- -------
Balance at December 31, 1995... 8,240,000 8 32,971 -- -- (12,912) 20,067
Issuance of 20,328 shares of
Class A Common stock....... 20,328 -- 100 -- -- -- 100
Net loss..................... -- -- -- -- -- (4,198) (4,198)
---------- --- ------- ----- ----- -------- -------
Balance at September 30,
1996......................... 8,260,328 8 33,071 -- -- (17,110) 15,969
Issuance of 3,174,526 shares
of Class A Common stock,
net of issuance costs ..... 3,174,528 3 22,039 -- -- -- 22,042
Notes received from officers
in exchange for stock...... -- -- -- (298) -- -- (298)
Issuance of 31,200 shares of
Class A Common stock to
employee benefit plan...... 31,200 -- 214 -- -- -- 214
Net income................... -- -- -- -- -- 3,050 3,050
---------- --- ------- ----- ----- -------- -------
Balance at June 30, 1997....... 11,466,056 $11 $55,324 $(298) $ -- $(14,060) $40,977
========== === ======= ===== ===== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 78
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED --------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30
-------------------- ----------------------- -----------------------
1994 1995 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss).................... $ 2,182 $ 476 $ (231) $ (4,198) $ (2,620) $ 3,050
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operations:
Depreciation and amortization.... 4,573 6,279 4,485 5,434 5,607 5,784
Deferred income tax expense
(benefit)..................... 1,168 264 (147) (1,556) (642) 1,878
Extraordinary loss due to early
extinguishment of long-term
debt.......................... 204 -- -- 1,647 1,647 --
Compensation related to stock
options....................... 144 -- -- -- -- --
Loss on disposal of property,
plant and equipment........... -- 439 275 -- 163 --
Changes in operating assets and
liabilities:
Trade and other receivables... (1,900) (4,586) (1,512) (1,785) (2,898) 942
Prepaid expenses and
deposits.................... (317) (364) (1,241) (952) (220) (396)
Inventory..................... (4,293) (2,814) (1,889) (1,830) (5,377) 2,755
Accounts payable and accrued
expenses.................... 2,167 6,610 3,435 (3,961) 519 443
Other......................... (238) (574) (500) (276) (334) (380)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............... 3,690 5,730 2,675 (7,477) (4,155) 14,076
Investing activities:
Additions to property, plant and
equipment.......................... (25,431) (38,789) (31,365) (3,041) (6,084) (11,464)
-------- -------- -------- -------- -------- --------
Net cash used in investing
activities......................... (25,431) (38,789) (31,365) (3,041) (6,084) (11,464)
Financing activities:
Additions to deferred debt issuance
costs.............................. (2,004) (71) (71) (2,083) (2,064) (2,099)
Proceeds from issuance of debt....... 58,330 40,795 22,274 86,470 106,025 3,543
Net borrowings under revolving line
of credit facility................. -- -- 9,408 13,500 -- (13,500)
Principal payments on debt and
capital lease obligations.......... (36,825) (7,848) (3,875) (85,669) (92,239) (11,720)
Proceeds from issuance of common
stock, net of issuance costs....... 102 190 167 100 -- 21,958
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............... 19,603 33,066 27,903 12,318 11,722 (1,818)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and
temporary investments.............. (2,138) 7 (787) 1,800 1,483 794
Cash and temporary investments at
beginning of period................ 2,149 11 11 18 (776) 1,818
-------- -------- -------- -------- -------- --------
Cash and temporary investments at end
of period.......................... $ 11 $ 18 $ (776) $ 1,818 $ 707 $ 2,612
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 79
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
American Italian Pasta Company (the Company) is a Delaware Corporation
which began operations in 1988. The Company is the third largest producer and
marketer of pasta products in the United States with manufacturing and
distribution facilities located in Excelsior Springs, Missouri and Columbia,
South Carolina.
CHANGE IN FISCAL YEAR
Effective for its 1996 fiscal year, the Company changed its fiscal year end
from December 31 to the last Friday of September or the first Friday of October.
This change resulted in a nine-month fiscal year for 1996, a 53-week year for
fiscal 1997, and a 52- or 53-week year for all subsequent fiscal years. The
Company's other fiscal quarters end on the Friday last preceding December 31,
March 31 and June 30 of each year. For purposes of the financial statements and
notes thereto, the 1996 fiscal year is described as having ended on September
30, 1996, and the nine-month 1997 and 1996 interim periods are described as
having ended on June 30.
INTERIM FINANCIAL STATEMENTS
The Company's balance sheet at June 30, 1997 and the statements of
operations and stockholders' equity and cash flows for the nine months ended
September 30, 1995, June 30, 1996 and June 30, 1997 have been prepared in
accordance with generally accepted accounting principles for interim financial
statements.
The Company has included information for the nine months ended September
30, 1995 and June 30, 1996 in the statements of operations and statements of
cash flows for comparative purposes. This information is unaudited.
REVENUE RECOGNITION
Sales of the Company's products, including pricing terms, are final upon
shipment of the goods. Accordingly, revenue is recognized at such time.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Company grants credit to certain customers who meet the Company's
preestablished credit requirements. Generally, the Company does not require
collateral security when trade credit is granted to customers. Credit losses are
provided for in the financial statements and consistently have been within
management's expectations. The allowance for doubtful accounts at December 31,
1995, September 30, 1996 and June 30, 1997 was $59,000, $60,000 and $198,000,
respectively. At December 31, 1995, September 30, 1996 and June 30, 1997,
approximately 30%, 34% and 41%, respectively, of accounts receivable were due
from two customers.
Pasta is made from semolina milled from durum wheat, a class of hard amber
wheat grown in certain parts of the world and purchased by the Company from
United States and Canadian sources. The Company mills the wheat into semolina at
its Excelsior Springs plant. Durum wheat is a narrowly traded, cash only
F-7
<PAGE> 80
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
commodity crop. The Company attempts to minimize the effect of durum wheat cost
fluctuations through forward purchase contracts and raw material cost-based
pricing agreements with many of its customers. The Company's commodity
procurement and pricing practices are intended to reduce the risk of durum wheat
cost increases on profitability, but also may temporarily affect the timing of
the Company's ability to benefit from possible durum wheat cost decreases for
such contracted quantities.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and temporary investments, accounts receivable, accounts payable and long-term
debt, as reported in the accompanying balance sheet at June 30, 1997,
approximates fair value.
ADVERTISING COSTS
The Company amortizes direct response advertising costs over the period in
which the future benefits are expected (generally six months or less).
Production costs for television advertisement are expensed upon the first
showing. Other costs of advertising and promotions are expensed as incurred.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include cash on hand, amounts due from banks
and highly liquid marketable securities with maturities of three months or less
at the date of purchase.
INVENTORIES
Inventories are stated using product specific standard costs which
approximate the lower of cost or market determined on a first-in, first-out
(FIFO) basis. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------ ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods............................... $ 8,625 $10,809 $ 7,505
Raw materials, packaging materials and
work-in-process............................ 3,919 3,565 4,114
------- ------- -------
$12,544 $14,374 $11,619
======= ======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Capital additions, improvements and major renewals are classified as
property, plant and equipment and are recorded at cost. Depreciation is
calculated for financial statement purposes using the straight-line method over
the estimated useful life of the related asset for each year as follows:
<TABLE>
<CAPTION>
NUMBER OF
YEARS
---------
<S> <C>
Land improvements........................................... 40
Buildings................................................... 30
Plant and mill equipment.................................... 20
Packaging equipment......................................... 10
Furniture, fixtures and equipment........................... 5
</TABLE>
F-8
<PAGE> 81
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company capitalizes interest costs associated with the construction and
installation of plant and equipment. During the fiscal years ended December 31,
1994 and 1995, approximately $871,000 and $1,559,000 of interest cost was
capitalized, respectively. There was no interest cost capitalized in fiscal
1996. During the nine months ended June 30, 1997, approximately $136,000 of
interest cost was capitalized.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------ ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt issuance costs (Note 2)............................... $ 5,071 $ 2,143 $ 4,242
Package design costs....................................... 1,274 1,456 1,492
Other...................................................... 1,151 1,150 1,099
------- ------- -------
7,496 4,749 6,833
Accumulated amortization................................... (3,809) (2,127) (2,621)
------- ------- -------
$ 3,687 $ 2,622 $ 4,212
======= ======= =======
</TABLE>
Debt issuance costs relate to expenditures incurred in connection with
obtaining long-term debt. These costs are being amortized over the life of the
related debt using the effective interest rate method. Debt issuance costs, net
of accumulated amortization, were $3,597,000 at June 30, 1997.
Package design costs relate to certain incremental third party costs to
design artwork and produce die plates and negatives necessary to manufacture and
print packaging materials according to the Company's and customer's
specification. These costs are amortized ratably over a two-year period. In the
event that product packaging is discontinued prior to the end of the
amortization period, the respective package design costs are written off.
Package design costs, net of accumulated amortization, were $449,000 at June 30,
1997.
CHANGE IN ACCOUNTING POLICIES
In conjunction with its planned initial public offering, the Company
elected to expense all start up costs incurred related to the 1995/1996 plant
expansion. In addition, the Company has elected to expense all product placement
fees incurred related to the 1996/1997 introduction of flavored pasta. The
related financial statements have been restated retroactively.
INCOME TAXES
The Company accounts for income taxes in accordance with the method
prescribed by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations
in accounting for its employee stock options and have adopted the pro forma
disclosure requirements under SFAS No. 123 "Accounting for Stock-Based
Compensation." Under APB No. 25, because the exercise price of the Company's
employee stock options is
F-9
<PAGE> 82
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
equal to or greater than the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated using the weighted-average
number of common shares and common equivalent shares, to the extent dilutive,
outstanding during the periods. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, stock issued and common stock options granted
by the Company during the 12 months preceding the filing date for its planned
initial public offering have been included in the calculation of
weighted-average common and common equivalent shares outstanding, using the
treasury stock method based on the assumed initial public offering price of $16
per share, as if the stock and options were outstanding for all periods
presented.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------ ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loans................................................. $ 93,750 $ 94,813 $85,938
Capital lease, 15-year term with three, five-year renewal
options, at an imputed interest rate of 12.5%............ 3,657 3,586 3,509
Capital lease, eight-year term at an imputed interest rate
of 8.5%.................................................. 2,210 2,260 2,124
Other...................................................... 944 703 1,614
-------- -------- -------
100,561 101,362 93,185
Less current portion....................................... 3,109 8,078 3,685
-------- -------- -------
$ 97,452 $ 93,284 $89,500
======== ======== =======
</TABLE>
In April 1997, the Company amended and restated its principal credit
agreement in conjunction with a sale of $22.3 million of the Company's common
stock to existing stockholders. With the net proceeds from the common stock
sale, the Company repaid then outstanding borrowings under the revolving credit
agreement and prepaid scheduled long-term debt payments due through December 31,
1997.
The amended and restated credit agreement (i) created a $45 million D term
loan which will be used in combination with the proceeds from the common stock
sale to finance the Company's expansion of capital assets; (ii) increased the
Company's revolving credit facility from $17.5 million to $25 million and (iii)
modified certain covenant provisions. At June 30, 1997, the Company had $45
million available to borrow under the D term credit facility.
Debt issuance costs of approximately $2.1 million related to the April
refinancing were capitalized as deferred debt issuance costs during 1997.
In July 1994 and February 1996, the Company refinanced certain of its
credit facilities. The unamortized balance of debt issuance costs which related
to the previous debt were written off, net of related tax benefits, as an
extraordinary loss on debt extinguishment as required by generally accepted
accounting principles. These amounts were $329,000 ($204,000 net of taxes) in
fiscal 1994 and $2.6 million ($1.6 million net of taxes) in fiscal 1996.
F-10
<PAGE> 83
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
2. LONG-TERM DEBT -- (CONTINUED)
The interest rates and principal maturity terms of the credit facility are
as follows:
<TABLE>
<CAPTION>
FINAL
FACILITY AMOUNT INTEREST RATE MATURITY DATE
-------- ------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Term Loan A................ $ 18,000 LIBOR + 3.00% or prime + 2.00% February 2000
Term Loan B................ 19,900 LIBOR + 3.25% or prime + 2.25% February 2002
Term Loan C................ 54,700 LIBOR + 3.75% or prime + 2.75% February 2004
Term Loan D................ 45,000 LIBOR + 3.75% or prime + 2.75% February 2004
--------
137,600
Maximum Revolving Credit
Facility................. 25,000 LIBOR + 3.00% or prime + 2.00% February 2000
--------
$162,600
========
</TABLE>
Debt principal is to be repaid in varying quarterly installments with
interest over the terms shown above.
The borrowing under the Revolving Credit Facility is limited to the lesser
of $25 million or available collateral as defined in the amended credit
agreement. At June 30, 1997, the revolving credit line had approximately $24.5
million available for future borrowings, subject to borrowing base limitations
and outstanding letters of credit.
The following information related to the revolving credit facility is
presented for the years ended December 31, 1994 and 1995, the nine-month fiscal
period ended September 30, 1996 and the nine months ended June 30, 1997.
<TABLE>
<CAPTION>
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average interest rate.................. 7.9% 9.0% 8.4% 8.6%
</TABLE>
Annual maturities of long-term debt and capital lease obligations for each
of the next five years ended June 30, are as follows:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
YEAR DEBT LEASES TOTAL
---- --------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
1998............................................. $ 2,875 $ 1,558
1999............................................. 6,000 1,521
2000............................................. 7,300 1,335
2001............................................. 10,150 994
2002............................................. 13,750 994
Thereafter....................................... 45,863 5,460
------- -------
85,938 11,862 $97,800
Less imputed interest............................ -- 4,615 4,615
------- ------- -------
Present value of net minimum payments............ 85,938 7,247 93,185
Less current portion............................. 2,875 810 3,685
------- ------- -------
Long-term obligations............................ $83,063 $ 6,437 $89,500
======= ======= =======
</TABLE>
The term loans and revolving credit agreement contain various restrictive
covenants which include, among other things, financial covenants requiring
minimum and cumulative earnings levels and limitations on
F-11
<PAGE> 84
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
2. LONG-TERM DEBT -- (CONTINUED)
the payment of dividends, stock purchases, and capital spending, and the
Company's ability to enter into certain contractual arrangements. In addition to
the above scheduled principal maturities, the credit agreement also provides
that excess cash flow (as annually defined) will be used to fund future
principal maturities. The facilities are secured by substantially all assets of
the Company.
The Company leases certain assets under capital lease agreements. At
December 31, 1995, September 30, 1996 and June 30, 1997, the cost of these
assets was $6,987,000, $7,128,000 and $7,949,000, respectively, and related
accumulated amortization was $155,000, $642,000 and $556,000, respectively.
3. INCOME TAXES
At June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes that expire as follows:
<TABLE>
<S> <C>
2003....................................................... $ 958
2004....................................................... 5,253
2005....................................................... 76
2006....................................................... 5
2007....................................................... 1,299
2008....................................................... 195
2009....................................................... 1,248
2010....................................................... 5,121
2011....................................................... 12,584
-------
$26,739
=======
</TABLE>
The Company also has state income enterprise zone credits of approximately
$1 million that expire in 1997.
The Company has established a valuation allowance of $1,031,000 for state
enterprise zone credits that are available but are not expected to be realized.
Management believes it is more likely than not that remaining deferred tax
assets will be realized through the generation of future taxable income and
available tax planning strategies.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------ ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward.......................... $ 5,012 $ 9,730 $10,573
State enterprise zone credits............................ 1,031 1,031 1,031
AMT credit carryforward.................................. 561 561 515
Other.................................................... 1,064 1,888 1,084
------- ------- -------
Total deferred tax assets.................................. 7,668 13,210 13,203
Deferred tax liabilities:
Book basis of tangible assets greater than tax........... 4,311 6,721 8,756
Other.................................................... 166 710 473
------- ------- -------
Total deferred tax liabilities............................. 4,477 7,431 9,229
------- ------- -------
Net deferred tax assets before allowance................... 3,191 5,779 3,974
Valuation allowance for deferred tax assets................ (1,031) (1,031) (1,031)
------- ------- -------
Net deferred tax assets.................................... $ 2,160 $ 4,748 $ 2,943
======= ======= =======
</TABLE>
F-12
<PAGE> 85
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
3. INCOME TAXES -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
DECEMBER 31 ENDED ENDED
-------------- SEPTEMBER 30, JUNE 30,
1994 1995 1996 1997
---- ---- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current income tax expense............................ $ 316 $ 6 $ -- $ --
Deferred tax expense (benefit)........................ 1,134 264 (1,556) 1,878
Change in valuation allowance......................... 34 -- -- --
------ ---- ------- ------
Net income tax expense (benefit)...................... $1,484 $270 $(1,556) $1,878
====== ==== ======= ======
</TABLE>
The reconciliation of income tax computed at the U.S. statutory tax rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
DECEMBER 31 ENDED ENDED
-------------- SEPTEMBER 30, JUNE 30,
1994 1995 1996 1997
---- ---- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) before income taxes..................... $3,870 $746 $(4,107) $4,928
U.S. statutory tax rate............................... x34% x34% x34% x34%
------ ---- ------- ------
Federal income tax expense (benefit) at U.S. statutory
rate................................................ 1,316 254 (1,396) 1,676
State income tax expense (benefit), net of federal tax
effect.............................................. 155 30 (165) 196
Change in valuation allowance......................... 34 -- -- --
Other, net............................................ (21) (14) 5 6
------ ---- ------- ------
Net income tax expense (benefit)...................... $1,484 $270 $(1,556) $1,878
====== ==== ======= ======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
In April 1997, the Company entered into a long-term supply arrangement in
which the Company is obligated to produce and the customer is obligated to
purchase certain minimum annual volumes of pasta products beginning in fiscal
1998. In order to fulfill its obligations under the contract, the Company will
be required to expand significantly its available production capacity.
The Company has committed approximately $86 million to expand significantly
its existing manufacturing, milling and distribution facilities. The expansion
assets are anticipated to be placed in service during fiscal 1998. As of June
30, 1997, cumulative expansion expenditures are $7,839,000, including
capitalized interest of $136,000. The remaining expansion costs will be funded
from a portion of the proceeds from the Company's common stock sale (see Note
12), available bank debt credit facilities and cash provided by operations.
The Company had durum wheat purchase commitments totaling approximately
$7.9 million, $8.0 million and $6.3 million at December 31, 1995, September 30,
1996 and June 30, 1997, respectively.
Under an agreement with its predominant rail carrier, the Company is
obligated to transport specified wheat volumes. In the event the specified
transportation volumes are not met, the Company is required to reimburse certain
rail carrier costs. The Company is in compliance with the volume obligations at
June 30, 1997.
F-13
<PAGE> 86
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
5. MAJOR CUSTOMERS
Sales to a certain customer during the years ended December 31, 1994 and
1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended
June 30, 1997 represented 38%, 33%, 27% and 27% of revenues, respectively. Sales
to a second customer during the years ended December 31, 1994 and 1995, the
fiscal nine-months ended September 30, 1996 and the nine-months ended June 30,
1997 represented 12%, 23%, 19% and 21% of revenues, respectively.
6. STOCK OPTION PLAN
In October 1992, a stock option plan was established that authorizes the
granting of options to purchase up to 1,201,880 shares of the Company's no par
common stock by certain officers and key employees. In October 1993, an
additional plan was established that authorizes the granting of options to
purchase up to 82,783 shares of the Company's no par common stock. The stock
options expire 10 years from the date of grant and become exercisable over the
next five years in varying amounts depending on the terms of the individual
option agreements.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE EXERCISABLE
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993................ 565,938 $2.33-$4.92 $ 3.90 278,591
Exercised..................................... --
Granted....................................... 116,693 $4.92 $ 4.92
Canceled/Expired.............................. (9,198) $4.92 $ 4.92
---------
Outstanding at December 31, 1994................ 673,433 $2.33-$4.92 $ 4.06 374,447
Exercised..................................... --
Granted....................................... 339,562 $12.23 $12.23
Canceled/Expired.............................. --
---------
Outstanding at December 31, 1995................ 1,012,995 $2.33-$12.23 $ 6.79 455,942
Exercised..................................... --
Granted....................................... 1,226 $12.23 $12.23
Canceled/Expired.............................. (613) $12.23 $12.23
---------
Outstanding at September 30, 1996............... 1,013,608 $2.33-$12.23 $ 6.80 541,471
Exercised..................................... --
Granted....................................... 258,373 $7.02-$12.23 $ 8.82
Canceled/Expired.............................. (48,627) $4.92-$12.23 $11.95
---------
Outstanding at June 30, 1997.................... 1,223,354 $2.33-$12.23 $ 7.02 662,678
=========
</TABLE>
The following table summarizes outstanding and exercisable options at June
30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$2.33-$2.38............................... 226,456 $ 2.36 226,456 $ 2.36
$4.92..................................... 445,137 4.92 323,392 4.92
$7.02..................................... 169,244 7.02 56,415 7.02
$12.23.................................... 382,517 12.23 56,415 12.23
</TABLE>
Compensation expense totaling $144,000 was recorded during the year ended
December 31, 1994 related to the vesting of compensatory stock options.
F-14
<PAGE> 87
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
6. STOCK OPTION PLAN -- (CONTINUED)
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share for stock-based awards as if the Company had used the fair value
method of accounting for such awards. Under SFAS No. 123, the fair value is
calculated through the use of option pricing models. These models require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the minimum value method with the following
weighted-average assumptions: expected life, 18 months following vesting; no
stock volatility; risk free interest rate of 6% and no dividends during the
expected term. Based on these calculations, the effect of applying SFAS No.
123's fair value method to the Company's stock-based awards granted subsequent
to December 15, 1994 results in pro forma net income of $3,027,000 and earnings
per share of $0.25 for the nine months ended June 30, 1997, which are not
materially different from amounts reported.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan organized under Section 401(k)
of the Internal Revenue Code covering substantially all employees. The plan
allows all qualifying employees to contribute up to the tax deferred
contribution limit allowable by the Internal Revenue Service. The Company will
match 50% of the employee contributions up to a maximum employee contribution of
6% of the employee's salary and may contribute additional amounts to the plan as
determined annually by the Board of Directors. Employer contributions related to
the plan totaled $133,000, $139,000, $124,000 and $140,000 for the years ended
December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and
the nine-months ended June 30, 1997, respectively.
8. PLANT EXPANSION COSTS
Plant expansion costs include incremental direct and indirect manufacturing
and distribution costs which are incurred as a result of construction,
commissioning and start-up of new capital assets. These costs are expensed as
incurred but are unrelated to current production and, therefore, reported as a
separate line item in the statement of operations. Plant expansion costs
amounted to $484,000 and $2,065,000 for the years ended December 31, 1994 and
1995, respectively.
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1997
------------ ------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $5,110 $9,675 $8,101 $7,520
====== ====== ====== ======
Cash paid for income taxes................... $ 250 $ 100 $ 50 $ 2
====== ====== ====== ======
</TABLE>
F-15
<PAGE> 88
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
10. PRODUCT INTRODUCTION COSTS
During 1996, the Company began distribution of its Pasta LaBella flavored
pasta products into the United States' retail grocery trade. Introduction of
these products was supported by significant advertising, promotions and other
initiatives. The Company's selling and marketing expense includes the following
product introduction costs:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Introductory advertising.............................. $3,587 $ 137
In-store product demonstrations....................... 692 307
Direct response advertising amortization.............. 166 200
Product placement fees paid........................... 3,113 1,333
Introductory trade incentives......................... 268 --
Other................................................. 296 157
------ ------
Total product introduction costs...................... $8,122 $2,134
====== ======
</TABLE>
11. NOTES RECEIVABLE FROM OFFICERS
In April 1997, certain officers of the Company acquired 42,366 shares of
common stock. At the same time, the Company loaned these officers $298,000, all
of which remains outstanding at June 30, 1997. The loans which were evidenced by
promissory notes are due in three equal installments with the final payment due
April 2000. The notes are collateralized by the pledge of shares of common stock
of the Company, may be prepaid in part or in full without notice or penalty and
bear interest at the applicable federal rate in effect on the first day of each
quarter. These loans, evidenced by promissory notes, are classified as a
reduction to stockholders equity in the accompanying balance sheet at June 30,
1997.
12. SUBSEQUENT EVENTS
PENDING PUBLIC OFFERING OF COMMON STOCK AND RECAPITALIZATION
During August 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an underwritten initial public offering
(the "Offering") of 7,900,000 shares of Class A Common Stock, par value of $.001
per share (the "New Class A Common Stock"), of which 5,310,000 shares are to be
offered by the Company and 2,590,000 shares would be sold by certain selling
stockholders. Prior to consummation of the Offering, the Company amended and
restated its Charter and By-Laws and effected a recapitalization such that (i)
the common equity of the Company consists of New Class A Common Stock and Class
B Convertible Common Stock, par value $.001 per share (the "New Class B Common
Stock") and (ii) each previously-outstanding share of common stock of the
Company was converted into 6.132043 shares of New Class A Common Stock. Shares
of New Class A Common Stock held by persons other than private equity funds
sponsored by Morgan Stanley Dean Witter (the "Morgan Stanley Stockholders") and
certain related persons are not convertible into New Class B Common Stock.
Holders of New Class B Common Stock will have no right to vote on matters
submitted to a vote of stockholders, except in certain circumstances. Shares of
the New Class B Common Stock have no preemptive or other subscription rights and
are convertible into an equal number of shares of New Class A Common Stock (1)
at the option of the holder thereof to the extent that, following such
conversion, the Morgan Stanley Stockholders will not, in the aggregate, own more
than 49% of the outstanding shares of New Class A Common Stock, and (2)
automatically upon the transfer of such shares by any Morgan Stanley Stockholder
to any person that is not a Morgan Stanley Stockholder.
F-16
<PAGE> 89
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
12. SUBSEQUENT EVENTS -- (CONTINUED)
In connection with the recapitalization, the Company's Charter was amended
to provide that the Board of Directors is authorized, subject to certain
limitations prescribed by law, without further stockholder approval, to issue
from time to time up to an aggregate of 10,000,000 shares of Preferred Stock in
one or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each such
series thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions)
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. The Company has no present plans
to issue any shares of Preferred Stock.
The financial statements and notes have been retroactively restated to reflect
the stock split and new capital structure.
1997 EQUITY INCENTIVE PLAN
The Board of Directors has adopted the 1997 Equity Incentive Plan for all
employees which is to take effect upon the closing of the Offering. Under the
Plan, the Board or a committee designated by the Board is authorized to grant
nonqualified stock options, incentive stock options, reload options, stock
appreciation rights, shares of restricted Common Stock, performance shares,
performance units and shares of Common Stock awarded as a bonus. There are
2,000,000 shares of Common Stock reserved for issuance under the Plan.
REVOLVING CREDIT FACILITY
In connection with the proposed initial public offering, the Company has
received from its lender a commitment letter for a new $150 million unsecured
revolving credit facility pending successful completion of the public offering.
F-17
<PAGE> 90
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain financial data of the Company for
each thirteen week period. The financial data for each of these quarters is
unaudited but includes all adjustments, consisting of only normal recurring
adjustments, which the Company believes to be necessary for a fair presentation.
These operating results, however, are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED
DECEMBER 31, MARCH 31, JUNE 30, JUNE 30,
1996 1997 1997 1997
------------ --------- -------- ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.......................................... $29,547 $32,117 $31,952 $93,616
Gross profit...................................... 8,398 8,388 9,009 25,795
Operating profit.................................. 3,252 4,376 5,100 12,728
Income (loss) before income tax and extraordinary
loss............................................ 700 1,620 2,608 4,928
Net income (loss)................................. 432 1,005 1,613 3,050
Net income per common share....................... 0.04 0.10 0.11 0.25
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTH
FISCAL PERIOD
ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996 1996
--------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues......................................... $24,975 $32,464 $34,635 $92,074
Gross profit..................................... 5,518 8,474 9,527 23,519
Operating profit................................. 1,754 789 1,373 3,916
Income (loss) before income tax and extraordinary
loss........................................... (867) (1,873) (1,367) (4,107)
Net income (loss)................................ (2,177) (1,150) (871) (4,198)
Net loss per common share........................ (0.21) (0.11) (0.09) (0.41)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1995 1995
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $18,718 $21,676 $23,434 $29,075 $92,903
Gross profit...................... 2,953 4,216 3,418 6,400 16,987
Operating profit.................. 1,200 2,384 1,299 3,871 8,754
Income (loss) before income tax
and extraordinary loss.......... (544) 597 (431) 1,124 746
Net income (loss)................. (337) 373 (267) 707 476
Net income (loss) per common
share........................... (0.03) 0.04 (0.03) 0.07 0.05
</TABLE>
F-18
<PAGE> 91
AIPC'S PASTA PRODUCTION FACILITIES
PICTURE PICTURE
PICTURE PICTURE
<PAGE> 92
AIPC LOGO
<PAGE> 93
AIPC LOGO
PROSPECTUS (Subject to Completion)
Issued October 8, 1997
7,900,000 Shares
American Italian Pasta Company
CLASS A COMMON STOCK
------------------------
OF THE 7,900,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 5,310,000
SHARES ARE BEING SOLD BY THE COMPANY AND 2,590,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF CLASS A COMMON STOCK
BY SUCH SELLING STOCKHOLDERS. OF THE 7,900,000 SHARES OF CLASS A COMMON STOCK
BEING OFFERED HEREBY, 1,580,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 6,320,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15
AND $17. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS A
COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF
CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER
SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B COMMON
STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND AS REQUIRED
BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF
DIRECTORS.
------------------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE, ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "PLB."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $1,350,000.
(3) The Company and certain stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 1,185,000 additional Shares of Class A
Common Stock at the Price to Public less Underwriting Discounts and
Commissions, for the purpose of covering over-allotments, if any. If the
U.S. Underwriters exercise such option in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ ,
and $ , respectively. See "Underwriters."
------------------------
The Shares of Class A Common Stock are offered, subject to prior sale,
when, as and if accepted by the Underwriters named herein and subject to
approval of certain legal matters by Davis Polk & Wardwell, counsel for the
Underwriters. It is expected that delivery of the Shares of Class A Common Stock
will be made on or about October , 1997 at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
GEORGE K. BAUM & COMPANY
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
Offering described in this Amendment to Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 46,802
NASD Examination Fee........................................ 12,000
New York Stock Exchange Listing Fee......................... 125,000
Accounting Fees and Expenses................................ 300,000
Printing and Engraving Expenses............................. 325,000
Legal Fees and Expenses..................................... 485,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees and Expenses.............. 15,000
Miscellaneous............................................... 36,198
----------
Total.................................................. $1,350,000
==========
</TABLE>
The foregoing items, except for the Securities and Exchange Commission,
NASD and New York Stock Exchange fees, are estimated. All expenses will be borne
by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL"), empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
any such threatened, pending or completed action or suit by or in the right of
the corporation if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific case
upon a determination by the stockholders or disinterested directors or by
independent legal counsel in a written opinion that indemnification is proper
because the indemnitee has met the applicable standard of conduct. The Charter
and By-laws of the Company provide that directors and officers shall be
indemnified as described above in this paragraph to the fullest extent permitted
by the DGCL; provided, however, that any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person shall be
indemnified only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company. The Charter and By-laws will permit the board
of directors to authorize the Company to purchase and obtain insurance against
any liability asserted against any director, officer, employee or agent of the
Company arising out of his or her capacity as such. Reference is made to Article
V of the Company's Charter filed as Exhibit 3.1 hereto and to Article VI of the
Company's By-laws filed as Exhibit 3.2 hereto.
As permitted by the DGCL, the Company's Charter provides that no director
of the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a
II-1
<PAGE> 95
director, except (i) for a breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (relating to the declaration of dividends and purchase
or redemption of shares in violation of the DGCL), or (iv) for any transaction
from which the director derived an improper personal benefit.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the Registrant's
directors, its officers who signed the Registration Statement and its
controlling persons and by the Registrant of the Underwriters, directors and
their controlling persons against certain liabilities, including liabilities
under the Securities Act, under certain circumstances. Reference is also made to
the Amended and Restated Stockholders Agreement filed as Exhibit 10.9 hereto,
for a description of certain other indemnification arrangements relating to
directors and officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act:
(a) On January 14, 1994, the Company issued to Horst W. Schroeder 3,097
Shares of Old Common Stock (as defined under "Description of Capital
Stock -- General" in the Prospectus) for an aggregate purchase price of
$15,236, or $4.92 per share, in lieu of cash compensation under a
consulting agreement between HWS Associates, Inc., an entity owned by
Mr. Schroeder, and the Company (the "Schroeder Consulting Agreement").
(b) On March 8, 1995, the Company issued to Mr. Schroeder 21,401 shares of
Old Common Stock for an aggregate purchase price of $105,293, or $4.92
per share, in lieu of cash compensation under the Schroeder Consulting
Agreement.
(c) On December 28, 1995, the Company issued to Mr. Schroeder 11,712 shares
of Old Common Stock for a purchase price of $57,625, or $4.92 per
share, in lieu of cash compensation under the Schroeder Consulting
Agreement.
(d) On April 4, 1996, the Company issued to Mr. Schroeder 6,733 shares of
Old Common Stock for a purchase price of $33,127, or $4.92 per share,
in lieu of cash compensation under the Schroeder Consulting Agreement.
Each of the sales of securities referenced in paragraphs (a)-(d) above were
made to Mr. Schroeder, Chairman of the Board of Directors, for investment
purposes, a restrictive legend was included on the stock certificates, and no
underwriters were involved. All of such sales were made in reliance upon an
exemption from the registration requirements of the Securities Act set forth in
Section 4(2) thereof.
(e) On April 13, 1995 the Company issued an aggregate of 20,328 shares of
Old Common Stock to certain of the Company's then-executive officers,
including Timothy S. Webster, David E. Watson, Norman F. Abreo, David
B. Potter and Darrel Bailey, for an aggregate purchase price of
$100,014, or $4.92 per share. These shares were purchased with funds
loaned by the Company evidenced by promissory notes made payable to the
Company over a three year period commencing upon termination of
transfer restrictions applicable to such shares under the Stockholders
Agreement. Such loans bear interest at the then applicable federal
rate.
(f) On July 7, 1995, the Company issued to JSS Management Co. Ltd., of
which Mr. Schlindwein, a director of the Company, and his wife are the
general partner and limited partner, respectively, 20,322 shares of Old
Class A Common Stock (as defined under "Description of Capital Stock --
General" in the Prospectus) for a purchase price of $99,983, or $4.92
per share.
(g) On April 15, 1997, the Company issued an aggregate of 3,174,528 shares
of Old Class A Common Stock at a purchase price of $7.02 per share,
aggregating $22,291,947, to all but one of the then-current
stockholders of the Company and several members of the Company's
management team (the "1997 Private Equity Financing"), all of whom are
officers, directors and senior managers
II-2
<PAGE> 96
or a spouse thereof. In particular, the Company issued 2,563,323 shares
to the MSCP Funds (as defined in the Prospectus), 427,219 shares to
affiliated investment funds of George K. Baum & Company, an aggregate
of 49,056 shares to a trust of which Mr. Schroeder is the trustee and
members of his family are the beneficiaries, an aggregate of 28,483
shares to Mr. Schlindwein, his wife and JSS Management Co. Ltd., an
aggregate of 20,242 shares to Mr. Webster and trusts for the benefit of
members of his family, 42,513 shares to David E. Watson, 5,194 shares
to Norman F. Abreo and 13,024 shares to David P. Potter.
In each of the sales of securities referenced in paragraphs (e)-(g) above,
the purchasers made representations as to their investment intent, a restrictive
legend was included on the stock certificates, and no underwriters were
involved. All of such sales were made in reliance upon an exemption from the
registration requirements of the Securities Act set forth in Section 4(2)
thereof.
(h) On June 24, 1997, the Company issued 31,200 shares of Old Class A
Common Stock to the American Italian Pasta Company Retirement Savings
Plan pursuant to an exemption from registration requirements set forth
in Section 3(a)(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBIT INDEX
The exhibit index is set forth on page II-6 of this Amendment to
Registration Statement and is hereby incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed as part of this Amendment to
Registration Statement for the reason that they are not required or are not
applicable, or the required information is shown in the Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will provide to the Underwriters at the closing specified in
the underwriting agreements certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Excelsior
Springs, State of Missouri, as of the 7th day of October, 1997.
AMERICAN ITALIAN PASTA COMPANY
By: /s/ TIMOTHY S. WEBSTER
------------------------------------
Timothy S. Webster
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
* Chairman of the Board of Directors October 7, 1997
- ---------------------------------------
Horst W. Schroeder
/s/ TIMOTHY S. WEBSTER President, Chief Executive Officer and October 7, 1997
- --------------------------------------- Director (Principal Executive Officer)
Timothy S. Webster
* Executive Vice President and Chief October 7, 1997
- --------------------------------------- Financial Officer, Treasurer and Secretary
David E. Watson (Principal Financial and Accounting
Officer)
* Director October 7, 1997
- ---------------------------------------
Jonathan E. Baum
* Director October 7, 1997
- ---------------------------------------
David Y. Howe
* Director October 7, 1997
- ---------------------------------------
Robert H. Niehaus
* Director October 7, 1997
- ---------------------------------------
Amy S. Rosen
* Director October 7, 1997
- ---------------------------------------
James A. Schlindwein
* Director October 7, 1997
- ---------------------------------------
Lawrence B. Sorrel
* Director October 7, 1997
- ---------------------------------------
Richard C. Thompson
</TABLE>
*By: /s/ TIMOTHY S. WEBSTER
---------------------------------
Timothy S. Webster
Attorney-in-Fact
II-4
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
</TABLE>
1.1 Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen certificate representing the Company's Class A
Common Stock
4.2* Specimen certificate representing the Company's Class B
Common Stock
5.1 Opinion of Sonnenschein Nath & Rosenthal
8.1* Opinion of Sonnenschein Nath & Rosenthal with respect to
certain tax matters
10.1* Credit Agreement among the Company, various banks named
therein, Bankers Trust Company and Morgan Stanley Senior
Funding, Inc. dated as of October 30, 1992, as amended and
restated as of April 11, 1997
10.2+ Manufacturing and Distribution Agreement dated as of April
15, 1997 between CPC International Inc. and the Company
10.3+ Amended and Restated Supply Agreement dated October 29,
1992, as amended July 1, 1997, between the Company and Sysco
Corporation
10.4* Warehouse Lease dated May 23, 1995 between the Company and
Lanter Company
10.5* Employment Agreement between the Company and Timothy S.
Webster
10.6* Employment Agreement dated September 30, 1997 between the
Company and Horst W. Schroeder
10.7* Employment Agreement dated September 30, 1997 between the
Company and David E. Watson
10.8* Employment Agreement dated September 30, 1997 between the
Company and Norman F. Abreo
10.9* Employment Agreement dated September 30, 1997 between the
Company and David B. Potter
10.10* Amended and Restated Shareholders' Agreement dated October
6, 1997
10.11* American Italian Pasta Company 1992 Stock Option Plan
10.12* American Italian Pasta Company 1993 Non-Qualified Stock
Option Plan
10.13* 1996 Salaried Bonus Plan
10.14* 1997 Equity Incentive Plan
10.15 Form of Custody Agreement and Power of Attorney dated
October 7, 1997 between Thompson Holdings, L.P., Timothy S.
Webster and David E. Watson, as Attorneys-in-Fact, and
Republic New York Securities Corporation, as Custodian.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Sonnenschein Nath & Rosenthal (included in
Exhibit 5.1 and Exhibit 8.1)
24.1* Powers of Attorney (included on signature page)
27.1* Financial Data Schedule
- -------------------------
* Previously filed.
+ Confidential treatment has been requested for portions of this document. The
redacted material has been filed separately with the Commission pursuant to
an application for confidential treatment.
II-5
<PAGE> 1
EXHIBIT 1.1
7,900,000 SHARES
AMERICAN ITALIAN PASTA COMPANY
CLASS A COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
October __, 1997
<PAGE> 2
_____________, 1997
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
George K. Baum & Company
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BT Alex. Brown International
Goldman Sachs International
George K. Baum & Company
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
American Italian Pasta Company, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain shareholders of the Company (the "FIRM SELLING SHAREHOLDERS") named in
Part A of Schedule I hereto propose to sell to the several Underwriters (as
defined below), an aggregate of 7,900,000 shares of Class A Common Stock, par
value $.001 per share, of the Company (the "FIRM SHARES"), of which 5,310,000
shares are to be issued and sold by the Company (the "COMPANY SHARES") and
2,590,000 shares (the "FIRM SHAREHOLDERS SHARES") are to be sold by the Firm
Selling Shareholders.
It is understood that, subject to the conditions hereinafter stated,
6,320,000 Firm Shares (the "U.S. FIRM SHARES"), consisting of [4,248,000]
Company Shares (the "U.S. COMPANY SHARES") and [2,072,000] Firm Shareholders
Shares, will be sold to the several U.S. Underwriters named in Schedule II
hereto (the "U.S. UNDERWRITERS") in connection with the offering and sale of
such U.S. Firm Shares in the United States and Canada to United States and
Canadian Persons (as such terms are defined in the Agreement Between U.S. and
International Underwriters
<PAGE> 3
of even date herewith), and 1,580,000 Firm Shares (the "INTERNATIONAL SHARES"),
consisting of [1,062,000] Company Shares (the "INTERNATIONAL COMPANY SHARES")
and [518,000] Firm Shareholders Shares, will be sold to the several
International Underwriters named in Schedule III hereto (the "INTERNATIONAL
UNDERWRITERS") in connection with the offering and sale of such International
Shares outside the United States and Canada to persons other than United States
and Canadian Persons. Morgan Stanley & Co. Incorporated, Alex. Brown & Sons
Incorporated, Goldman, Sachs & Co. and George K. Baum & Company shall act as
representatives (the "U.S. REPRESENTATIVES") of the several U.S. Underwriters,
and Morgan Stanley & Co. International Limited, Alex. Brown & Sons
Incorporated, Goldman Sachs International and George K. Baum & Company shall
act as representatives (the "INTERNATIONAL REPRESENTATIVES") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "UNDERWRITERS."
The Company and certain shareholders of the Company named in Part B of
Schedule I hereto (the "ADDITIONAL SELLING SHAREHOLDERS," and together with the
Firm Selling Shareholders, the "SELLING SHAREHOLDERS") severally propose to
sell to the several U.S. Underwriters, not more than an aggregate of
1,185,000 additional shares of Class A Common Stock, par value $.001 per share,
of the Company (the "ADDITIONAL SHARES"), each Additional Selling Shareholder
selling up to the amount set forth opposite such Additional Selling
Shareholder's name in Part B of Schedule I hereto, if and to the extent that
the U.S. Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares of Class A Common Stock,
par value $.001 per share granted to the U.S. Underwriters in Section hereof.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "SHARES." The shares of Class A Common Stock, par value $.001 per
share, of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK." The
Company and the Selling Shareholders are hereinafter sometimes collectively
referred to as the "SELLERS."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (File No. 333-32827)
relating to the Shares. The registration statement contains two prospectuses to
be used in connection with the offering and sale of the Shares: the U.S.
prospectus, to be used in connection with the offering and sale of Shares in
the United States and Canada to United States and Canadian Persons, and the
international prospectus, to be used in connection with the offering and sale
of Shares outside the United States and Canada to persons other than United
States and Canadian Persons. The international prospectus is identical to the
U.S. prospectus except for the outside front cover page. The registration
statement as amended at the time it becomes effective, including the
information (if any) deemed to be part of the registration
2
<PAGE> 4
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "PROSPECTUS." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i)The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use
therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the
3
<PAGE> 5
extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company.
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
(e) Upon the closing of the offering of the Shares, the authorized, is
sued and outstanding capital stock of the Company will be as set forth in
the Prospectus under the caption "Capitalization" in the column entitled
"Pro Forma As Adjusted," and the authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in the
Prospectus.
(f) The shares of Common Stock (including the Shares to be sold by the
Selling Shareholders) outstanding prior to the issuance of the Shares to
be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.
(g) The Shares to be sold by the Company and the shares of Class B
Non-Voting Common Stock, par value $.001 per share, ("CLASS B COMMON
STOCK") to be issued in the recapitalization described in the Prospectus
under the caption "Prospectus Summary -- Recapitalization" (the
"RECAPITALIZATION") have been duly authorized and the Shares, when issued
and delivered in accordance with the terms of this Agreement, and such
shares of Class B Common Stock when issued in the Recapitalization will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares and Class B Common Stock will not be subject to any preemptive or
similar rights.
(h) the issuance of Class B Common Stock in the Recapitalization and
the bank refinancing (the "BANK REFINANCING") on the terms set forth in
the Commitment Letter from Bankers Trust Company dated July 30, 1997 and
as described under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement and
the Amended and Restated Stockholders Agreement dated as of September ,
1997 among the Company, Richard C. Thompson, The Morgan Stanley Leveraged
Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P., George K.
Baum Group, Inc., Citicorp Venture Capital, Ltd. and the other signatories
thereto (the "STOCKHOLDERS AGREEMENT") will not contravene any provision
of applicable law or the certificate of incorporation or
4
<PAGE> 6
by-laws of the Company or any agreement or other instrument binding upon
the Company that is material to the Company, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
issuance of the Class B Common Stock in the Recapitalization, for the Bank
Refinancing or for the performance by the Company of its obligations under
this Agreement or the Stockholders Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares or the issue of Class B
Common Stock in the Recapitalization.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement).
(j) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company is a party or to
which any of the properties of the Company is subject that are required to
be described in the Registration Statement or the Prospectus and are not
so described or any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(k) The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business, except where the failure to possess
such certificates, authorizations, or permits would not have a material
adverse effect on the Company, and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result in
a material adverse change in the condition, financial or otherwise, or in
the earnings, business or operations of the Company, except as described
in or contemplated by the Prospectus.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in
5
<PAGE> 7
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), (ii) has received all permits, licenses or other approvals
required of it under applicable Environmental Laws to conduct its business
and (iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have
a material adverse effect on the Company.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company.
(p) Except for the Stockholders Agreement, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(q) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned
by it which is material to the business of the Company, in each case free
and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not materially interfere with the use made and
6
<PAGE> 8
proposed to be made of such property by the Company; and any real property
and buildings held under lease by the Company are held by the Company
under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company, except
as described in or contemplated by the Prospectus.
(r) The Company owns or possesses, or can acquire on reasonable terms,
all material patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by the
Company in connection with the business now operated by the Company, and
the Company has not received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company.
(s) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company is engaged;
the Company has not been refused any insurance coverage sought or applied
for; and the Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company, except as described in or contemplated by the
Prospectus.
(t) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction not in the ordinary course of
business; (ii) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock other than ordinary and
customary dividends; and (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company,
except in each case as described in or contemplated by the Prospectus
7
<PAGE> 9
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement).
(u) The Company has no subsidiaries.
(v) None of the Company's outstanding securities are rated by any
"nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(w) (i) The Stockholders Agreement has been executed and delivered by
the Company and the employment agreements of Horst W. Schroeder, Timothy
S. Webster, Norman F. Abreo and David E. Watson (the "EMPLOYMENT
AGREEMENTS") as described in the Prospectus have been executed and
delivered by such persons and the Company and each such Employment
Agreement is in full force and effect.
2. Representations and Warranties of the Selling Shareholders. Each of the
Selling Shareholders, severally and not jointly, represents and warrants to and
agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement, and, if applicable, the Custody Agreement signed by Thompson
Holdings, L.P., a Firm Selling Shareholder and Republic New York
Securities Corporation as Custodian, relating to the deposit of the
Shares to be sold by such Firm Selling Shareholder (the "CUSTODY
AGREEMENT"), including the Power of Attorney appointing certain
individuals as such Firm Selling Shareholder's attorneys-in-fact to
the extent set forth therein, relating to the transactions contemplated
hereby and by the Registration Statement (the "POWER OF ATTORNEY") and the
Shareholders Agreement will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such Selling
Stockholder (if such Selling Shareholder is a corporation), or any
agreement or other instrument binding upon such Selling Shareholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Shareholder of its
obligations under this Agreement or, if applicable, the Custody Agreement
including the Power of Attorney of such Selling Stockholder or the
Shareholders Agreement except such as
8
<PAGE> 10
may be required by the securities or Blue Sky laws of the various states
and foreign jurisdictions in connection with the offer and sale of the
Shares.
(c) Such Selling Shareholder has, subject to the proviso of this
paragraph (c), and on the Closing Date or, if applicable, on the Option
Closing Date will have, valid title to the Shares to be sold by such
Selling Shareholder and the legal right and power, and all authorization
and approval required by law, to enter into this Agreement and to sell,
transfer and deliver the Shares to be sold by such Selling Shareholder;
provided that Thompson Holdings, L.P., a Firm Selling Shareholder will
have valid title to the Shares to be sold by such Firm Selling Shareholder
and the legal right and power, and all authorization and approval required
by law, to sell, transfer and deliver the Shares to be sold on the Closing
Date upon release of the lien on such Firm Selling Stockholder's Shares
established in favor of Republic National Bank of New York ("RNB") on June
30, 1997 when such Firm Selling Shareholder pledged such Shares to RNB as
collateral for a personal loan.
(d) The Shares to be sold by such Selling Shareholder pursuant to this
Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(e) The Stockholders Agreement and, if applicable, the Custody
Agreement including the Power of Attorney have been duly authorized,
executed and delivered by such Selling Shareholder and are valid and
binding agreements of such Selling Shareholder.
(f) Delivery of the Shares to be sold by such Selling Shareholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other encumbrances.
(g) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph 2(g) apply only to statements or omissions in
the Registration Statement or the Prospectus based upon
9
<PAGE> 11
information relating to such Selling Shareholder furnished to the Company
in writing by such Selling Shareholder for use therein.
(h) Such Selling Shareholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and other than as permitted by the Securities Act, such Selling
Shareholder has not distributed and will not distribute any prospectus or
other offering material in connection with the offering and sale of the
Shares.
3. Agreements to Sell and Purchase. Each of the Company and the Firm
Selling Shareholders, severally and not jointly, agrees to sell to the several
Underwriters, and each Underwriter, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from such Seller at $____ per
share (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the number of Firm Shares to be sold by such Seller as the
number of Firm Shares set forth in Schedule II or Schedule III hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Additional Selling
Shareholders agree to sell to the U.S. Underwriters up to an aggregate of
1,185,000 Additional Shares and the U.S. Underwriters shall have a one-time
right to purchase, severally and not jointly, up to 1,185,000
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the Closing
Date (as defined below) but not earlier than the Closing Date nor earlier than
the second business day after the giving of the notice hereinafter referred to
nor later than ten business days after the date of such notice. Additional
Shares may be purchased as provided in Section hereof solely for the purpose
of covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each U.S. Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as the U.S.
Representatives may determine) that bears the same proportion to the total
number of Additional Shares to be purchased as the number of U.S. Firm
10
<PAGE> 12
Shares set forth in Schedule II hereto opposite the name of such U.S.
Underwriter bears to the total number of U.S. Firm Shares. The Additional
Shares to be purchased by the U.S. Underwriters hereunder and the U.S. Firm
Shares are hereinafter collectively referred to as the "U.S. SHARES."
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated (except with respect to the Morgan Stanley
Stockholders (as defined in the Registration Statement and Prospectus), a
written consent must be received from all the U.S. Representatives) on behalf
of the Underwriters, it will not, during the period ending 180 days after the
date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or any such securities are now owned by such Seller or are hereafter
acquired) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing, (C) the issuance of shares in connection with the Recapitalization,
(D) the issuance of shares in connection with the conversion from time to time
of Class A Common Stock into Class B Common Stock (and vice versa), (E) the
grants of stock options to employees, directors or consultants pursuant to the
terms of a plan disclosed in the Registration Statement which first become
exercisable more than 180 days after the date of the Prospectus, (F) the
issuance by the Company of shares of Common Stock pursuant to any 401(k) plan,
(G) bona fide charitable donations or estate planning dispositions, provided
that, prior to such transfer, the transferee in any such transaction agrees in
writing to be bound by the terms of this paragraph and the form and substance
of such writing has received written approval from Morgan Stanley & Co.
Incorporated, or (H) transfers due to the death or disability of a seller,
provided that the transferee agrees in writing to be bound by the terms of this
paragraph and the form and substance of such writing has received written
approval from Morgan Stanley & Co. Incorporated. In addition, each Selling
Shareholder agrees that, without the prior written consent of Morgan Stanley &
Co. Incorporated (except with respect to the Morgan Stanley Stockholders (as
defined in the Registration Statement and Prospectus), a written consent must
be received from all the U.S. Representatives) on behalf of the Underwriters,
it will not, during the period ending 180 days after the date of the
Prospectus, make any
11
<PAGE> 13
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
The Company hereby confirms its engagement of Goldman, Sachs & Co. as, and
Goldman, Sachs & Co. hereby confirms its agreement with the Company to render
services as, a "qualified independent underwriter" within the meaning of
Section (b)(15) of Rule 2720 of the Conduct Rules of the National Association
of Securities Dealers, Inc. (the "NASD") with respect to the offering and sale
of the Shares. Goldman, Sachs & Co., in its capacity as qualified independent
underwriter and not otherwise, is referred to herein as the "QIU." The Company
and Goldman, Sachs & Co. hereby agree that $10,000 of the underwriting
discounts to be received by Goldman, Sachs & Co. pursuant to this Section 3
will be compensation for its services as QUI hereunder. The Public Offering
Price (as defined in Section hereof) shall not be higher than the maximum
price recommended by Goldman, Sachs & Co. acting as QIU.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$____ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of U.S.$____ a
share, to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by the
Company and the Firm Selling Shareholder shall be made to each such Seller in
Federal or other funds immediately available in New York City against delivery
of such Firm Shares for the respective accounts of the several Underwriters at
10:00 A.M., New York City time, on ____________, 1997, or at such other time on
the same or such other date, not later than _________, 1997, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "CLOSING DATE."
Payment for any Additional Shares to be sold by Additional Selling
Shareholders shall be made to each such Selling Shareholder in Federal or other
funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 A.M., New York City time, on the date specified in the notice described
in Section or at such other time on the same or on such other date, in any
event not later than
12
<PAGE> 14
_______, 1997, as shall be designated in writing by the U.S. Representatives.
The time and date of such payment are hereinafter referred to as the "OPTION
CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters duly
paid, against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Company and the Selling Shareholders to sell the Shares to the Underwriters and
the several obligations of the Underwriters to purchase and pay for the Shares
on the Closing Date are subject to the condition that the Registration
Statement shall have become effective not later than _______ (New York City
time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any change, or
any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, acting in such capacity but not personally, to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the Company
has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
13
<PAGE> 15
The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received a certificate from the
Attorneys-in-Fact (as defined in the Custody Agreements) on behalf of the Firm
Selling Shareholder, dated the Closing Date and signed by such
Attorneys-in-Fact, to the effect that the representations and warranties of
such Selling Shareholder contained in this Agreement are true and correct as of
the Closing Date and that such Selling Shareholder has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
(d) The Underwriters shall have received on the Closing Date an opinion of
Sonnenschein Nath & Rosenthal, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification;
(ii) upon the closing of the offering of the Shares, the authorized,
issued and outstanding capital stock of the Company will be as set forth
in the Prospectus under the caption "Capitalization" in the column
entitled "Pro Forma As Adjusted," and the authorized capital stock of the
Company conforms as to legal matters to the description thereof contained
in the Prospectus;
(iii) the shares of Common Stock (including the Shares to be sold by
the Selling Shareholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable;
(iv) the Shares and the shares of the Class B Common Stock in the
Recapitalization have been duly authorized and the shares, when issued and
delivered in accordance with the terms of this Agreement, and the shares
of the Class B Common Stock when issued and delivered in connection with
the recapitalization will be non-assessable, and the issuance of such
Shares and Class
14
<PAGE> 16
B Common Stock will not be subject to any preemptive rights or rights in
the nature of preemptive rights;
(v) this Agreement has been duly authorized, executed and delivered by
the Company;
(vi) the issuance of Class B Common Stock in the Recapitalization and
the execution and delivery by the Company of, and the performance by the
Company of its obligations under, this Agreement and the Stockholders
Agreement will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any agreement or other instrument binding upon
the Company that is material to the Company, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the issuance of the Class B
Common Stock, for the Bank Refinancing or for the performance by the
Company of its obligations under this Agreement and the Stockholders
Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares by the U.S. Underwriters or the issue of Class B Common Stock or
foreign securities laws or regulations in connection with the offer and
sale of the Shares by the International Underwriters;
(vii) the statements (A) in the Prospectus under the captions "Risk
Factors -- Anti-Takeover Effect of Certain Charter, By-law and Statutory
Provisions," "Management -- Employment Agreements," " -- Management Bonus
Plan," " -- Stock Option Plans" and " -- 401(k) Profit Sharing Plan,"
"Certain Relationships and Related Transactions," "Certain United States
Federal Income Tax Considerations for non-U.S. Holders," "Description of
Capital Stock," "Underwriters" and (B) in the Registration Statement in
Items 14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to
therein, fairly present in all material respects the information called
for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein;
15
<PAGE> 17
(viii) to such counsel's knowledge no legal or governmental
proceedings are pending or threatened to which the Company is a party or
to which any of the properties of the Company is subject that are required
to be described in the Registration Statement or the Prospectus and are
not so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required;
(ix) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended; and
(x) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules
and other financial and statistical data included therein as to which
such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to believe
that (except for financial statements and schedules and other financial
and statistical data as to which such counsel need not express any belief)
the Registration Statement and the prospectus included therein at the
time the Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to
which such counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) the Underwriters shall have received on the Closing Date an opinion of
counsel for each of the Selling Shareholders dated the Closing Date, to the
effect that:
(i) this Agreement has been duly authorized, executed and delivered
by or on behalf of each Selling Shareholder;
16
<PAGE> 18
(ii) the execution and delivery by each Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement and, if applicable, the Custody Agreement including the Power of
Attorney of such Selling Shareholder and the Stockholders Agreement will
not contravene any provision of applicable law, or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon such
Selling Shareholder or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Shareholder of its
obligations under this Agreement or, if applicable, the Custody Agreement
including the Power of Attorney of such Selling Shareholder or the
Stockholders Agreement, except such as may be required by the securities
or Blue Sky laws of the various states and foreign jurisdictions in
connection with offer and sale of the Shares;
(iii) each of the Selling Shareholders has valid title to the Shares
to be sold by such Selling Shareholder and the legal right and power, and
all authorization and approval required by law, to enter into this
Agreement, if applicable, the Custody Agreement including the Power of
Attorney of such Selling Shareholder and the Stockholders Agreement and to
sell, transfer and deliver the Shares to be sold by such Selling
Shareholder;
(iv) the Stockholders Agreement and, if applicable, the Custody
Agreement including the Power of Attorney of each Selling Shareholder have
been duly authorized, executed and delivered by such Selling Shareholder;
(v) delivery of the Shares to be sold by each Selling Shareholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other encumbrances;
and
(vi) such counsel (A) has no reason to believe that the Registration
Statement and the prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the
17
<PAGE> 19
statements therein not misleading and (B) has no reason to believe that
the Prospectus contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; such opinion shall relate only to information furnished in
writing by or on behalf of the Selling Shareholder represented by such
counsel expressly for use in the Registration Statement or Prospectus.
(f) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(d)(iv) (but only
with respect to the Shares), 6(d)(v), 6(d)(vii) (but only as to the statements
in the Prospectus under "Underwriters") and 6(d)(x) above.
With respect to Section 6(d)(x) above, Sonnenschein Nath & Rosenthal
and Davis Polk & Wardwell, may state that their opinion and belief are based up
on their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification,
except as specified.
The opinions of Sonnenschein Nath & Rosenthal and counsel for each
Selling Shareholder, described in Sections 6(d) and 6(e) above shall be
rendered to the Underwriters at the request of the Company or the Selling
Shareholders, as the case may be, and shall so state therein.
(g) RNB shall have (i) released its lien on all Shares to be sold by
the Firm Selling Stockholder and (ii) delivered executed UCC Form 3s evidencing
the termination by RNB of all recorded security interests in such Shares.
(h) The underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters, from
Ernst & Young LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters"
to underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a "cut-off
date" not earlier than the date hereof.
18
<PAGE> 20
(i) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the
Closing Date.
(j) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and issuance of the Additional Shares and other matters
related to the issuance of the Additional Shares.
(k) The Company shall have received a bank commitment for a new
credit agreement in connection with the Bank Refinancing as described in
the Prospectus.
7. Covenants of the Company. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 A.M. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
19
<PAGE> 21
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending , 1998 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees
to pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof to
the Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws
and all expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section 7(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection
20
<PAGE> 22
with such qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to
the Common Stock and all costs and expenses incident to listing the Shares on
the New York Stock Exchange, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show with the prior
approval of the Company, (ix) the fees of the QIU pursuant to Section 3 hereof
and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, each Selling
Shareholder agrees to pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including the fees,
disbursements and expenses of such Selling Shareholder's counsel, but not
including any of the expenses payable by the Company as set forth above. It is
understood, however, that except as provided in this Section, Section 9 entitled
"Indemnity and Contribution," and the last paragraph of Section 11 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any
of the Shares by them and any advertising expenses connected with any offers
they may make and their out-of-pocket costs with respect to any "road show"
undertaken in connection with the marketing of the offering of the Shares.
The provisions of this Section shall not supersede or otherwise affect any
agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
21
<PAGE> 23
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, each Underwriter and each person, if any who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act and the QIU and each person, if any, who controls any
QIU within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Selling Shareholder furnished in writing by or on behalf of such Selling
Shareholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in
22
<PAGE> 24
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) The Company will indemnify and hold harmless Goldman, Sachs & Co.,
in its capacity as QIU, against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
QIU for any legal or other expenses reasonably incurred by the QIU in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(e) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b), 9(c) or 9(d), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party) to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees
23
<PAGE> 25
and expenses of more than one separate firm (in addition to any local counsel)
for all Underwriters and all persons, if any, who controlling any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, (ii) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section, (iii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Selling Shareholders and all persons, if any, who control any Selling
Shareholder within the meaning of either such Section and (iv) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the QIU and all persons who control the QIU within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, and such
control persons of any Underwriters, such firm shall be designated in writing
by Morgan Stanley & Co. Incorporated. In the case of any such separate firm for
the Company, and such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company. In the case of any
such separate firm for the Selling Shareholders and such control persons of any
Selling Shareholders, such firm shall be designated in writing by the Selling
Shareholders selling a majority of the amount of shares being sold by the
Selling Shareholders under this Agreement. In the case of any such separate
firm for the QIU and such control persons of the QIU, such firm shall be
designated in writing by the QIU. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 60 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
24
<PAGE> 26
(f) To the extent the indemnification provided for in Section 9(a),
9(b), 9(c) or 9(d) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(f) (i) above is not permitted by
applicable law in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(f)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Sellers, the Underwriters and the QIU shall
be deemed to be in the same proportions as the net proceeds from the offering
of the Shares (before deducting expenses) received by the Sellers, the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus and the fee
payable to Goldman, Sachs & Co. in its capacity as QIU pursuant to Section 3
hereof and not in its capacity as an Underwriter, respectively bear to the sum
of the aggregate Public Offering Price of the Shares and the fee payable to
Goldman, Sachs & Co. in its capacity as QIU pursuant to Section 3 hereof and not
in its capacity as an Underwriter. The relative fault of the Sellers on the one
hand and the Underwriters or the QIU on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Sellers or by either of
the Underwriters or the QIU and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 3 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(g) The Sellers, the Underwriters and the QIU agree that it would not be
just or equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in Section 9(f). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending
25
<PAGE> 27
any such action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. Notwithstanding the
provisions of this Section 9, no Selling Shareholder shall be required to
contribute any amount in excess of the amount of net proceeds received by such
selling Shareholder with respect to the Shares sold by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section and
the representations, warranties and other statements of the Company and the
Selling Shareholders contained in this Agreement shall remain operative and in
full force and effect regardless of any termination of this Agreement, any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, any Selling Shareholder or any person controlling any Selling
Shareholder, the QIU or any person controlling the QIU, or the Company, the
Company's officers or directors or any person controlling the Company and
acceptance of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, trading of any securities of
the Company shall have been suspended on any exchange or in any
over-the-counter market, a general moratorium on commercial banking activities
in New York shall have been declared by either Federal or New York State
authorities or there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis that,
in your judgment, is material and adverse and in the case of any of the events
specified in clauses 10(a)(i) through 10(a)(iv), such event, singly or together
with any other such event, makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus.
26
<PAGE> 28
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II or
Schedule III bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other proportions
as you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Shareholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected. If, on the Option
Closing Date, any U.S. Underwriter or U.S. Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting U.S. Underwriters would have been obligated to
purchase in the absence of such default. Any action taken under this paragraph
shall not relieve any defaulting U.S. Underwriter from liability in respect of
any default of such U.S. Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller
27
<PAGE> 29
shall be unable to perform its obligations under this Agreement, the Sellers
will reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
AMERICAN ITALIAN PASTA COMPANY
By:
-------------------------------------
Name: Timothy S. Webster
Title: President and Chief Executive
Officer
THOMPSON HOLDINGS, L.P.
By:
-------------------------------------
Attorney-in-Fact
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: Morgan Stanley Leveraged Equity
Holdings, Inc., its general partner
By:
-------------------------------------
28
<PAGE> 30
Name:
Title:
MORGAN STANLEY CAPITAL
PARTNERS III, L.P.
By: MSCP III, L.P., its general partner
By: Morgan Stanley Capital Partners III,
Inc., its general partner
By:
--------------------------------------
Name:
Title:
MORGAN STANLEY CAPITAL
INVESTORS, L.P.
By: MSCP III, L.P., its general partner
By: Morgan Stanley Capital Partners III,
Inc., its general partner
By:
--------------------------------------
Name:
Title:
MSCP III 892 INVESTORS, L.P.
By: MSCP III, L.P., its general partner
By: Morgan Stanley Capital Partners III,
Inc., its general partner
By:
--------------------------------------
Name:
Title:
29
<PAGE> 31
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
GEORGE K. BAUM & COMPANY
Acting severally on behalf of themselves and the several U.S. Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------
Name:
Title:
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
BT ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
GEORGE K. BAUM & COMPANY
Acting severally on behalf of themselves and the several International
Underwriters named in Schedule III hereto.
By: Morgan Stanley & Co. International Limited
By:
-------------------------------------
Name:
Title:
30
<PAGE> 32
SCHEDULE I
PART A
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
- ------------------------------------- ---------------------
Thompson Holdings, L.P. 630,000
The Morgan Stanley Leveraged
Equity Fund II, L.P. 1,375,893
Morgan Stanley Capital
Partners III, L.P. 584,107
---------------------
Total............................ 2,590,000
=====================
<PAGE> 33
PART B
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
SELLING SHAREHOLDER SHARES TO BE SOLD
- ---------------------------------------------- --------------------
<S> <C>
The Morgan Stanley Leveraged Equity Fund II,
L.P. ........................................
Morgan Stanley Capital Partners III, L.P......
Morgan Stanley Capital Investors, L.P.........
MSCP III 892 Investors, L.P...................
--------------------
Total..................................... 1,185,000
====================
</TABLE>
2
<PAGE> 34
SCHEDULE II
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------------- ---------------------
<S> <C>
Morgan Stanley & Co. Incorporated...........
BT Alex. Brown Incorporated.................
Goldman, Sachs & Co.........................
George K. Baum & Company....................
---------------------
Total U.S. Firm Shares 6,320,000
=====================
</TABLE>
<PAGE> 35
SCHEDULE III
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------------- ---------------------
<S> <C>
Morgan Stanley & Co. Incorporated Limited...
BT Alex. Brown International................
Goldman Sachs International.................
George K. Baum & Company....................
---------------------
Total International Shares 1,580,000
=====================
</TABLE>
<PAGE> 36
EXHIBIT A
[FORM OF LOCK-UP LETTER]
October __, 1997
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
George K. Baum & Company
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
BT Alex. Brown International
Goldman Sachs International
George K. Baum & Company
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT")
with American Italian Pasta Company, a Delaware corporation (the "COMPANY"),
and certain shareholders of the Company providing for the public offering (the
"PUBLIC OFFERING") by the several Underwriters, including Morgan Stanley and
MSIL (the "UNDERWRITERS") of 5,900,000 shares (the "SHARES") of Class A Common
Stock, par value $.001 per share, of the Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to
sell, sell any option
<PAGE> 37
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or securities are either now owned by the undersigned or are hereafter
acquired prior to or in connection with the Public Offering), or (2) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (a) bona fide charitable donations or
estate planning dispositions, provided that, prior to such transfer, the
transferee in any such transaction agrees in writing to be bound by the terms
of this agreement and the form and substance of such writing has received
written approval from Morgan Stanley or (b) transfers due to the death or
disability of a seller, provided that the transferee agrees in writing to be
bound by the terms of this agreement and the form and substance of such writing
has received written approval from Morgan Stanley. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. This letter agreement will terminate in
the event that the Public Offering has not been consummated on or prior to
March 31, 1998. Any Public Offering will only be made pursuant to an
Underwriting Agreement, the terms of which are subject to negotiation between
the Company and the Underwriters.
Very truly yours,
====================================
Name
====================================
Address
2
<PAGE> 1
EXHIBIT 5.1
October 7, 1997
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Re: American Italian Pasta Company
Registration Statement on Form S-1
Reg. No. 333-32827 (the "Registration Statement")
Ladies and Gentlemen:
We have represented American Italian Pasta Company, a Delaware
corporation (the "Company"), in connection with the registration of up to
9,085,000 shares of Class A Convertible Common Stock, $.001 par value per
share, of the Company, of which 5,310,000 shares are proposed to be issued and
sold by the Company (the "Primary Shares") and up to 3,775,000 shares are
proposed to be sold by certain selling stockholders (the "Selling Stockholders")
of the Company (the "Secondary Shares").
In connection with our representation, we have examined the corporate
records of the Company, including its Amended and Restated Certificate of
Incorporation, its Amended and Restated By-laws, and other corporate records and
documents and have made such other examinations as we consider necessary to
render this opinion. Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
2. The Primary Shares, when issued and sold in the manner contemplated
by the Registration Statement, will be legally issued, fully paid and
non-assessable.
3. The Secondary Shares, when sold by the Selling Stockholders in the
manner contemplated by the Registration Statement, will be legally issued,
fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to this firm in such Registration
Statement.
Very truly yours,
/s/ Sonnenschein Nath & Rosenthal
SONNENSCHEIN NATH & ROSENTHAL
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL TREATMENT REQUESTED
MANUFACTURING AND DISTRIBUTION AGREEMENT
BETWEEN
CPC INTERNATIONAL INC.
AND
AMERICAN ITALIAN PASTA COMPANY
MANUFACTURING AND DISTRIBUTION AGREEMENT
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT. THE
REDACTED MATERIAL HAS BEEN INDICATED WITH AN ASTERISK AND FILED SEPARATELY WITH
THE COMMISSION.
<PAGE> 2
MANUFACTURING AND DISTRIBUTION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
1.1 Act.................................................................................. 1
1.2 Actual............................................................................... 1
1.3 Affiliate............................................................................ 1
1.4 AIPC Guaranteed Maximum Volume....................................................... 1
1.5 Applicable Laws...................................................................... 2
1.6 Budget or Budgeted................................................................... 2
1.7 Calculation Period................................................................... 2
1.8 Contract Year........................................................................ 2
1.9 Contract Year Plan................................................................... 2
1.10 Conversion Cost...................................................................... 2
1.11 Cost Savings......................................................................... 2
1.12 CPC Product Specifications........................................................... 2
1.13 Damages.............................................................................. 2
1.14 Depreciation......................................................................... 2
1.15 Direct Labor......................................................................... 2
1.16 Effective Date....................................................................... 2
1.17 Facility............................................................................. 2
1.18 Factory Overhead..................................................................... 3
1.19 Force Majeure........................................................................ 3
1.20 Forecasts............................................................................ 3
1.21 GAAP................................................................................. 3
1.22 Handling and Warehousing Costs....................................................... 3
1.23 Insolvency Event..................................................................... 3
1.24 Marks................................................................................ 3
1.25 Materials Cost....................................................................... 3
1.26 Minimum Volume....................................................................... 3
1.27 Packaging Materials.................................................................. 3
1.28 Packaging Materials Cost............................................................. 3
1.29 Party or Parties..................................................................... 3
1.30 Product.............................................................................. 3
1.31 Raw Materials........................................................................ 4
1.32 Raw Materials Cost................................................................... 4
1.33 Semolina Cost........................................................................ 4
1.34 Services............................................................................. 4
1.35 Supply/Demand Plan................................................................... 4
1.36 Target Volume........................................................................ 4
1.37 Term................................................................................. 4
1.38 Termination Fee...................................................................... 4
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1.39 Tolling Fee.......................................................................... 4
1.40 Total Cost........................................................................... 4
1.41 Warehouse............................................................................ 4
2. SERVICES...................................................................................... 4
2.1 AIPC's Services...................................................................... 4
2.2 Location of Services................................................................. 5
3. COMPENSATION AND COST SAVINGS................................................................. 5
3.1 Compensation......................................................................... 5
3.2 Cost Savings......................................................................... 5
4. TERM.......................................................................................... 6
5. PRODUCTION PLANS.............................................................................. 6
5.1 Commitments.......................................................................... 7
5.2 Forecasts............................................................................ 8
5.3 Durum Procurement Practices.................................................................... 9
6. QUALITY ASSURANCE AND CONTROL................................................................. 8
7. REJECTION PROCEDURE........................................................................... 9
8. PROCESSING AND PACKAGING...................................................................... 10
9. INVENTORIES................................................................................... 10
9.1 Procurement.......................................................................... 10
9.2 Delivery of Finished Products........................................................ 10
10. PRODUCT ORDERS/INVOICING...................................................................... 11
10.1 * Invoice............................................................................ 11
10.2 Minimum Purchase/Supply Payments..................................................... 11
10.3 Payment Terms........................................................................ 11
11. OWNERSHIP/EXCLUSIVITY......................................................................... 11
11.1 Recipes.............................................................................. 11
11.2 Exclusive Business .................................................................. 11
11.3 Third-Party Production............................................................... 11
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
12. TITLE AND RISK OF LOSS........................................................................ 12
13. INDEPENDENT CONTRACTOR........................................................................ 12
14. REPRESENTATIONS AND WARRANTIES................................................................ 12
14.1 Mutual Representations............................................................... 12
14.2 AIPC Service Warranties.............................................................. 13
14.3 No Representation.................................................................... 14
14.4 CPC Product Specifications Representation............................................ 14
14.5 CPC Marks, Ownership and Registration................................................ 15
15. INDEMNIFICATION AND INSURANCE................................................................. 15
15.1 AIPC................................................................................. 15
15.2 Mutual............................................................................... 15
15.3 Procedure............................................................................ 16
15.4 Insurance............................................................................ 17
16. TERMINATION................................................................................... 18
16.1 Without Cause........................................................................ 18
16.2 Termination for Cause................................................................ 19
16.3 Inventory............................................................................ 20
17. FORCE MAJEURE................................................................................. 20
18. RECORDS AND AUDIT............................................................................. 21
18.1 Methods.............................................................................. 21
18.2 Maintenance.......................................................................... 22
18.3 Audit................................................................................ 22
18.4 Accounting Changes................................................................... 22
19. CONFIDENTIALITY............................................................................... 22
20. TRADEMARKS AND ENDORSEMENTS................................................................... 22
20.1 CPC Representation................................................................... 22
20.2 License.............................................................................. 22
20.3 Prohibited Use by AIPC............................................................... 23
20.4 Prohibited Use by CPC................................................................ 23
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
21. GOVERNING LAW AND DISPUTE RESOLUTION.......................................................... 23
21.1 Governing Law........................................................................ 23
21.2 Dispute Resolution................................................................... 23
21.3 Expenses............................................................................. 24
22. ASSIGNMENT.................................................................................... 24
22.1 General.............................................................................. 24
22.2 AIPC Assignment...................................................................... 24
22.3 CPC Assignment....................................................................... 24
22.4 Permitted Assignment by AIPC......................................................... 25
23. NOTICES....................................................................................... 25
24. NOTICE OF SALE................................................................................ 26
25. PUBLICITY..................................................................................... 26
26. CHANGES IN ECONOMIC, TECHNICAL OR BUSINESS CONDITIONS......................................... 26
27. MISCELLANEOUS................................................................................. 27
27.1 Entire Agreement..................................................................... 27
27.2 Amendments........................................................................... 27
27.3 Waiver............................................................................... 27
27.4 Validity............................................................................. 27
27.5 Captions............................................................................. 28
27.6 Counterparts......................................................................... 28
27.7 Parties in Interest.................................................................. 28
</TABLE>
-iv-
<PAGE> 6
THIS AGREEMENT, made as of the 15th day of April, 1997 (the "Effective
Date"), between CPC INTERNATIONAL INC., a Delaware Corporation with its
principal office in Englewood Cliffs, New Jersey ("CPC"), and AMERICAN ITALIAN
PASTA COMPANY, a Delaware corporation with its principal office in Excelsior
Springs, Missouri ("AIPC"). CPC and AIPC are each referred to herein as a
"Party" and collectively "Parties."
WITNESSETH:
WHEREAS, AIPC represents to CPC that it has, or will have, the ability
and capacity to provide services to produce and package the quality and such
quantities of Products to meet the marketing and distribution requirements of
CPC, including (i) the purchase, scheduling, receiving and storing of packaging
materials; (ii) the supply of raw materials; (iii) the processing and packaging
of the Products; and (iv) the shipment of the finished Products to warehouses
(as directed by CPC), all in conformity with written quality control and quality
assurance requirements and specifications as established by the Parties pursuant
to the terms of this Agreement;
WHEREAS, CPC wishes to have AIPC provide such services to CPC; and
WHEREAS, it is the intent of the Parties to establish a relationship
whereby over time, CPC will purchase from AIPC and AIPC will produce for CPC,
all of CPC's requirements for Mueller's(R) * branded retail long and short pasta
and noodle products, subject to the terms hereof and CPC's existing toll packing
agreements. *
NOW, THEREFORE, with the intention of being legally bound hereby, the
Parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement the following words used herein
shall be applied as defined below:
1.1 Act - means the Food, Drug, and Cosmetic Act, 21
U.S.C.ss.301 et. seq., as amended.
1.2 Actual - when used immediately preceding any other term
shall mean that it occurs in fact during the referenced period of this
Agreement.
1.3 Affiliate - means any United States or Canadian entity
controlling, controlled by, or under common control with such Party.
1.4 AIPC Guaranteed Maximum Volume - has the meaning set
forth in Section 5.1.3 below.
<PAGE> 7
1.5 Applicable Laws - means all applicable federal, state and
local laws, ordinances, rules and regulations, and any amendments thereto which
are in effect from time to time.
1.6 Budget or Budgeted - when used immediately preceding any
other term shall mean that it is estimated for a specified future period of
production.
1.7 Calculation Period - has the meaning set forth in the
definition of Semolina Cost below.
1.8 Contract Year - the twelve (12) month period commencing on
January 1 of each year during the Term hereof; provided, (i) the first Contract
Year will begin as of the date set forth in a written notice by AIPC to CPC
notifying CPC (after successful start-up and testing has been accomplished) that
AIPC is ready, willing and able to begin production of the Products as of that
date (which is targeted to occur on or about *), and (ii) the first Contract
Year will end December 31, 1998.
1.9 Contract Year Plan - means the plan established under
Section 5.2.1 established by the Parties, as adjusted from time to time as
provided herein.
1.10 Conversion Cost - the sum of * , all as defined herein.
1.11 Cost Savings - has the meaning set forth in Section 3.2.1
below.
1.12 CPC Product Specifications - has the meaning set forth in
Section 14.4 below.
1.13 Damages - means all claims, actions, liability, loss,
damage, expense, including reasonable attorney's fees and expenses.
1.14 Depreciation - depreciation and amortization expenses of
AIPC's buildings and improvements, pasta production and packaging equipment,
palletization equipment, warehouse building and equipment, office furnishings
and equipment and the like allocable to Products produced by AIPC hereunder.
1.15 Direct Labor - the cost of press, packaging and general
labor to produce the Products.
1.16 Effective Date - means the date set forth in the first
paragraph of this Agreement.
1.17 Facility - has the meaning set forth in Section 2.1
below, and shall include any other location added pursuant to an amendment to
this Agreement.
-2-
<PAGE> 8
1.18 Factory Overhead - when referring to Product manufactured
in:
1.18.1 Columbia, South Carolina, AIPC's cost * .
1.18.2 Excelsior Springs, Missouri, AIPC's cost * .
1.19 Force Majeure - has the meaning set forth in Section
17.2 below.
1.20 Forecasts - means the forecasts provided under
Section 5.2 below.
1.21 GAAP - means generally accepted accounting
principles, as consistently applied by AIPC.
1.22 Handling and Warehousing Costs - means AIPC's expenses of
warehousing Products including * in each case related to Products produced by
AIPC hereunder. The terms of such warehousing costs shall be governed by the
Operating Agreement by and between AIPC and the Lanter Company in the form of
EXHIBIT 1.22 attached hereto.
1.23 Insolvency Event - has the meaning set forth in Section
16.2.4 below.
1.24 Marks - means CPC's respective trade names and trade
marks identified in SCHEDULE 14.5 hereto.
1.25 Materials Cost - the sum of Raw Materials Cost plus
Packaging Materials Cost.
1.26 Minimum Volume - has the meaning set forth in Section
5.1.2 below.
1.27 Packaging Materials - includes, but is not limited to
packaging film, labels, bags, folding cartons, corrugate shippers, liners,
stretch wrap, pallets, ink, glue, tape and slip sheets.
1.28 Packaging Materials Cost - the delivered cost to AIPC of
Packaging Materials consumed in packaging the Products, including a provision
for loss allowance agreed to by the Parties.
1.29 Party or Parties - has the meaning set forth in the first
paragraph of this Agreement.
1.30 Product - means all of CPC's Mueller's(R), Napolena(R) or
any other similarly branded dry pasta products, and any other long, short and
noodle pasta products marketed by CPC or any Affiliate thereof, at retail,
including but not limited to the products listed by description and SKU number
on the list set forth and included in EXHIBIT A attached
-3-
<PAGE> 9
hereto (as such list of products may be revised from time to time as part of the
Contract Year Plan to be prepared in accordance with the terms of this Agreement
and to add new pasta products added to the scope of this Agreement consistent
with the intent of the Parties set forth in the third recital set forth above).
When referring to individual Products hereunder, a Party will refer to such
Product's "SKU" number.
1.31 Raw Materials - means all ingredients used to manufacture
the Products, including but not limited to, semolina, first clear flour, egg
powder, spinach powder, tomato powder and enrichments, and any other purchased
raw materials.
1.32 Raw Materials Cost - the Actual delivered cost to AIPC of
the Raw Materials including, but not limited to Semolina Cost.
1.33 Semolina Cost - means the cost of semolina at the
applicable Facility. This cost for any period of time (the "Calculation Period")
shall be calculated as follows: *
1.34 Services - has the meaning set forth in Section 2.1
below.
1.35 Supply/Demand Plan - has the meaning set forth in
Section 5.2.1 below.
1.36 Target Volume - has the meaning set forth in Section
5.1.3 below.
1.37 Term - has the meaning set forth in Section 4 below.
"Term" includes the "initial Term" and extensions thereof.
1.38 Termination Fee - means the fee payable by CPC under
Section 16.1.1 below.
1.39 Tolling Fee - means * .
1.40 Total Cost - the sum of Materials Cost plus Conversion
Cost, determined in accordance with GAAP.
1.41 Warehouse - means a (i) warehouse facility adjacent to a
Facility, or (ii) any other warehouse facility designated by AIPC from time to
time for the storage of the Products pending delivery to a carrier for shipment
to CPC, which warehouse facility has been approved by CPC for the storage of
Products.
2. SERVICES
2.1 AIPC's Services. In consideration for the compensation to
be paid to AIPC as set forth herein, AIPC hereby agrees to perform the following
services (the "Services") for CPC at its Excelsior Springs, Missouri and
Columbia, South Carolina facilities (the "Facilities") on the terms and
conditions set forth herein: (i) order, pay for, schedule, receive,
-4-
<PAGE> 10
store, and inventory Packaging Materials; (ii) have available sufficient amounts
of any Raw Materials to manufacture the Products, (iii) process and package the
Products necessary to meet demand forecast set forth in the applicable Contract
Year Plan; (iv) conduct quality control tests and inspections; and (v) deliver
the packaged Products to the applicable Warehouse pending delivery to a carrier
for shipment to CPC. All of the above must be in accordance with the CPC Product
Specifications set forth and included in EXHIBIT A attached hereto, as may be
amended by the mutual written consent of the Parties and other provisions of
this Agreement.
2.2 Location of Services. AIPC at its discretion may produce
the Products at either Facility. However, AIPC will strive for lowest Total
Cost. If a change in Facility allocation for production from the Contract Year
Plan would incur additional costs, AIPC will obtain CPC's prior written consent.
3. COMPENSATION AND COST SAVINGS
3.1 Compensation. In exchange for the Services rendered by
AIPC to CPC hereunder, CPC shall pay to AIPC compensation in an amount equal to
* , as invoiced and provided in Section 10.1 below. Compensation will be
adjusted quarterly as provided in Section 3.2.2 below.
3.2 Cost Savings. "Cost Savings" are to be allocated to AIPC
and CPC as set forth below.
3.2.1 Definition and Allocation. "Cost Savings"
are savings generated by: *
3.2.2 Computation. AIPC will reconcile,
quarterly, Budgeted Materials Cost and Budgeted Conversion Cost with Actual
Materials Cost and Actual Conversion Cost, respectively, as of March 31, June
30, September 30 and December 31 (or the actual date on which AIPC closes its
quarterly financial records) during each Contract Year. These calculations will
be computed on a * basis for Products purchased during such quarter.
If Actual Conversion Cost exceeds Budgeted Conversion
Cost during the quarter, CPC will pay that amount to AIPC within * of the date
of an invoice from AIPC. If the Actual Conversion Cost is less than Budgeted
Conversion Cost during the quarter, such savings will be allocated between the
Parties pursuant to Section 3.2.1. above, and AIPC will refund CPC's share of
such Cost Savings to CPC within * from the date such calculation is completed by
AIPC; provided AIPC will complete this calculation no later than * after the
closing date of the quarter under review.
Similarly, if Actual Materials Cost exceeds Budgeted
Materials Cost during the quarter, CPC will pay that amount to AIPC within * of
the date of an invoice from AIPC. If Actual Materials Cost is less than Budgeted
Materials Cost, AIPC will refund such
-5-
<PAGE> 11
savings to CPC within * from the date such calculation is completed by AIPC;
provided AIPC will complete this calculation no later than * after the closing
date of the quarter under review.
Amounts payable by, and to, CPC hereunder may be
netted by AIPC, before paying, or submitting an invoice to, CPC, as the case may
be.
4. TERM
This Agreement shall be effective as of the Effective Date,
with the initial Term to begin as of the first day of the first Contract Year
and shall continue for a period of nine (9) Contract Years unless earlier
terminated pursuant to the terms of this Agreement. At CPC's sole option the
Term may be extended by CPC during the seventh Contract Year for an additional
three (3) Contract Years beyond the initial Term ending December 31, 2006 on the
same terms and conditions, other than economic terms and conditions which will
be negotiable, by delivering a written notice of CPC's desire to exercise this
option to AIPC before * . If the Parties are unable to reach a written agreement
on the economic terms and conditions applicable to the extended Term on or
before * , the extension option shall expire, and this Agreement will expire
upon and including December 31, 2006 and the original terms will remain in
effect through the expiration date.
5. PRODUCTION PLANS
The Parties hereby acknowledge that CPC's current demand for
the Products is approximately * of Product per Contract Year and that AIPC is
undertaking a significant expansion of the Facilities to accommodate the
production of up to approximately * of Product per Contract Year to satisfy
CPC's demand for the Products. Notwithstanding, AIPC acknowledges that CPC
desires to increase demand for the Products to an amount in excess of * of
Product per Contract Year, and CPC acknowledges that AIPC will need substantial
lead time and capital investment to satisfy such increases in demand for the
Products and will use all commercially reasonable efforts to provide to AIPC at
least * advance written notice of significant increases in the demand for the
Products. In consideration of the foregoing, the Parties agree to establish the
following Product volume commitments to apply for each Contract Year until
adjusted as provided below.
CPC will provide to AIPC at least * advance written notice
with respect to significant changes in product mix/cuts or at least * advance
written notice of changes in volume requirements exceeding the applicable AIPC
Guaranteed Maximum Volume, as the case may be. If AIPC is unable to successfully
produce a particular cut or volume of product (or Products) requested by CPC,
AIPC shall promptly so notify CPC in writing. CPC shall then have the right to
develop an alternative source for such products, provided,
as a condition to such right CPC will use good faith efforts to secure such
requirements under a term that closely matches AIPC's estimate of when AIPC will
be able to produce these requirements. In any event, CPC agrees to purchase such
requirements from AIPC as soon as commercially reasonable (and consistent with
CPC's contractual obligations) after the date AIPC notifies CPC that AIPC has
-6-
<PAGE> 12
added such capability/capacity. Also, in any event, CPC's Minimum Volume
requirement for such Contract Year shall be correspondingly reduced, provided,
the cut requested falls within the standard range of short cut, long cut and
noodle products produced on the type of equipment owned by AIPC and CPC's
requirements for other Products is less than the Minimum Volume.
5.1 Commitments
5.1.1 Exclusivity. Except for CPC products
produced under the existing toll packaging agreements listed on SCHEDULE 5.1.1
and not initially transferred for production to AIPC and except as otherwise
provided herein, AIPC shall be the exclusive producer of the Products and CPC
agrees to purchase all such Products from AIPC as of the first day of the first
Contract Year and thereafter throughout the Term of this Agreement, to the
extent of CPC's requirements. *
CPC and AIPC will agree to a specific timetable for the changeover of
Mueller's(R) volumes to the Facilities, including a breakdown of those volumes
produced at the Excelsior Springs, Missouri Facility and at the Columbia, South
Carolina Facility. From the Effective Date, the Parties currently estimate a
switch over date * . The suggested target date for all of CPC's pasta production
switch is * . If mutually advantageous, some of CPC's pasta production may be
switched to one of the Facilities prior to the target switch over date.
5.1.2 Minimum Volume. CPC agrees that it shall
purchase from AIPC a minimum volume of Products of * ("Minimum Volume") per
Contract Year; provided, the Minimum Volume will be reset from Contract Year to
Contract Year to an amount equal to * of the immediately preceding Contract
Year's Actual volume of Products produced, provided, further, that in no event
will the Minimum Volume be less than * per Contract Year.
5.1.3 Target Volume. It is estimated that the
volume of Products for the first Contract Year will be approximately * ("Target
Volume") and will not exceed * * (exclusive of any third party toll packing
volume not produced in AIPC's facilities). The Target Volume will be revised by
CPC for each Contract Year and included in the Contract Year Plan; provided, the
Target Volume may not be an amount lower than the Minimum Volume for such
Contract Year nor more than the AIPC Guaranteed Maximum Volume without AIPC's
prior written consent. AIPC guarantees to produce, if required by CPC, * of
Products the first Contract Year and, subject to CPC's compliance with the
notice provisions required in the first paragraph of this Section 5, AIPC will
guarantee to produce, in subsequent Contract Years, a volume of Products up to *
of the previous Contract Year's Actual volume ("AIPC Guaranteed Maximum
Volume"); provided, the AIPC Guaranteed Maximum Volume may not exceed * during
any Contract Year.
5.1.4 Pro-Ration. Minimum Volume, Target Volume
and AIPC Guaranteed Maximum Volume for any Contract Year will be pro-rated daily
for (i) the first Contract Year (if such Contract Year begins later than * ) and
(ii) each Contract Year thereafter
-7-
<PAGE> 13
to the extent of periods during an occurrence of Force Majeure or other event
set forth herein requiring adjustments to the volume of Products to be produced
or purchased hereunder.
5.2 Forecasts
5.2.1 Contract Year Plan: General. During the
last quarter of 1997 and thereafter at the beginning of the last quarter of each
Contract Year, CPC and AIPC will meet to jointly develop and agree to an
economic plan for the next Contract Year (a "Contract Year Plan"). The Contract
Year Plan shall include a determination of the Target Volume, on a Product SKU
basis, any new cuts and/or change in the mix of Products, a production plan for
each Facility, and a review of each Party's supplier base for all Raw and
Packaging Materials. In addition, the Contract Year Plan will include a
"Supply/Demand Plan" for such Contract Year which will include by Product SKU:
(i) CPC's forecasted monthly demand requirements, (ii) CPC's forecasted plan for
desired monthly inventory balances, and (iii) a production plan for AIPC to
satisfy such forecasts subject to a monthly minimum/maximum volume production
limit, based upon AIPC's then current capacity constraints, to be established in
such Supply/Demand Plan. The Parties will review and revise, with mutual
consent, the Supply/Demand Plan monthly, or any other agreed to frequency,
during each Contract Year, provided CPC will provide AIPC with at least *
advance written notice of the desired effective date of any dramatic changes in,
or additions to, the Product mix to be produced by AIPC (including changes
desired during the next succeeding Contract Year). The Parties shall use their
best efforts to meet these requirements.
5.2.2 Budget. The Contract Year Plan will
establish an agreed Budget for the Total Cost per pound on a Product by Product
basis for the next Contract Year. Budgeted Total Cost will be based, among other
factors, on AIPC's Actual Total Cost incurred to produce such Product during the
Contract Year then ending. The Budgeted Total Cost will be based on * of the
Target Volume for the upcoming Contract Year and will include a breakdown of the
Conversion and Materials Cost. As part of the procedure to develop a Budget, CPC
will have access to AIPC's financial records with respect to Actual Total Costs
of production from the current or most recently past Contract Year.
In the event of significant market or other cost
component changes, the Parties may decide on establishing an updated Budget * by
Product for the remaining portion of such Contract Year, prior to the end of a
Contract Year.
The Budgeted Conversion Cost for the current Contract
Year will be used for the next succeeding Contract Year until the Parties
establish a Budget for such succeeding Contract Year (provided the Budgeted
Materials Cost will be adjusted to the Actual Materials Cost incurred in the
last quarter of the then ending Contract Year), until such time as the Parties
establish a new Conversion and Materials Cost for such Contract Year, at which
time there will be appropriate retroactive adjustments.
-8-
<PAGE> 14
5.2.3 Rolling Demand Forecast. CPC will provide
to AIPC on or before the last day of each month a rolling * forecast of demand
by Product SKU.
5.3 Durum Procurement Practices. AIPC and CPC will establish
the procedures by which procurement decisions for durum wheat will be made by
the Parties and executed by AIPC for each Contract Year. Such agreed procedures
will be set forth in the applicable Contract Year Plan.
6. QUALITY ASSURANCE AND CONTROL
6.1 AIPC shall perform such quality control tests and
procedures as are agreed by AIPC and CPC in the Manual/Codebook set forth and
included in EXHIBIT A attached hereto.
6.2 AIPC will promptly notify CPC of any out-of-specification
Products. AIPC agrees to perform under CPC's direction with respect to any
out-of-specification situations and to handle all out-of-specification problems
on a case-by-case basis, pursuant to CPC's directions.
6.3 AIPC will be responsible for the receiving and incoming
quality inspections of ingredients and packaging materials and for identifying
any overages, shortages, or materials which are damaged or otherwise do not meet
prescribed specifications.
6.4 In the event of ingredient or packaging materials being
rejected for failing quality inspection or later identified as defective, AIPC
is responsible for notifying the vendor and promptly undertaking to secure the
resupply of acceptable materials.
6.5 AIPC will adopt the CPC recall procedures as referenced in
the Manual/Codebook, or equivalent approved in writing by CPC. AIPC agrees to
notify CPC's QA Department prior to initiating any product recall procedure.
AIPC shall be responsible for all Damages associated with any recall or Product
withdrawal, unless CPC has been responsible therefore.
6.6 Upon reasonable notice by CPC to AIPC, CPC has the right
to inspect AIPC Facilities during regular business hours.
7. REJECTION PROCEDURE
The following procedures shall be followed with respect to
rejection of Products:
7.1 In the case of rejection, AIPC shall promptly determine
the reason for the defect in the lot and submit a proposed method of correction
of the defect. Such proposal shall also include a method for preventing a
repetition of the cause of the defect, if possible.
-9-
<PAGE> 15
7.2 CPC will have * after receipt of the proposed method of
correction (accompanied by reworked samples, if necessary) to accept or reject
such proposed method. Acceptance shall extend only to the method of correction
and shall not in and of itself constitute or imply approval of the lot after
correction. After correction, the lot must meet all regular quality tests and
any special tests made necessary by the nature of the defect.
7.3 CPC shall have * from the date of receipt of samples from
any reworked lot to retest the reworked lot. Failure to reject such reworked lot
during such period shall constitute acceptance of the lot. If any batch or lot
is finally rejected, AIPC shall dispose of such batch or lot in accordance with
Applicable Laws and in a manner that will not, in CPC's good faith reasonable
judgment, have a negative impact on the image of the Products.
7.4 *
7.5 In any event, AIPC's obligation with respect to any defect
readily observable at the time of delivery shall be to replace the Product, and
all other directly incurred costs including freight, storage and handling.
8. PROCESSING AND PACKAGING
8.1 AIPC will act in conformity with the Manual/Codebook. The
Manual/Codebook in-process and finished Product specifications will be
controlling.
8.2 AIPC agrees to abide by all current Kashruth requirements
set by the Union of Orthodox Jewish Congregations of America in the manufacture
of Product requiring Kosher Certification.
8.3 With respect to the process and equipment certified for
the production of Product, AIPC will notify CPC's QA Department in writing *
prior to implementation of any and all planned process changes excluding
replacement of like equipment for like equipment. This includes changes in
processing equipment, ingredient and significant changes in procedures affecting
through-put rates. Any such changes will be implemented by AIPC only after full
and open discussion, including testing where advisable, between the Parties.
9. INVENTORIES
9.1 Procurement. AIPC agrees to maintain (and procure) an
adequate inventory of Raw Materials and Packaging Materials based upon AIPC's
past experience and inventory management programs, consistent with the agreed
procedures set forth in the applicable Contract Year Plan. If CPC requests that
a significantly higher level be maintained, AIPC will consider such requests,
and CPC agrees to finance the additional non-standard inventory investment
agreed to by the Parties.
-10-
<PAGE> 16
9.2 Delivery of Finished Products. Finished Products are to
remain under AIPC's control until AIPC quality control has approved Products for
release and shipment to CPC at the applicable Warehouse and title to the
Products has passed to CPC in accordance with Article 12 below.
10. PRODUCT ORDERS/INVOICING
10.1 * Invoice. AIPC will submit to CPC an invoice on a *
basis for all Products delivered to a Warehouse and prepared for shipment during
the immediately preceding * . The invoice will identify the Products by SKU,
volume and the price * .
10.2 Minimum Purchase/Supply Payments.
10.2.1 CPC. Except if prevented by an event of
Force Majeure, if CPC fails to purchase the Minimum Volume of Products in any
Contract Year, CPC shall pay * for all pounds of Product below the Minimum
Volume not purchased by CPC. Amounts payable by CPC to AIPC under this Section
10.2.1 will be reduced by amounts paid by CPC to, and received by, AIPC with
respect to * under Section 3.2.2 above throughout such Contract Year.
10.2.2 AIPC. Except if prevented by an event of
Force Majeure, if AIPC does not deliver to the Warehouse for CPC all of CPC's
requirements of Products Actually ordered from AIPC consistent with the
applicable Contract Year Plan (not to exceed the AIPC Guaranteed Maximum Volume
for such applicable Contract Year), AIPC shall pay to CPC an amount equal to the
Actual unreimbursed out-of-pocket per pound cost incurred by CPC (excluding
CPC's Actual Materials Cost) to purchase such shortfall in excess of * for such
products.
10.3 Payment Terms. Except as otherwise provided herein,
CPC will pay invoices to AIPC within * from the date of receipt of such invoice.
Payment will be made by electronic transfer of funds when possible. Payment of
an invoice by CPC does not relieve AIPC of AIPC's obligations to deliver the
Products to CPC's carrier at the Warehouse in accordance with the quality
control and other specifications set forth in Sections 6, 7 and 8 and otherwise
under this Agreement and to pass title to the Products to CPC upon placement of
the Products on a carrier at the applicable Warehouse for shipment to CPC.
11. OWNERSHIP/EXCLUSIVITY
11.1 Recipes. Except for recipes provided by CPC, AIPC shall
retain sole ownership of the recipes and formulations for the Products;
provided, that upon any termination of the Agreement CPC will have the
non-exclusive royalty free right to use the recipes (other than AIPC's flavored
pasta recipes) and formulations for the Products.
-11-
<PAGE> 17
11.2 Exclusive Business. * AIPC agrees not to produce pasta
for Borden, Hershey or Barilla, or any of the brands owned by Borden, Hershey or
Barilla, or for any of their Affiliates, without the other Party's prior written
consent.
11.3 Third-Party Production. Notwithstanding anything to the
contrary herein, AIPC may produce branded retail products for third parties,
other than for Borden, Hershey or Barilla, or any of the Borden, Hershey or
Barilla brands, without CPC's consent provided that such production in any
Contract Year is limited to approximately three (3) million pounds in any
quarter of any Contract Year, subject to an annual maximum of twelve (12)
million pounds in any Contract Year, and further provided that AIPC is capable
of satisfying CPC's Actual requirement for Products ordered from AIPC (up to the
applicable annual AIPC Guaranteed Maximum Volume).
12. TITLE AND RISK OF LOSS
Title and risk of loss to finished Products will pass to CPC
upon (a) full payment to AIPC for such Products and (b) such time as such
Products have been placed on CPC's delivery carrier or another carrier
designated or acceptable to CPC for distribution from the applicable Warehouse.
13. INDEPENDENT CONTRACTOR
AIPC is an independent contractor hereunder. Nothing contained
in this Agreement is intended or shall be construed to create or establish any
agency, partnership, joint venture or other profit-sharing arrangement,
landlord-tenant, or lessor-lessee relationship between the Parties. No Party
shall have any authority, express or implied, to create or assume any
obligation, enter into any agreement, make any representation or warranty, file
any document with any governmental body, or serve or accept legal process on
behalf of any other Party, settle any claim by or against any other Party, or to
bind or otherwise render any other Party liable in any way to any other person,
without the prior express written consent of the Party to be affected by such
action.
14. REPRESENTATIONS AND WARRANTIES
14.1 Mutual Representations. Each Party represents and
warrants to the other Party as of the date hereof that:
14.1.1 Due Incorporation; Authorization of
Agreements - The Party is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, and is
duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which it will conduct business or carry
out the transactions contemplated under this Agreement, if the failure to be so
qualified would have a material adverse effect on the business or assets of the
respective Party or materially affects its ability to perform its obligations
hereunder. The Party has the full power and authority
-12-
<PAGE> 18
to execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the transactions contemplated by this Agreement. The
Party has all necessary licenses to market and sell the Products and to provide
the Services as contemplated by this Agreement.
14.1.2 No Conflict; No Default - Neither the
execution, delivery and performance of this Agreement nor the consummation by
the Party of the transactions contemplated hereby: (i) will violate or cause a
breach of any of the terms, conditions or provisions of any existing law,
regulation, order, writ, injunction, decree, determination or award of any
governmental authority or any arbitrator, applicable to such Party, or (ii) will
violate or cause a breach of or constitute a default under any of the terms,
conditions or provisions of the certificate of incorporation or bylaws (or other
governing documents) of such Party or of any material agreement or instrument to
which such Party is or may be bound or to which any of its material properties
or assets is subject, including the course of conduct between the Party and the
other party(ies) to such agreement, or (iii) will violate or cause a breach of,
constitute a default under (whether with notice or lapse of time or both),
accelerate or permit the acceleration of the performance required by, give to
others any interests or rights or require any consent, authorization or approval
under any indenture, mortgage or lease agreement or material financial
obligation to which such Party or by which such Party is or may be bound.
14.1.3 Litigation - There are no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of the Party,
threatened against or affecting the Party or any of its properties, assets or
businesses in any court or before or by any governmental department, board,
agency or instrumentality, domestic or foreign, or any arbitrator which could,
if adversely determined (or, in the case of an investigation, could lead to any
action, suit or proceeding, which if adversely determined could) reasonably be
expected to have a material adverse effect on the Party's ability to perform its
obligations under this Agreement. The Party has not received any currently
effective notice of default under any law, regulation, contract, agreement or
otherwise which if not timely cured could have a material adverse effect on the
Party's ability to perform its obligations under this Agreement. The Party is
not in default under any applicable order, writ, injunction, decree, permit,
determination or award of any governmental authority or any arbitrator which
could reasonably be expected to have a material adverse effect on the Party.
14.1.4 Right to Disclose. - Each Party has the right
to disclose all proprietary information which it has disclosed to the other
Party pursuant to this Agreement.
14.2 AIPC Service Warranties. In addition to all other
warranties expressed in this Agreement, AIPC warrants that, except as may be
directed by CPC or AIPC's compliance with the CPC Product Specifications:
14.2.1 the Products shall be of merchantable quality
and fit for their intended use as food for human consumption;
-13-
<PAGE> 19
14.2.2 the Products shall conform to, and shall be
processed, produced, packaged and held in inventory in accordance with the CPC
Product Specifications to be established by the Parties hereunder and set forth
and included in EXHIBIT A hereto;
14.2.3 AIPC shall perform hereunder in compliance
with all applicable federal, state, county and municipal laws and regulations
now in effect and hereinafter enacted, including, but not limited to the Act;
14.2.4 the Products, at the time of delivery to the
carrier at a Warehouse for shipment to CPC, shall not be adulterated,
contaminated or misbranded within the meaning of the Act and any regulations
thereunder or any similar state or local laws or regulations, nor is any Product
one which may not under such Act or law be introduced into intrastate commerce;
14.2.5 the Products shall be produced and
manufactured in accordance with the provisions of the Fair Labor Standards Act
of 1938, as amended, and laws, regulations and orders, now in effect or
hereinafter enacted or administered by the United States Department of Labor and
any similar state agency; and
14.2.6 that AIPC is an Equal Opportunity Employer
and agrees that, if subject to the terms of Section 202 of Executive Order
11246, AIPC will comply with the terms of such laws.
ALL PRODUCT AND SERVICE
WARRANTIES BY AIPC WILL BE LIMITED
TO THE TERMS SET FORTH ABOVE IN
THIS SECTION 14.2.
14.3 No Representation. CPC will not make to any customer
or potential customer any representation or warranties whatsoever on behalf of
AIPC, and shall effectively disclaim any authority to make such warranty or
representation on AIPC's behalf, to any customer or potential customer regarding
any of the Products or Services, except as specifically set forth above or
authorized by AIPC in writing.
AIPC will not make to any customer or potential customer any
representation or warranty whatsoever on behalf of CPC, and shall effectively
disclaim any authority to make such warranty or representation on CPC's behalf,
to any customer or potential customer regarding any of the Products or Services,
except as specifically authorized by CPC in writing.
14.4 CPC Product Specifications Representation. CPC hereby
represents and warrants to AIPC that all instructions and directions of, and all
product specifications and procedures provided by, CPC to AIPC and set forth and
included in EXHIBIT A hereto or otherwise communicated by CPC to AIPC, from time
to time, which are to be utilized by AIPC in the manufacturing of the Products
pursuant to the terms and conditions of this Agreement (the "CPC Product
Specifications"), shall at all times be in strict compliance with any and all
Applicable Laws. CPC further represents and warrants that all Products
manufactured by AIPC
-14-
<PAGE> 20
in accordance with the CPC Product Specifications shall be in strict compliance
with all Applicable Laws, and shall not be subject to any Applicable Laws which
would prohibit the Products from being introduced into interstate commerce.
14.5 CPC Marks, Ownership and Registration. CPC's trademarks
designated on SCHEDULE 14.5 hereto ("Marks") and the registration thereof are
good, valid and enforceable at law and in equity. Marks which are being applied
for and those for which registrations have not been renewed are not included in
this representation and warranty (it being understood no Party, by this
exception, waives its claim to such Marks and this Agreement shall apply to such
Marks even if only applied for or currently not registered).
15. INDEMNIFICATION AND INSURANCE
15.1 AIPC. AIPC (as "Indemnifying Party") shall defend,
indemnify, and hold harmless CPC, its employees and representatives (an
"Indemnitee") from and against all Damages incurred by such Indemnitee
attributable to any actions and claims arising out of or in connection with the
Products attributable to AIPC and/or AIPC performance of Services hereunder with
respect to: (i) injury and/or death to persons including AIPC's employees,
agents or representatives and damage to property (ii) fines, levies or other
charges imposed by any governmental authority or agency, (iii) AIPC's failure to
comply with or violation of any applicable laws, regulations, rules and
ordinances, (iv) violations by AIPC of the Comprehensive Environmental Response
Compensation and Liability Act or any other federal, state or local law,
regulation or order regarding the environment or contamination thereof now in
effect or hereinafter enacted, (v) any alleged infringement or violation of any
patent right in connection with performance of Services hereunder unless the
alleged infringement or violation was directed by CPC. Notwithstanding anything
to the contrary herein, in no event will AIPC be required to indemnify any
Indemnitee for any such Damages attributable to (A) the acts or omissions of
CPC, or (B) AIPC's acts or omissions taken or made (or omitted to be taken or
made) in accordance with the CPC Product Specifications, at the direction of
CPC, or otherwise in accordance with the terms of this Agreement.
15.2 Mutual. Each Party hereto (the "Indemnifying Party")
agrees to indemnify and hold harmless the other Party hereto and their permitted
assigns and Affiliates, and their officers, directors, employees and agents, and
each of their representatives, and their successors and assigns (collectively,
the "Indemnitees") at all times from and after the Effective Date against and in
respect of any Damages suffered by the Indemnitees as a direct or indirect
result of any claims, actions or demands by a third party, to the extent caused
by or attributable to: (i) any breach of any representation or warranty made by
the Indemnifying Party in this Agreement or any agreement executed by the
Indemnifying Party in connection herewith including, but not limited to, with
respect to the CPC Product Specifications; (ii) breach or default in the
performance by the Indemnifying Party of any of the covenants to be performed by
the Indemnifying Party under this Agreement or any agreement executed by the
Indemnifying Party in connection herewith; (iii) any debts, liabilities or
obligations of the Indemnifying Party, whether accrued, absolute, contingent, or
otherwise, due or to become due not specifically
-15-
<PAGE> 21
addressed herein; (iv) any claim by a third party preventing, or attempting to
prevent, the Indemnifying Party from substantially performing its material
obligations hereunder; (v) the Indemnifying Party's acts or omissions with
respect to any advertising relating to the Products (other than claims arising
out of (A) the proper use of the Indemnified Party's Marks, and (B) advertising
that is specifically approved in form and content by the Party), or (vi) any
other act or omission of the Indemnifying Party or any occurrence on the
property of the Indemnifying Party, unrelated to this Agreement.
15.3 Procedure. Promptly upon receipt by an Indemnitee of
notice of any demand, assertion, claim, action or proceeding, judicial or
otherwise with respect to any matter as to which such Indemnitee seeks
indemnification under the provisions of this Agreement, the Indemnitee will give
prompt notice thereof in writing to the Indemnifying Party, together with the
statement of such information respecting such demand, assertion, claim, action
or proceeding as the Indemnitee shall then have. If the claim for
indemnification is not disputed, the Indemnifying Party will promptly proceed to
process such claim with applicable insurance providers, if any.
If the claim is with respect to a claim by a third party, and
if the Indemnifying Party acknowledges full liability or potential liability
without admitting same under this Agreement, the Indemnifying Party shall have
the right to contest and defend by all appropriate legal or other proceedings
any demand, assertion, claim, action or proceeding with respect to which it has
been called upon to indemnify the Indemnitee under the provisions of this
Agreement; provided, however, that:
(i) notice of intention so to contest shall be
delivered to the Indemnitee within * calendar days from the
receipt by the Indemnifying Party of notice of the assertion
of such demand, assertion, claim, action or proceeding;
(ii) the Indemnifying Party will pay all costs and
expenses of such contest or defense, including all attorneys'
and accountants' fees, and the cost of any bond required by
law to be posted in connection with such contest or defense;
(iii) such contest or defense shall be conducted by
reputable attorneys employed by the Indemnifying Party and
reasonably approved by the Indemnitee, at the Indemnifying
Party's sole cost and expense, but the Indemnitee shall have
the right to participate in such proceedings and to be
represented by attorneys of its own choosing, at the
Indemnitee's cost and expense without contribution or
indemnification by the Indemnifying Party for such costs or
expenses;
(iv) if after such opportunity, the Indemnifying
Party does not elect to assume the defense in any such
proceedings, the Indemnifying Party shall be bound by the
results obtained by the Indemnitee, including without
limitation any out-of-court settlement or compromise;
-16-
<PAGE> 22
(v) if the Indemnifying Party assumes the defense,
the Indemnitee(s) will not settle, or attempt to settle, such
claim without the Indemnifying Party's consent; and
(vi) the Indemnifying Party will not settle any claim
without the prior written consent of the Indemnitees, unless
the settlement contains a complete and unconditional release
of the Indemnitee(s), and the settlement does not involve the
imposition of any nonmonetary relief on the Indemnitees.
15.4 Insurance.
15.4.1 AIPC. AIPC shall procure and maintain, at
all times while performing hereunder, occurrence based liability insurance with
a reputable and financially responsible insurance carrier(s) satisfactory and
acceptable to CPC for the coverage in the amounts set forth in EXHIBIT 15.4
attached hereto and incorporated by reference herein, and any additional
insurance as may be required by applicable laws, ordinances or governmental
orders, rules and regulations. In the event AIPC purchases or maintains
insurance policies with limits that are greater than the limits required by this
Agreement, the maximum limits of such policies shall be fully available to CPC.
Endorsements expressly naming CPC as additional
insured with respect to such coverage, and loss payee with respect to property
loss or damage, and the copies of the policies shall be delivered to CPC. In
addition, the endorsements shall expressly (i) state that AIPC's primary and
excess or umbrella policies are primary coverage and not concurrent or excess
over other insurance which may be available to CPC, (ii) provide for waiver of
all subrogation rights against CPC, and (iii) state that any change restricting
or reducing coverage or cancellation of any policy shall not be valid as
respects CPC's interests until CPC has received * notice in writing of such
change or cancellation. In the event that coverage is renewed during the
original term or any subsequent term of this Agreement, endorsements for the
renewed policies shall be delivered to CPC within * after renewal.
Notwithstanding anything to the contrary contained in this
Section 15.4, it is acknowledged and agreed that CPC shall not be designated a
loss payee (other than with respect to inventory of Products and Raw Materials
in AIPC's possession or in a Warehouse, which has been purchased and paid for by
CPC) with respect to or have any right to any proceeds of any insurance
purchased or maintained by AIPC unless and until the "Total Commitment" and all
"Interest Rate Protection Agreements and Other Hedging Agreements" (as each such
term is defined in the Credit Agreement, as amended, dated as of April 11, 1997
(as such Agreement may be amended, modified or restated from time to time and
any agreement refinancing in whole or in part such Agreement, collectively, the
"Credit Agreement"), among AIPC, the banks and agents party thereto from time to
time) are terminated and all "Obligations" (as defined in the Credit Agreement)
have been paid in full.
-17-
<PAGE> 23
16. TERMINATION
16.1 Without Cause. Either party may terminate this Agreement
without cause (i) pursuant to Section 17.5 below, or (ii) during 1997 by giving
the other party three (3) years prior written notice and at any time thereafter
by giving the other party two (2) years prior written notice.
16.1.1 CPC Termination Fee. In the event CPC
terminates this Agreement pursuant to Section 16.1 above or Section 22 below, or
AIPC terminates this Agreement for cause under Section 16.2.1 below, CPC will
pay to AIPC as liquidated damages, and not a penalty, the applicable Termination
Fee (set forth below) which is intended to compensate AIPC for unrealized
capital expenditures and which shall be CPC's total liability for such
termination.
The applicable Termination Fee will be:
Year in which
Termination
is Effective Termination Fee
* *
Notwithstanding anything to the contrary above, beginning in the
calendar year * and thereafter, the applicable Termination Fee set forth above
for a year will be reduced by * for each full calendar quarter during such
calendar year that CPC purchases and pays for at least * of Products from AIPC
during each such quarter. For example, if the Agreement is terminated effective
* , and CPC is required to pay the Termination Fee set forth above, the
Termination Fee will be reduced by * , if CPC purchased and paid for at least *
of Products from AIPC during * .
16.1.2 AIPC Termination. In the event AIPC
terminates this Agreement pursuant to Section 16.1 above, AIPC will compensate
CPC by payment to CPC for the remaining Term of this Agreement, an amount equal
* , in each case as of the effective date of a termination hereunder. CPC agrees
to use reasonable efforts to obtain the Products at reasonable costs and agrees
to consider qualified production alternatives presented by AIPC.
16.2 Termination for Cause.
16.2.1 AIPC. AIPC may terminate this Agreement for
cause if any of the following occurs: (i) an Insolvency Event shall occur with
respect to CPC, that, in AIPC's reasonable opinion, materially threatens CPC's
ability to perform hereunder which has not been cured after notice from AIPC to
CPC and the expiration of the period to cure as provided in Section 16.2.3
below; (ii) CPC fails to make any payments due to AIPC hereunder, which in the
aggregate equal or exceed fifty thousand dollars ($50,000) and are not the
subject of a good faith
-18-
<PAGE> 24
dispute between the Parties, within 10 days after notice from AIPC that such
payment is due and payable which has not been cured after notice from AIPC to
CPC and the expiration of the period to cure as provided in Section 16.2.3
below; (iii) a material breach by CPC of any non-payment terms of this
Agreement, including but not limited to any material misrepresentation of
financial or other information or persistent disregard of laws or regulations
which has not been cured after notice from AIPC to CPC and the expiration of the
period to cure as provided in Section 16.2.3 below; or (iv) as provided in
Section 22 below upon the occurrence of an event set forth therein.
16.2.2 CPC. CPC may terminate this Agreement for
cause if any of the following occurs: (i) an Insolvency Event shall occur with
respect to AIPC, that, in CPC's reasonable opinion, materially threatens AIPC's
ability to perform hereunder; (ii) a material breach by AIPC of any non-payment
terms of this Agreement, including but not limited to any material
misrepresentation of financial or other information or persistent disregard of
laws or regulations which has not been cured after notice from CPC to AIPC and
the expiration of the period to cure as provided in Section 16.2.3 below; (iii)
subject to the terms hereof and for any reason, other than Force Majeure or the
fault of CPC, AIPC fails to supply to CPC the lesser of (A) CPC's Actual
requirements for Products ordered from AIPC, or (B) the applicable annual AIPC
Guaranteed Maximum Volume; or (iv) as provided in Section 22 below upon the
occurrence of an event described therein.
16.2.3 Effective Date. Termination for cause by a
Party under this Section 16.2 shall be effective after the expiration of *
following receipt of a notice to the other Party describing the event giving
rise to such termination; provided that this Agreement shall not terminate on
such * day if the event giving rise to such termination has been cured (or, if
the event giving rise to such termination is susceptible to cure, but not
susceptible to cure within such * day period, the breaching Party has taken all
reasonable steps within such * day period to cure the event giving rise to such
termination as promptly as practicable thereafter).
16.2.4 Insolvency Event Defined. "Insolvency Event"
means, with respect to any Party, that such Party (i) makes an assignment for
the benefit of creditors, admits in writing its inability to pay its debts as
they become due, files a voluntary petition in bankruptcy, is adjudicated as
bankrupt or insolvent, files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future bankruptcy law,
seeks, consents to, or acquiesces in, the appointment of any trustee, receiver,
custodian, or liquidator of it or of all or substantially all of its properties;
or it, its directors, or shareholders takes action to dissolve or liquidate it;
or an involuntary petition in bankruptcy is brought against such Party or an
answer proposing the adjudication of such Party as a bankrupt or proposing its
liquidation or reorganization pursuant to any applicable bankruptcy law is filed
in any court and such Party consents to or acquiesces in the filing thereof of
such petition or answer is not dismissed within ninety (90) days after the
filing thereto).
16.3 Inventory. Within * following the effective date of any
termination of this Agreement (or the end of the Term hereof), CPC will (i)
purchase (at AIPC's Actual cost) all Product Raw Materials and Packaging
Materials within current specifications in AIPC's
-19-
<PAGE> 25
inventory that cannot be used by AIPC to produce and distribute pasta products
on its own account as of the effective date of a termination of this Agreement,
and (ii) evacuate, at CPC's sole cost and expense, all Product inventory from
the warehouses owned or used by AIPC.
17. FORCE MAJEURE
17.1 If the performance of this Agreement (including without
limitation any deliveries hereunder) is interfered with by any circumstance or
event of Force Majeure, the Party affected will be excused from such performance
on a day-to-day basis to the extent of such interference (and the other Party
will likewise be excused from performance on a day-to-day basis to the extent
such Party's obligations relate to the performance so interfered with), and such
event shall not give rise to any claim for Damages or other relief; provided,
that the affected Party gives (i) prompt notice to the other Party (no later
than * ) of the commencement of the Force Majeure, stating the specific
circumstances constituting the Force Majeure and describing the obligation or
performance which is thereby delayed or prevented and (ii) notice to the other
Party, within * after cessation of the Force Majeure, of such cessation and of
the specific facts and circumstances supporting the Party's claim concerning the
occurrence and duration of the Force Majeure event.
17.2 "Force Majeure" means an act, event or occurrence that
materially and adversely affects a Party's ability to perform hereunder, and is
demonstrably beyond the control of the affected Party, such as (i) acts of war,
whether declared or not; (ii) insurrection, rebellion, sabotage, acts of
terrorists, public or local disorders, riots, or violent demonstrations; (iii)
explosions, fires, floods, earthquakes or other such natural calamities which it
is not reasonably possible for the affected Party to overcome; (iv) embargoes,
judicial action, lack of or inability to obtain export/import permits or
approvals or other governmental action or inaction not occasioned by the fault
or negligence of the Party affected thereby; (v) abnormal or unusually severe
weather conditions which it is not reasonably possible for the affected Party to
overcome; or (vi) strikes, boycotts or lockouts or such other labor disputes
(but excluding those that are initiated within or limited to the labor force of
the affected Party).
17.3 A claim of Force Majeure not adequately supported within
* of the date of such claim by specific facts and evidence shall be void and
treated, for purposes of this Agreement, as if never made.
17.4 In no event shall Force Majeure excuse or suspend any
obligation to give any notice or to pay any sum of money due under this
Agreement, whatever the nature of the Force Majeure may be.
17.5 If an event of Force Majeure (i) prevents AIPC from
producing the lesser of (A) CPC's Actual requirements for Products ordered from
AIPC, or (B) the applicable quarterly AIPC Guaranteed Maximum Volume, or (ii)
prevents CPC from accepting and purchasing the Minimum Volume under this
Agreement, in either case for a period in excess of * , then either Party may,
by * prior written notice to the other, terminate this Agreement.
-20-
<PAGE> 26
17.6 A party subject to Force Majeure shall exercise all
possible diligence in order to, as soon as possible, remove the effects of, or
to mitigate said effects if their removal is not immediately possible, such
Force Majeure, including the expenditure of a reasonable amount of money. If a
Facility continues to have capacity to produce Products, notwithstanding an
event of Force Majeure affecting such Facility, AIPC will allocate a pro-rata
amount of such remaining capacity to the production of the Products for CPC, in
proportion to the average monthly amount of the full capacity of such Facility
utilized to produce the Products for CPC during the immediately preceding *
period, until such time as the Facility retains the level of capacity in
existence immediately preceding the Force Majeure.
17.7 Unless this Agreement has been terminated as provided
herein, each Party shall reassume, with full rights, the duty of complying with
its obligations hereunder as soon as the Force Majeure ceases, without the right
to claim any compensation from the other party for the period of suspension.
17.8 The Contract Year Plan in effect as of the date of any
event of Force Majeure will be reviewed and adjusted, as necessary, to take into
account the effects of any such event.
18. RECORDS AND AUDIT
18.1 Methods. AIPC will participate in CPC Product planning
and tracking using a remote terminal to enter data related to daily production,
daily inventory status, and daily shipments from the Warehouse pursuant to the
systems referenced below. In connection therewith, the Parties will work
together to establish mutually acceptable methods of reporting production,
product recall, distribution and customer information. AIPC will reasonably
consider CPC's requests to conform or integrate CPC's existing systems into such
reporting methods and procedures. CPC and AIPC will conduct a monthly
reconciliation of Product inventory in the Warehouses in accordance with CPC's
financial reporting systems. AIPC will be responsible for any shortages (and CPC
will be responsible for any overages) in the amount of Product invoiced and paid
for by CPC and the amount of Product actually delivered to a carrier at a
Warehouse for shipment to CPC, with allowance for shrinkage of * .
18.2 Maintenance. AIPC shall keep and maintain current and
accurate books and records pertaining to the purchase of Raw Materials and
Packaging Materials and production of the Products and all other records
required by law. Production records shall include but are not limited to, lot
numbers of Raw Materials (for tracking), data on weight control (actual weight,
and moisture content at packing), records on micro stability of egg products
used in the manufacture of the Products.
18.3 Audit. During the term of this Agreement and for one (1)
year after the termination or expiration of this Agreement, AIPC will permit CPC
to review, audit, inspect and copy the records with respect to all Services by
allowing CPC or its designated auditors or other personnel reasonable access to
AIPC's premises and the records upon prior notice.
-21-
<PAGE> 27
18.4 Accounting Changes. AIPC shall notify CPC of any
accounting method changes (such as on Depreciation) that could affect the cost
structure for the Products.
19. CONFIDENTIALITY
A Confidentiality Agreement between CPC and AIPC dated August
9, 1996 is attached hereto as EXHIBIT 19 and made a part hereof.
20. TRADEMARKS AND ENDORSEMENTS
20.1 CPC Representation. CPC shall be responsible for
providing mechanicals for all Packaging Materials and represents, warrants and
agrees that the mechanicals for artwork and printed materials do not, and will
not, infringe any copyright or trademark of any third party. AIPC will not make
any changes in the artwork without CPC's prior written permission.
20.2 License. CPC hereby grants a revocable (upon termination
of this Agreement), non-exclusive, royalty-free license to AIPC to apply to the
Products as necessary CPC's trademark Mueller's(R) * for sale only to CPC, and
set forth on SCHEDULE 14.5 hereto. AIPC hereby acknowledges that it shall so
apply such designated trademarks to the Products only for sale to CPC and such
trademarks shall remain the sole property of CPC. Nothing in this Agreement
shall be deemed to confer upon AIPC any right, title or interest in or to said
trademarks or to the goodwill now or hereafter associated therewith. During the
term of this Agreement, each such trademark shall not be employed by AIPC in any
manner as to impair, dilute or jeopardize same nor otherwise than in accordance
with instructions given from time to time by CPC.
Upon termination of this Agreement, AIPC shall make no further
use of the CPC Marks or any confusingly similar trademarks or tradenames for any
purpose whatsoever nor employ any other trademark or trade name which gives the
impression or tends to suggest that AIPC continues to produce CPC's Products or
is otherwise associated with CPC.
20.3 Prohibited Use by AIPC. AIPC shall not, without CPC's
written consent, use CPC's trademarks, brand names, company and/or division
name, package likeness, letterhead or other material bearing CPC's name or
products in any advertising, promotion or endorsement.
20.4 Prohibited Use by CPC. CPC shall not, without AIPC's
written consent, use AIPC's trademarks, brand names, company and/or division
name, package likeness, letterhead or other material bearing AIPC's name or
products in any advertising, promotion or endorsement.
-22-
<PAGE> 28
21. GOVERNING LAW AND DISPUTE RESOLUTION
21.1 Governing Law. All matters regarding interpretation
of this Agreement. and the rights of the parties shall be determined by the laws
of the State of Illinois without giving effect to the principles of conflict of
laws thereof.
21.2 Dispute Resolution.
21.2.1 In the event of a dispute relating to this
Agreement, the disputing Party shall given the other Party written notice of the
dispute. Each Party shall designate a senior corporate officer who will meet to
attempt to settle the matter in good faith within * of such notice.
21.2.2 If the dispute has not been resolved within
* of the meeting of the senior corporate officers, the Parties shall submit the
dispute for non-binding mediation in accordance with the procedures set forth in
EXHIBIT 21.2.2; provided, however, if the dollar amount of any such dispute is *
Dollars ($ * ) or less, the decision of the mediator shall be binding upon the
Parties, and enforceable in a court of competent jurisdiction.
21.2.3 If the dispute has not been resolved pursuant
to the aforesaid mediation procedure within * of the commencement of such
mediation, or if either Party will not participate in mediation, the dispute
shall be settled by binding arbitration in accordance with the Arbitration
Procedures attached as EXHIBIT 21.2.3 hereto.
21.3 Expenses. Each Party will bear their own attorney
fees, other professional fees, and expenses incurred in connection with
any dispute resolution hereunder. The fees and expenses of the
mediator/arbitrator and mediation/arbitration hearing will be equally shared by
the Parties, unless otherwise determined by the mediator in a binding mediation
or arbitrator in arbitration. If any Party commences litigation against the
other Party in connection with this Agreement, and it is finally determined by
a court of competent jurisdiction (and the period for appeals if any, has
expired) that such dispute must be submitted to mediation/arbitration
hereunder, the Party who commenced the litigation shall pay all of the attorney
fees and expenses incurred by the other Party in connection with such
litigation, and such amount can be awarded by the court reaching such
conclusion.
22. ASSIGNMENT
22.1 General. Neither Party hereto may assign or transfer
this Agreement, in whole or in part, or any interest arising hereunder, without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Notwithstanding anything to the contrary herein, this
Agreement may be assigned or transferred by CPC to any Affiliate of CPC a
majority of whose capital stock or interests entitled to vote generally in the
election of directors (or other governing body) is owned by CPC, or CPC may
assign this Agreement, in whole or in part, to a third party (subject to
Section 22.3 below), provided that CPC remains financially
-23-
<PAGE> 29
responsible for and guarantees the assignee's obligations to AIPC under this
Agreement, unless the assignee has a Moody's Investor Services credit rating of
at least "A" or better as of the date of such assignment. Subject to the
provisions of this Section 22, this Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of the Parties hereto.
22.2 AIPC Assignment. Notwithstanding anything to the contrary
herein, in the event of a sale, transfer or merger of AIPC to or with Borden,
Hershey or Barilla or the sale or transfer of all of substantially all of its
business or assets to or with Borden, Hershey or Barilla, CPC shall have the
right to terminate this Agreement at any time within * from the date of a notice
of the transaction to CPC by giving AIPC written notice thereof which will
include CPC's tentative schedule of dates for termination of this Agreement,
subject to an effective date of termination that is at least * but no more than
* following the date of the notice of termination.
22.3 CPC Assignment. Notwithstanding anything to the contrary
herein, in the event of a sale, transfer or merger of CPC to or with Borden,
Hershey or Barilla , or the sale of substantially all of CPC's assets, the Best
Foods division, or CPC's Mueller's(R) pasta business, or any assignment of this
Agreement to Borden, Hershey or Barilla, AIPC shall have the right to terminate
this Agreement at anytime within * from the date of a notice of the transaction
to AIPC by giving CPC written notice thereof which will include a schedule of
dates for terminating this Agreement, which will provide to CPC's successor
notice of termination that is not less than the lesser of (a) the remaining
portion of the then current term of this Agreement (without options to extend)
and (b) * .
22.4 Permitted Assignment by AIPC. Notwithstanding anything to
the contrary herein, AIPC may assign AIPC's rights hereunder in connection with
any capital financing of AIPC's business; provided, in no such event will AIPC's
obligations to CPC, or CPC's rights under this Agreement, be diminished or
affected by any such assignment.
23. NOTICES
23.1 Any notice required or permitted to be given under this
Agreement shall be considered as having been given by either Party to the other
Party upon faxing the notice and confirming the notice by mailing thereof to
such other Party by registered or certified mail, required postage prepaid, or
by overnight courier service, at the following addresses, or by making personal
delivery thereof to such other Party at the said address or, in either case, at
such other address as the Parties may from time to time specify in writing. A
Post Office or courier service receipt showing the receipt of such notice and
the date thereof shall be prima facie evidence of the giving of such notice.
-24-
<PAGE> 30
23.2 Notices shall be directed to:
If to CPC: Best Foods
P.O. Box 8000, International Plaza
Englewood Cliffs, NJ 07632-9976
Atten: President
FAX: 201-894-8000
with a copy to: Legal Department
P.O. Box 8000, International Plaza
Englewood Cliffs, NJ 07632-9976
FAX: 201-894-8000
Atten: Assistant General Counsel
If to AIPC: 1000 Italian Way
Excelsior Springs, Missouri 64024
Atten: President
Fax: 816-502-6080
with a copy to: James A. Heeter, Esq.
Sonnenschein Nath & Rosenthal
Suite 1100
4520 Main Street
Kansas City, Missouri 64111
Fax: 816-531-7545
24. NOTICE OF SALE
If AIPC intends to sell or transfer all or a material portion
of its company or CPC intends to sell or transfer all or a material portion of
its pasta business, it shall give the other Party * notice in writing.
Notwithstanding anything to the contrary herein, neither Party will be required
to provide notice of intent to issue capital stock or debt in an underwritten
public offering pursuant to a registration statement filed under the Securities
Act of 1933.
25. PUBLICITY
AIPC shall not advertise or publicize the fact that CPC has
entered into this Agreement before the earlier of (i) two (2) months following
the Effective Date, or (ii) the date CPC has publicly announced the existence of
the relationship established hereunder; provided, however, AIPC may disclose the
existence and terms of this Agreement (i) to the extent required (A) by
Applicable Law, rule or regulation (including complying with any
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process to which AIPC is subject, or (B) under
applicable securities laws, and (ii) to AIPC's banks, lenders,
-25-
<PAGE> 31
stockholders, Affiliates, directors, officers, employees, agents, counsel or
representatives. Each Party will provide a draft of any publicity release to the
other Party at least * before release of such material to the public. Except as
provided herein, neither AIPC nor any of its suppliers or agents shall use CPC's
photographs, logos, trademarks or other identifying features or articles or make
speeches concerning this Agreement without CPC's prior written approval.
26. CHANGES IN ECONOMIC, TECHNICAL OR BUSINESS CONDITIONS
26.1 AIPC and CPC agree to renegotiate, to the extent
commercially reasonable, applicable provisions of this Agreement in the event
the following business circumstances occur:
26.1.1 AIPC or CPC growth opportunities require
significant Product volume increases which require additional capital
expenditure, or a shift in the operating structure described in this Agreement.
26.1.2 Major manufacturing cost improvements by
competitive pasta producers which significantly alter the cost structure
advantage to AIPC and CPC will trigger discussion on how to regain low cost
status within the pasta industry. AIPC and CPC recognize this may require
additional capital expenditure, which will be analyzed on the basis of the
cost/benefit trade-off, and the after tax internal rate of return for both
parties. The implementation and financing of such investment to be agreed to
jointly. If CPC's cost structure becomes disadvantaged * , CPC may, at its
option finance capital expenditures necessary to regain cost competitiveness. If
AIPC does not agree to permit CPC to place new equipment to reduce or eliminate
a CPC cost disadvantage without creating disadvantages in AIPC's remaining cost
structure, CPC may at its option terminate this Agreement "for cause" and
negotiate a scheduled exit from AIPC's facilities within * .
26.1.3 Sustained ( * ), significant ( * ) volume
decreases in AIPC's business will require the Parties to use their best efforts
to equitably redistribute required overheads for continued, efficient
operations.
26.2 In the event of sustained ( * ), significant ( * ) volume
decreases in the CPC pasta business, and AIPC is producing all of CPC's
Mueller's(R) and other retail branded pasta requirements (producible by AIPC),
AIPC will use its commercially reasonable efforts to mitigate CPC's exposure to
AIPC * under this Agreement. In furtherance of the foregoing, the Parties will
use their commercially reasonable efforts to renegotiate the restrictions on
AIPC's ability to produce branded retail products for * to the extent necessary
to enable AIPC to produce and sell an aggregate volume of products (to CPC and
other parties) during any Contract Year in an amount at least equal to the * for
such Contract Year.
-26-
<PAGE> 32
27. MISCELLANEOUS
27.1 Entire Agreement. This Agreement, together with the
Exhibits and Schedules to the Agreement, which are hereby incorporated herein
and made a part hereof, set forth the entire understanding of the Parties with
respect to the subject matters contained herein or therein, and supersede any
prior or contemporaneous agreements, understandings and representations, whether
oral or written, made by or between the Parties hereto.
27.2 Amendments. No supplement, modification or amendment of
this Agreement, the Exhibits or Schedules shall be binding unless executed in
writing by the Parties hereto.
27.3 Waiver. If any Party fails, at any time, to enforce any
right or remedy available to it under this Agreement, that failure shall not be
construed to be a waiver of the right or remedy with respect to any other breach
or failure by the other Party.
27.4 Validity. If for any reason any clause or provision of
this Agreement, or the application of any such clause or provision in a
particular context or to a particular situation, circumstance, or person, should
be held unenforceable, invalid or in violation of law by any court or other
tribunal, then the application of such clause or provision in contexts or to
situations, circumstances or persons other than that in or to which it is held
unenforceable, invalid or in violation of law shall not be affected thereby, and
the remaining clauses and provisions hereof shall nevertheless remain in full
force and effect. Further, where state or federal law governs any aspect of
matters or services covered by this Agreement, such state or federal law shall
prevail over inconsistent provisions in this Agreement.
27.5 Captions. The captions included in this Agreement have
been inserted as a matter of convenience only and in no way are intended to
define, limit or to be used in connection with the interpretation of this
Agreement.
27.6 Counterparts. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed an original for all purposes, and
all of which shall constitute but one and the same instrument.
27.7 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
-27-
<PAGE> 33
SIGNATURE PAGE TO MANUFACTURING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE
ENFORCEABLE BY THE PARTIES.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
AMERICAN ITALIAN PASTA COMPANY
/s/ Timothy S. Webster
-------------------------------
By: Timothy S. Webster
Its: President
CPC INTERNATIONAL INC.
/s/ Axel C.A. Krauss
-------------------------------
By: Axel C.A. Krauss
Its: Senior Vice President
/s/ Lawrence K. Hathaway
-------------------------------
By: Lawrence K. Hathaway
Its: Vice President
-28-
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL TREATMENT REQUESTED
AMENDED AND RESTATED
SUPPLY AGREEMENT
This Amended and Restated Supply Agreement, dated October 29, 1992
(this "Agreement"), by and between Sysco Corporation, a Delaware corporation
(hereinafter referred to as "Sysco") and American-Italian Pasta Company, a
Delaware corporation (hereinafter referred to as "AIPC").
1
Recitals
1.1 AIPC operates a durum mill and pasta plant in Excelsior Springs,
Missouri (together hereinafter referred to as the "Plant").
1.2 Sysco has marketed and distributed pasta supplied to it by AIPC
pursuant to that certain Supplier Agreement by and between AIPC and Compton
Foods Association, predecessor in interest to Sysco, dated August 1, 1986 (as
amended on April 2, 1987, the "Initial Agreement").
1.3 Sysco desires to continue to market and distribute pasta supplied
to its operating companies and divisions ("Operating Companies") by AIPC in
accordance with the terms hereof and AIPC desires to continue to supply pasta to
Sysco for foodservice distribution at a price and in amounts sufficient to
insure Sysco a readily available, cost competitive and high quality source of
pasta in accordance with the terms hereof.
1.4 Sysco proposes to continue to make all Sysco brand pasta sales
opportunities available through it to AIPC in accordance with the terms hereof.
1.5 Sysco and AIPC desire to amend and restate the Initial Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, AIPC and Sysco agree
as follows:
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT. THE
REDACTED MATERIAL HAS BEEN INDICATED WITH AN ASTERISK AND FILED SEPARATELY WITH
THE COMMISSION.
2
<PAGE> 2
Purchases and Sales of Products
2.1 Products Purchased. AIPC shall manufacture at the Plant and sell to
Sysco and Sysco shall purchase from AIPC, those pasta products set forth on
Exhibit 2.1 attached hereto (the "Products"). The parties hereto may amend
Exhibit 2.1 from time to time to add or delete Products as mutually acceptable
to Sysco and AIPC. AIPC shall maintain an inventory of Products sufficient to
assure that Sysco's orders hereunder will be supplied in the ordinary course of
business and consistent with past practice under the Initial Agreement.
2.2 Pricing. All Products sold to Sysco hereunder shall be sold at a
price based on Total Cost to be established pursuant to Section 2.2.2 hereof.
For purposes of this Agreement, "Total Cost" means the sum of (i) Raw Materials
Costs, (ii) Packaging Costs, (iii) Direct Labor and Factory Overhead, (iv)
Direct Sales and Marketing Costs, (v) Depreciation and Distribution Costs, and
(vi) Allocable Administration and Financing Costs.
2.2.1 Definitions - The following definitions shall apply in
determining TotalCost:
(a) "Raw Materials Cost" means the actual delivered cost to
AIPC of the ingredients used to manufacture the Products, including but not
limited to semolina, first clear flour, egg powder, spinach powder, tomato
powder and enrichments. The cost of semolina shall be calculated in accordance
with Exhibit 2.2.1(al.
(b) "Packaging Costs" means the actual delivered cost to
AIPC of materials consumed in packaging the Products including packaging film,
bags, cases, boxes, liners, stretch wrap, pallets, ink, glue, tape and slip
sheets.
(c) "Direct Labor and Factory Overhead" means the actual
cost of labor, utilities, supplies and repairs, spare parts, sanitation,
quality control, maintenance, security, uniforms and laundry, plant supervision
and other factory overheads allocable to the manufacture of Products purchased
by Sysco hereunder.
(d) "Direct Sales and Marketing Costs" means (i) actual
expenses of payroll, payroll taxes, fringe benefits and reasonable and
necessary travel and entertainment expenses for the AIPC employees which Sysco
and AIPC mutually agree will be devoting their efforts to selling Products to
Sysco and (ii) all promotional expenses and allowances paid to or on behalf of
Sysco or its Operating Companies for the purpose of promoting the sale of
Products by Sysco to its customers. Direct Sales and Marketing Costs may be
adjusted from time to time by mutual agreement.
(e) "Depreciation and Distribution Costs" means (i) actual
depreciation expenses of AIPC's buildings and improvements, milling equipment,
pasta production and packaging equipment, warehouse equipment and office
furnishings and equipment and (ii) expenses of warehousing Products including
payroll, payroll taxes and fringe benefits for warehouse personnel and
warehouse rent and utility charges, in each case as allocable to Products
purchased by Sysco hereunder.
(f) "Allocable Administrative Financing Costs" means *
-2-
<PAGE> 3
2.2.2 Pricing Procedures - In accordance with past practice, prior
to the beginning of each Contract Year (as defined in Section 5.1), the parties
will meet to discuss and review all of the components of Total Cost and * the
Total Cost of each Product to be utilized for pricing during that Contract Year
based on the Total Cost of such Product during the Contract Year then ending
except as otherwise provided in Section 2.2.4 regarding allocable
Administrative and Financing Costs. *
Notwithstanding the foregoing, Raw Materials Costs and Packaging
Costs will be adjusted each January 1 during the term hereof to reflect changes
in the components of such costs effective upon written notice of adjustment to
Sysco. In addition, Raw Materials Cost may be adjusted at other times,
effective upon thirty (30) days prior written notice to Sysco, in the event of
* .
2.2.3 Basis of Allocation of Costs - Unless otherwise agreed by
the parties, all AIPC costs under paragraphs (c), (e) and (f) of Section 2.2.1
during any Contract Year will be allocated to the Total Cost of Products
consistent with past practice. * Where no other allocation has been utilized in
the past, such costs will be allocated, unless the parties agree otherwise, to
the Total Cost of Products on a prorata basis *
2.2.4 Maximum Range of Certain Costs - The parties' experience
under the Initial Agreement has been that Allocable Administrative and
Financing Costs have comprised approximately *% of Total Costs. The parties
agree that Allocable Administrative and Financing Costs will be established at
*% of the Total Cost provided that in no event will Allocable Administrative
and Financing Costs be less than * per pound or more than * per pound during
the term of this Agreement or any extension thereof.
2.2.5 Audit Privilege - Sysco shall have the right, at its
expense, to inspect and audit all records of AIPC, including without limitation
supplier's invoices and freight bills, in connection with the performance of
AIPC hereunder and the determination of Total Cost.
2.2.6 Freight - In the calculation of Total Cost, Sysco shall
obtain the benefit of all rights accruing to AIPC under any transportation or
freight agreement, including the rates provided for in any such agreement
covering the shipment of Products from the Plant to other destinations or the
shipment of packaging materials or raw materials to the Plant.
2.2.7 Payment Terms - Sysco shall make payments to AIPC for
Products supplied to Sysco by AIPC within * after receipt of an invoice
therefor.
2.3 Exclusive Supplier to Sysco. Except for sales pursuant to Section
2.5 of this Agreement, during the term hereof AIPC shall not act as a supplier
or seller of pasta or Products to any business other than Sysco in the United
States, Canada and Mexico that operates as, or sells to, institutions (such as
restaurants, hospitals and schools) which provide food for consumption away
from home ("Foodservice Business"). AIPC may sell pasta and/or Products (i) to
a business that sells food at retail (such as Kroger Co. and Safeway) ("Retail
Business") or that sells or distributes products to the Retail Business (such
as Fleming Foods and Associated Wholesale Grocers) or (ii) to industrial
ingredient food processors who use pasta in their finished product.
-3-
<PAGE> 4
2.4 Exclusive Right to Market Sysco Label Pasta. AIPC shall have the
exclusive right to market Products bearing a Sysco label through Sysco in the
United States, Canada and Mexico, provided that (i) AIPC maintains the quality
of such Products and supplies them at a competitive price (based upon prices
available in long term arrangements and taking into consideration the costs
associated with the multi-colored packaging and box designs which have been
designed by Sysco and AIPC) and (ii) AIPC provides a continuous source of supply
of Products to Sysco, it being understood that in the event of an interruption
in AIPC's production, AIPC shall be permitted to utilize other sources of supply
as approved in writing in advance by Sysco. Nothing in this Section 2.4 shall be
construed as obligating AIPC to sell Products to Sysco at less than the price
provided for in Section 2.2 or to utilize such alternative sources of supply as
approved by Sysco, unless AIPC elects to do so in order to maintain its
exclusive rights under this Section 2.4.
2.5 Direct Sales to Certain Sysco Customers. The parties acknowledge
that certain Foodservice Business customers (including the military,
universities and major restaurant chains) may insist upon purchasing directly
from a manufacturer. In those situations, AIPC shall be permitted to sell
Products directly to such Foodservice Businesses and AIPC shall use Sysco
Operating Companies as AIPC's exclusive agent in connection with such direct
sales. The Operating Companies will be compensated for acting as agent on such
sales by the payment of a fee in the amount of * unless otherwise mutually
agreed by the parties.
2.6 Sysco Orders; Billing. Sysco, on behalf of the Operating
Companies, shall order directly from AIPC for all purchases hereunder. Such
orders shall be placed at least * business days prior to the requested shipment
date during the first Contract Year, * business days prior to the requested
shipment date during the second Contract Year, * business days during the third
Contract Year and * business days during the fourth Contract Year and
thereafter during the term of this Agreement or any extension thereof. Sysco
may, for special orders, request a shorter delivery date, and AIPC will use
reasonable, good faith efforts to meet such special delivery date(s). Billing
by AIPC shall be directly to Sysco, irrespective of which Operating Company is
the recipient of the respective order(s).
2.7 Labeling. AIPC agrees to use such labeling on the pasta ordered by
Sysco as are supplied to AIPC by Sysco or obtained by AIPC in accordance with
the instructions and guidelines of Sysco.
2.8 Purchase of Pasta Not Manufactured by AIPC. At the current time,
AIPC does not manufacture certain types of pasta such as * and * ("Other
Pasta"). Sysco will permit AIPC to purchase Other Pasta for resale to Sysco
under the Sysco label. AIPC will have the exclusive right to market Other Pasta
bearing a Sysco label through Sysco in the United States, Canada and Mexico,
provided that (1) the quality of Other Pasta is acceptable to Sysco in its
reasonable judgement and (2) AIPC is willing to sell Other Pasta to Sysco at a
price which is comparable to a price for Other Pasta of similar quality and
packaging and in similar quantities as is available to Sysco from one or more
third parties. The price for Other Pasta shall be established from time to
time. The provisions of this Agreement other than Sections 2.2.1, 2.2.2, 2.2.3,
2.2.4 and 2.4 shall apply to purchases of Other Pasta.
3
-4-
<PAGE> 5
Marketing and Promotion
3.1 Marketing and Promotional Activities of Sysco. Sysco shall use
reasonable, good faith efforts to sell Products and Other Pasta to Sysco's
existing Foodservice Business customers in the United States, Canada and Mexico
in accordance with necessary and appropriate marketing and promotional
practices. Subject to Sections 3.2 and 3.3 hereof, Sysco shall bear all
expenses incurred in connection with all such marketing and promotional
activities engaged in by Sysco.
3.2 Marketing and Promotional Activities of AIPC. AIPC shall continue
to cooperate with Sysco in developing Sysco's pasta marketing program in the
United States, Canada and Mexico. AIPC and Sysco shall agree in writing upon
the level of sales, marketing and promotional activities and expenses to be
provided by AIPC and included in Direct Sales and Marketing Costs.
3.3 Special Promotional Activities. The parties agree that, within
thirty (30) days following the commencement of each calendar quarter during the
term hereof, AIPC will contribute to Sysco an amount equal to * per pound of
the prior calendar quarter's gross tonnage of Products and Other Pasta sold by
AIPC to Sysco hereunder which shall be used by Sysco solely to promote the sale
of Products and Other Pasta by Sysco and its Operating Companies.
4
Warranties, Covenants and Agreements
4.1 Warranty as to Purchased Products. AIPC warrants that each Product
will meet the specifications for such Product set forth in Exhibit 4.1. If AIPC
supplies Other Pasta to Sysco pursuant to Section 2.8 of this Agreement, AIPC
warrants that Other Pasta will meet the mutually agreed specifications for such
pasta. AIPC further warrants that the Products and Other Pasta delivered to
Sysco hereunder, as of the date of delivery to the Operating Company (a) will
not be adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act (the "Act"), (b) will not be an article which cannot be
introduced into interstate commerce under the provisions of Section 404 and 505
of the Act, and (c) will be in material compliance with all applicable federal,
state and local laws.
4.2 Covenants.
4.2.1 Compliance with Laws - AIPC agrees that its Plant shall be
operated in material compliance with all applicable codes, laws, statutes,
regulations and ordinances, whether federal, state or local including, without
limitation, all environmental, health or safety laws. AIPC will promptly notify
Sysco of any notices or proceedings arising out of the nonconformity or
noncompliance with respect to any matters addressed in this Section 4.2.1 and
AIPC will promptly cure or have dismissed with prejudice any such actions or
proceedings to Sysco's reasonable satisfaction.
4.2.2 Permits and Licenses - During the term of this Agreement,
AIPC agrees to maintain in place all permits and licenses reasonably necessary
for the operation by AIPC of the Plant and shall otherwise comply with any and
all laws, ordinances, rules and regulations of any
-5-
<PAGE> 6
governmental unit or agency having jurisdiction related in any way to the use
or occupancy of the Plant by AIPC, including, without limitation, the United
States Department of Agriculture.
4.2.3 Repairs and Operation - AIPC agrees to operate the Plant in
a commercially reasonable manner, to keep the Plant in good repair in
accordance with reasonable standards of operation and good manufacturing
practices of the United States Food and Drug Administration.
4.2.4 Inspections - Upon reasonable notice to AIPC, Sysco's
employees and representatives shall have the right of full access to the Plant
during normal business hours during the term of this Agreement.
5
Term of Agreement
5.1 Initial Term. Subject to the provisions of Article 5 hereof, this
Agreement shall become effective on July 1, 1993, and expire June 30, 1997. The
period from July 1, 1993 through June 30, 1994, and each successive twelve (12)
month period during the term hereof (as it may be extended) is hereinafter
referred to as a "Contract Year".
5.2 Termination in Event of Default or Bankruptcy. Either party may
terminate this Agreement, prior to the expiration of the term hereof, upon
(i)the other party's failure to cure any default hereunder within ninety
(90)days of receipt of written notification of such defaults or (ii) the filing
of any petition in bankruptcy or the commencement of any proceeding relating to
the relief or readjustment of indebtedness, either through reorganization or
otherwise, by or against the other party.
5.3 Termination by Sysco. This Agreement may be terminated by Sysco
upon substantial casualty to or condemnation of the Plant.
5.4 Extension of Term. Sysco shall have the option to extend the term
of this Agreement for three (3) successive terms of three (3) Contract Years
each, upon six (6) months written notice prior to the expiration of the then
current term, subject to the condition that Sysco does not knowingly manipulate
the volume of purchases by Sysco under this Agreement in the third Contract
Year of the then current term to less than the average volume of purchases
during the first two Contract Years of the then current term.
6
Indemnification and Insurance
6.1 Indemnification by AIPC. AIPC shall defend, indemnify and hold
harmless Sysco, the Operating Companies and their respective employees,
officers, directors and customers (individually an "Indemnitee") from all
actions, suits, claims and proceedings ("Claims"), and any judgments, damages,
fines, costs and expenses, including reasonable attorneys' fees resulting
therefrom (and Indemnitee shall notify AIPC promptly of the service of process
or receipt of actual notice of any Claim):
-6-
<PAGE> 7
6.1.1 brought or commenced by federal, state or local governmental
authorities against any Indemnitee alleging that any Products or Other Pasta
sold by AIPC to or on the order of Sysco or an Operating Company hereunder did
not, as of the date of delivery, meet the representations set forth in Section
4.1 above; or
6.1.2 brought or commenced by any person or entity against any
Indemnitee for recovery of damages for the injury, illness and/or death of any
person or damage to property, in either case, arising out of or alleged to have
arisen out of (i) the delivery, sale, resale, use or consumption of any
Products or Other Pasta delivered to Sysco hereunder, or (ii) the negligent
acts or omissions of AIPC; provided, however, that AIPC's indemnification
obligations hereunder shall not apply to the extent that Claims are caused by
the negligence of an Indemnitee.
6.2 Indemnification by Sysco. Sysco shall defend, indemnify and hold
harmless AIPC and its employees, officers and directors from and against any
and all claims and liabilities, including costs, expenses and reasonable
attorneys fees incurred in connection with the defense of any such claims,
arising out of (i) Sysco's marketing efforts pursuant hereto, or (ii) the
misuse or adulteration of any Pasta or Other Products by Sysco or an Operating
Company.
6.3 Insurance. AIPC shall maintain in effect insurance coverage with
reputable insurance companies covering worker's compensation and employers'
liability, automobile liability, comprehensive general liability, including
product liability and excess liability, all with limits described in Exhibit
6.3. AIPC shall furnish a certificate evidencing the obligation of its
insurance carriers not to cancel or materially amend such policies without
thirty (30) days prior written notice to Sysco. In addition, Sysco shall be
named as an additional insured with respect to the comprehensive general
product, automobile and excess liability coverages specified herein using the
Insurance Services Office form CG 2026.
7
Assignment
7.1 Assignment. This Agreement shall not be assignable by AIPC or Sysco
without the written consent of the other party, including any assignment by
operation of law occurring as the result of any foreclosure of the Plant or any
material component thereof by any person having a security interest or mortgage
therein, and any attempted assignment in violation of this provision shall be
void and unenforceable.
7.2 Binding Effect. Subject to Section 7.1, this Agreement and the
rights and obligations of the parties hereto shall be binding upon and shall
insure to the benefit of such parties and their successors and permitted
assigns.
8
Miscellaneous
8.1 Entire Agreement. This instrument constitutes the entire agreement
between AIPC and Sysco and it expressly supersedes all other prior oral or
written negotiations, agreements,
-7-
<PAGE> 8
understandings or course of conduct between the parties with respect to the
subject matter hereof including, without limitation, the Initial Agreement.
8.2 Amendment. This Agreement shall not be amended, altered or changed
except by a written instrument executed by the parties hereto or their
permitted assignees, if any.
8.3 Waiver. Any waiver by either party hereto of an obligation on the
part of the other party shall be ineffective unless in writing and shall not be
deemed to be a waiver of any other future obligation or performance.
8.4 Severability. In the event that any provision hereof is found by a
court of competent jurisdiction to be unenforceable, such unenforceability
shall not affect the binding nature of the balance of the Agreement and the
remaining provisions shall be given effect, to the extent possible, as if the
unenforceable provision had not been included herein.
8.5 Governing Law. This Agreement and the rights and obligations of
the parties hereunder, shall be construed in accordance with the law of the
State of Delaware.
8.6 Notices. The notices to be given hereunder shall be given in
writing, by (i) certified mail, postage prepaid, (ii) by reputable overnight
courier service, (iii) by facsimile transmission, or (iv) personal delivery,
and addressed in each case as follows, or to such other address as the parties
may designate by written notice under this Section 8.6:
If to Sysco: Sysco Corporation
1390 Enclave Parkway
Houston, TX 77077-2099
ATTN: Senior Vice President - Procurement
Telephone: (713) 584-1390
Telefax: (713) 584-4070
Copy to:
Sysco Corporation
1390 Enclave Parkway
Houston, TX 77077-2099
ATTN: General Counsel
Telephone: (713) 584-1390
Telefax: (713) 584-2510
If to AIPC: American-Italian Pasta Company
1000 Italian Way
Excelsior Springs, MO 64024
ATTN: President
Telephone: (816) 637-6400
Telefax: (816) 637-6416
-8-
<PAGE> 9
Notices shall be effective (i) three (3) days after deposit in the mail if given
by certified mail, (ii) the next business day following deposit with a courier
if given by courier, (iii) when received if given by facsimile transmission or
personal delivery.
8.7 Force Majeure. Subject to Section 2.4 hereof, the obligations of
the parties hereto, and of their permitted assigns, except the obligation to
pay monies when due, shall be subject to all acts of God; riots, insurrections;
federal and state laws, orders, rules and regulations; interference by civil,
military or naval authorities; governmental actions; accidents; storms, fire or
other casualty; and other similar events of force majeure which are beyond the
reasonable control of the party obligated to perform, and such performance
obligation shall be suspended during the period of such force majeure; provided
that any such force majeure shall not operate to extend the term hereof. If
force majeure extends for more than * , then either party may terminate this
Agreement.
8.8 Relationship of Parties. Nothing in this Agreement shall be deemed
or construed by the parties or by any third parties as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of buyer and seller.
8.9 Past Practice. Whenever this Agreement refers to "past practice"
as in references to treatment consistent with past practice, such reference is
to the past practice of the parties under the Initial Agreement.
8.10 Dispute Resolution. Except as provided below, any and all
disputes arising out of this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, provided that the parties agree that a single arbitrator shall be
used in any such arbitration. Judgement upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
The provisions of this Section 8.10 shall not apply to (i)
product liability claims, losses or damages and/or (ii) claims, liabilities,
losses or damages arising out of personal injury and physical damage to
property suffered by either party and their respective directors, officers,
employees or agents or by any other person.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
SYSCO CORPORATION
By: /s/ James A. Schlindwein
------------------------------
James A. Schlindwein
Executive Vice President -
Procurement
-9-
<PAGE> 10
And: /s/ Richard J. Schnieders
------------------------------
Richard J. Schnieders
Senior Vice President -
Procurement
AMERICAN-ITALIAN PASTA COMPANY
By: /s/ Timothy S. Webster
------------------------------
Timothy S. Webster
President and CEO
-10-
<PAGE> 11
SYSCO
December 13, 1996
Mr. Timothy Webster
President & Chief Executive Officer
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Dear Tim:
In accordance with Section 5.4 of the Amended and Restated Supply Agreement
dated, October 29, 1992 (the "Agreement"), SYSCO Corporation hereby executes its
option to extend the Agreement for a period of 3 years. The extension will begin
on July 1, 1997, and will run through June 30, 2000. We believe that the
Agreement has served both SYSCO and AIPC well over the years and see no reason
to make any substantive changes at this time.
We understand that AIPC will prepare and forward for our approval an Amended
Exhibit 2.1, containing an updated product listing. Any additional amendments to
the Agreement that become necessary over time will be handled through addendums
as they have in the past.
I know that you believe as I do that there is still significant growth for SYSCO
brands in food service pasta. We look forward to working with AIPC to capture a
larger share of the pasta market.
Sincerely,
s/W. Michael Smith
- --------------------------------------------------
W. Michael Smith
Vice President of Merchandising, Grocery Products
cc: Richard J. Schnieders
<PAGE> 1
EXHIBIT 10.15
SN&R DRAFT 10/7/97 10:41 A.M. THOMPSON HOLDINGS, L.P.
(Name of Selling Stockholder)
CUSTODY AGREEMENT AND POWER OF ATTORNEY
FOR SALE OF CLASS A COMMON STOCK OF
AMERICAN ITALIAN PASTA COMPANY
October 7, 1997
Mr. Timothy S. Webster
Mr. David E. Watson
as Attorneys-in-Fact
c/o American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Republic New York Securities Corporation
as Custodian
c/o Ms. Carmen Terrana
452 Fifth Avenue
New York, New York 10018
Ladies and Gentlemen:
After the conversion of all outstanding shares of the common stock, no
par value per share (the "Old Common"), of American Italian Pasta Company, a
Delaware corporation (the "Company"), and the Class A common stock, par value
$.01 per share of the Company (with the Old Common collectively, the "Old
Common Stock") into shares of the Class A Convertible Common Stock, par value
$.001 per share (the "New Common Stock") of the Company pursuant to a proposed
recapitalization (the "Recapitalization"), the Company proposes to issue and
sell, and the undersigned and certain other stockholders of the Company (the
undersigned and such other stockholders hereinafter collectively referred to as
the "Selling Stockholders") propose to sell, shares of New Common Stock to a
group of U.S. underwriters (the "U.S. Underwriters"), for whom Morgan Stanley &
Co. Incorporated, BT Alex. Brown Incorporated, Goldman, Sachs & Co. and George
K. Baum & Company are acting as representatives (the "U.S. Representatives")
and to a group of international underwriters (the "International Underwriters,
together with the U.S. Underwriters, the "Underwriters") for whom Morgan
Stanley & Co. International Limited, BT Alex. Brown International, Goldman
Sachs International and George K. Baum & Company are acting as representatives
(the "International Representatives," together with the U.S. Representatives,
the "Representatives"), for distribution to the public in an initial public
offering (the "Offering") as contemplated by a registration statement on Form
S-1, File No. 333-32827 (the "Registration Statement"), in amounts, at a price
and on terms to be set forth in an underwriting agreement (the "Underwriting
Agreement") to be executed by and among the Company, the Selling Stockholders
and the Representatives. In addition, solely for the purpose of covering
over-allotments, if any, the Company and/or certain Selling Stockholders
propose
<PAGE> 2
to sell to the Underwriters, in amounts, at a price and upon terms to be set
forth in the Underwriting Agreement, additional shares of New Common Stock.
It is understood that at this time there is no commitment on the part of
the Underwriters to purchase any shares of New Common Stock and there are no
assurances that the Offering will take place or that the undersigned will be
offered an opportunity to sell any shares of New Common Stock even if the
Offering does take place.
The undersigned, by executing and delivering this irrevocable Custody
Agreement and Power of Attorney (this "Agreement"), confirms its willingness to
sell the maximum number of shares of New Common Stock (collectively, the "New
Shares") as set forth on Schedule I hereto (and subject to any conditions set
forth therein) to the Underwriters.
The undersigned acknowledges receipt of (i) a draft dated October 7,
1997 of the Underwriting Agreement (such draft, the "Draft Underwriting
Agreement"); and (ii) a conformed copy (without exhibits) of the Registration
Statement and all amendments thereto through the date of execution hereof. The
undersigned understands that the Underwriting Agreement is subject to revision
prior to execution, with such changes as the Attorneys-in-Fact deem appropriate
(including with respect to the number of New Shares to be sold by the
undersigned), and that the Registration Statement has not yet become effective
under the Securities Act of 1933 (the "Securities Act") and is subject to
amendment.
1. Appointment and Powers of Attorneys-in-Fact
a. The undersigned irrevocably constitutes and appoints
Timothy S. Webster and David E. Watson (the "Attorneys-in-Fact"), and
each of them, its agent and attorney-in-fact, with full power of
substitution, with respect to all matters arising in connection with the
offering and sale of the New Shares (subject to the limitations set
forth below) including, but not limited to, the power and authority on
behalf of the undersigned to do or cause to be done any of the
following:
i. negotiate, determine and agree upon (a) the price at
which the New Shares will be initially offered to the public by
the Underwriters pursuant to the Underwriting Agreement; (b) the
underwriting discount with respect to the New Shares, not to
exceed 7%; and (c) the price at which the New Shares will be sold
to the Underwriters by the undersigned pursuant to the
Underwriting Agreement; provided that any such underwriting
discount and price at which the New Shares will be sold to the
Underwriters will be the same as the price at which shares of New
Common Stock are sold to the Underwriters by the Company;
ii. negotiate, execute and deliver the Underwriting
Agreement, substantially in the form of the Draft Underwriting
Agreement, which provides for, among other things,
indemnification of the Underwriters by the undersigned for
certain liabilities and including such insertions, changes,
additions or deletions as the Attorneys-in-Fact in their sole
discretion deem appropriate, such approval to be conclusively
evidenced by
- 2 -
<PAGE> 3
the execution and delivery of the Underwriting Agreement by an
Attorney-in-Fact, including the making of all representations and
agreements provided in the Underwriting Agreement to be made by,
and the exercise of all authority thereunder vested in, the
undersigned; provided, however, that the provisions of the
Underwriting Agreement corresponding to Sections 2, 6 and 9 of
the Draft Underwriting Agreement shall not in any material
respect be less favorable to the undersigned or its counsel than
such provisions of the Draft Underwriting Agreement;
iii. sell, assign, transfer and deliver the New Shares to
the Underwriters pursuant to the Underwriting Agreement and
deliver to the Underwriters or instruct the Custodian (as defined
below) to deliver certificates for the New Shares so sold;
iv. take any and all steps deemed necessary or desirable
by the Attorneys-in-Fact in connection with the registration of
the New Shares under the Securities Act, the Securities Exchange
Act of 1934 (the "Exchange Act"), and under the securities or
"blue sky" laws of various states and jurisdictions, including,
without limitation, the giving or making of such undertakings,
representations and agreements and the taking of such other steps
as the Attorneys-in-Fact may deem necessary or advisable;
v. instruct the Company and the Custodian on all
matters pertaining to the sale of the New Shares and delivery of
certificates therefor;
vi. provide, in accordance with the Underwriting
Agreement, for the payment of underwriting discounts and
commissions and transfer taxes, if any, and any other costs or
expenses allocable to or payable by the undersigned in connection
with the offering and sale of the undersigned's New Shares, in
each case as directed in writing by the Attorneys-in-Fact;
provided that this Agreement shall not create any obligation to
pay any such other costs or expenses; and further provided that
this clause (vi) shall not affect any agreement which the Company
and the undersigned may make for the allocation or sharing of
such costs or expenses;
vii. otherwise take all actions and do all things deemed
necessary or advisable or desirable by the Attorneys-in-Fact in
their discretion in connection with the registration of the New
Shares, including the execution and delivery of any documents,
and generally act for and in the name of the undersigned with
respect to the sale of the New Shares to the Underwriters and the
reoffering of the New Shares by the Underwriters as fully as
could the undersigned if then personally present and acting;
viii. to accept payment for the New Shares being sold by
the undersigned, to give receipt for such payment, and to remit
such payment to Republic National Bank of New York ("RNB") in
accordance with its written instructions; and
ix. to return to RNB in accordance with its written
instructions any certificates for any shares of New Common Stock
issued in respect of the Old Shares
- 3 -
<PAGE> 4
(as defined below) pursuant to the Recapitalization, but not sold
or to be sold to the Underwriters pursuant to the Underwriting
Agreement.
b. Each Attorney-in-Fact may act alone in exercising the
rights and powers conferred on the Attorneys-in-Fact by this Agreement,
and the act of any Attorney-in-Fact shall be the act of the
Attorneys-in-Fact. Each Attorney-in-Fact may determine, in his sole and
absolute discretion, the time or times when, the purposes for which, and
the manner in which, any power herein conferred upon the
Attorneys-in-Fact shall be exercised.
c. The Custodian, the Representatives, the Company and all
other persons dealing with the Attorneys-in-Fact as such may rely and
act upon any writing believed in good faith to be signed by one or more
of the Attorneys-in-Fact.
d. The Attorneys-in-Fact shall not receive any compensation
for their services rendered hereunder.
e. The undersigned acknowledges that the powers of attorney
granted pursuant to this Agreement are granted to secure the
undersigned's performance of this Agreement and the Underwriting
Agreement and therefore are coupled with an interest and are
irrevocable.
2. Appointment of Custodian; Deposit of Shares
a. In connection with and to facilitate the sale of the New
Shares to the Underwriters, the undersigned appoints Republic New York
Securities Corporation as custodian (the "Custodian"), and authorizes
RNB to deposit with the Custodian one or more certificates for shares of
Old Common Stock as set forth on Schedule II hereto (such shares
collectively, the "Old Shares") which, after giving effect to the
Recapitalization, will represent not less than the maximum number of New
Shares to be sold by the undersigned to the Underwriters as set forth
on Schedule I hereto. Each such certificate so deposited is in
negotiable and proper deliverable form accompanied by two or more duly
executed stock powers in blank, bearing the signature of the undersigned
thereon and a medallion guarantee of such signature by an Eligible
Guarantor Institution, as defined by Exchange Act Rule 17Ad-15. The
undersigned authorizes and directs the Custodian, subject to the
instructions of the Attorneys-in-Fact, (a) to hold in custody the
certificate or certificates for the Old Shares deposited herewith and
any related stock powers; (b) to deliver such certificate or
certificates and related stock powers to or at the direction of the
Attorneys-in-Fact in accordance with the terms of the Underwriting
Agreement; (c) to instruct UMB Bank, n.a., in its capacity as Transfer
Agent and Registrar for the New Common Stock, to issue certificates for
all of the New Shares and to deliver such certificates to the Custodian
in exchange for all of such Old Shares; and (d) to return to RNB one or
more new certificates for the shares of New Common Stock issuable
pursuant to the Recapitalization in respect of the Old Shares but which
are not sold or to be sold pursuant to the Underwriting Agreement.
- 4 -
<PAGE> 5
b. Until the New Shares have been delivered to the
Underwriters against payment therefor in accordance with the
Underwriting Agreement, the undersigned will retain all rights of
ownership with respect to the Old Shares deposited hereunder (together
with any shares of New Common Stock issuable in respect thereof pursuant
to the Recapitalization), including the right to vote and to receive all
dividends and payment thereon, except the right to retain custody of or
dispose of such shares, which right is subject to this Agreement and,
from and after its execution, the Underwriting Agreement.
c. In taking any action requested or directed by the
Representatives under the terms of this Agreement, the Custodian will be
entitled to rely upon a writing which it believes in good faith to have
been signed by a representative of Morgan Stanley & Co. Incorporated,
with evidence of authority reasonably satisfactory to the Custodian.
d. The Custodian may consult with legal counsel in the event
of any dispute or questions as to the construction of any of the
provisions hereof or its duties hereunder, and it shall incur no
liability and shall be fully protected in acting in accordance with the
opinion and instructions of such counsel.
e. In the event of any disagreement between the undersigned or
the person or persons named in the instructions in this Agreement, or
any other person, resulting in adverse claims and demands being made in
connection with or for any certificates, papers, money or property
involved herein, or affected hereby, the Custodian shall be entitled to
refuse to comply with any demand or claim (and in so refusing to make
any delivery or other disposition of any money, papers or property
involved or affected hereby, the Custodian shall not be or become liable
to the Company, the undersigned, the Underwriters or to any person named
in such instructions for its refusal to comply with such conflicting or
adverse demands) until:
(i) The rights of all of the adverse claimants shall
have been fully and finally adjudicated by a court assuming and
having jurisdiction of the parties and money, certificates,
papers and property involved herein or affected hereby and the
Custodian shall have received a copy of all orders, decrees and
judgments relating to such adjudication from counsel to one or
more of such adverse claimants and shall have been advised in
writing by such counsel that such orders, decrees or judgments
are final, or
(ii) The Custodian shall have received from counsel to
one or more of such adverse claimants a copy of a written
agreement executed by all adverse claimants and providing for the
resolution of all such disagreements.
f. No party to this Agreement shall on or after the date
hereof grant a security interest in any monies, securities or other
property deposited with the Custodian under this Agreement, or otherwise
create a lien, encumbrance or other claim against such monies or
securities, or borrow against the same.
- 5 -
<PAGE> 6
g. The Custodian may rely upon and shall be fully protected in
relying and acting upon this Agreement and any assignment, instruction,
certificate, instrument, opinion, notice, letter, facsimile,
transmission, telex, holder list, mailing label or other instrument, or
any security delivered to it hereunder.
h. The Custodian may rely and shall be fully protected in
relying and acting upon written instruction which it believes in good
faith to have been signed by the Attorneys-in-Fact, or any one of them,
with respect to any matter (including incomplete or defective documents
submitted hereunder).
i. The Custodian shall keep such records as are reasonably
necessary to document the date of its receipt of the Old Shares, the
amount and date of payments in respect thereof, and the date of delivery
of any unsold shares of New Common Stock to RNB.
j. The Custodian shall retain this Agreement and related
documents delivered to it hereunder until the Termination Date (as
hereinafter defined) and following the Termination Date shall deliver
(i) to RNB, any Old Shares and New Shares (and related stock powers) then
outstanding and not previously delivered to RNB or sold to the
Underwriters pursuant to the Underwriting Agreement and (ii) to the
Company, this Agreement and any other related documents.
k. The Custodian shall have no duties or obligations other
than those specifically set forth in this Agreement and no provision
hereof shall be interpreted to impose on the Custodian any additional
duty or obligation.
3. Sale of Shares and Remitting Net Proceeds
The undersigned authorizes and directs the Attorneys-in-Fact to deliver
or cause the Custodian to deliver certificates for the New Shares being sold in
the Offering by the undersigned to the Representatives as provided in the
Underwriting Agreement, against delivery to or at the direction of the
Attorneys-in-Fact for the account of RNB of the purchase price of the New
Shares, at the time or times and in the funds specified in the Underwriting
Agreement. The undersigned authorizes and directs the Attorneys-in-Fact,
acting on its behalf, to accept and acknowledge receipt of the payment of the
purchase price for the New Shares and to remit promptly such proceeds to RNB in
accordance with written instructions provided by the Custodian after reserving
an amount of such proceeds for transfer taxes, if any, and any other costs or
expenses allocable to or payable by the undersigned.
4. Representations, Warranties and Agreements
The undersigned represents and warrants to, and agrees with, the other
Selling Stockholders, the Company, the Attorneys-in-Fact, the Custodian, and
the Underwriters as follows:
- 6 -
<PAGE> 7
a. The undersigned has full legal right, power and authority
to enter into and perform this Agreement and the Underwriting Agreement.
b. The undersigned has read the Draft Underwriting Agreement
and understands the same, and agrees that the representations and
warranties to be made by or on behalf of such Selling Stockholder as set
forth in Section 2 of the Underwriting Agreement are incorporated by
reference herein, and the undersigned represents, warrants and covenants
as to itself that each of such representations and warranties is true
and correct as of the date hereof and, except as the undersigned shall
have notified the Attorneys-in-Fact pursuant to paragraph F of the
attached instructions, will be true and correct at all times from the
date hereof through and including the time of the closing of the sale of
the New Shares to the Underwriters on the Closing Date or the Option
Closing Date (each as defined in the Underwriting Agreement), as the
case may be. The undersigned will promptly notify the Attorneys-in-Fact
of any development that would make any such representation and warranty
untrue, and of any default under or breach of this Agreement (or of any
event which, with notice or the lapse of time or both, would constitute
such a default or breach). The undersigned authorizes the
Attorneys-in-Fact, acting on behalf of the undersigned, to affirm the
truth and accuracy of such representations and warranties in connection
with the consummation or implementation of the transactions contemplated
by the Underwriting Agreement and this Agreement.
c. Subject to the security interest of RNB to be released at a
closing of the Offering on the Closing Date or the Option Closing Date,
as the case may be (in each case solely as to Shares then being sold by
the undersigned pursuant to the Underwriting Agreement), the undersigned
has good and marketable title to all of the Old Shares and will on the
Closing Date or the Option Closing Date, as the case may be, have such
title to all New Shares, in each case free and clear of all liens,
encumbrances, equities and claims whatsoever, including, without
limitation, any claim or interest other persons may have in such shares,
and the undersigned now has, and at the time of execution of the
Underwriting Agreement and on the Closing Date and the Option Closing
Date, as the case may be, will have, full right, power and authority to
enter into the Underwriting Agreement and to sell, assign, transfer and
deliver thereunder the New Shares then being sold on such Closing Date
and the Option Closing Date, as the case may be; the undersigned has no
knowledge of any fact that would impair the validity of the
certificates; and upon sale and delivery of such New Shares under the
Underwriting Agreement and payment therefor pursuant thereto, the
Underwriters will acquire good and marketable title to such New Shares
free and clear of any liens, encumbrances, equities and claims
whatsoever, including, without limitation, any claim or interest that
RNB or any other persons may have in such New Shares.
d. The information contained in the Registration Statement
with respect to the undersigned is true and correct.
- 7 -
<PAGE> 8
e. The undersigned will carefully review each amendment to the
Registration Statement to determine that the information with respect to
the undersigned is true and correct.
f. The undersigned will promptly notify the Company in writing
of any material adverse information with regard to the current or
prospective operations of the Company or its subsidiaries of which the
undersigned learns after the date hereof and which is not disclosed in
the Registration Statement or the most recent amendment thereto received
by the undersigned.
g. The undersigned has completed the information called for in
Schedule I hereto and such information with respect to the undersigned
is complete and correct.
h. Except as otherwise disclosed in Schedule III hereto, the
undersigned is not a member of or directly or indirectly an affiliate of
or associated with any member of the National Association of Securities
Dealers, Inc.
i. Each of the undersigned and RNB acknowledges the "lock-up"
agreements addressed to the Representatives executed (or to be executed)
by the undersigned and by RNB in connection with the Offering.
j. The undersigned has not taken and will not take, directly
or indirectly, any action intended to constitute or which has
constituted, or which might reasonably be expected to cause or result
in, stabilization or manipulation of the price of the New Common Stock;
and, to assure compliance with Regulation M as promulgated by the
Securities and Exchange Commission (the "SEC"), the undersigned will not
make bids for or purchases of, or induce bids for or purchases of,
directly or indirectly, any shares of New Common Stock until the
distribution of all shares being sold in the Offering has been
completed.
k. The undersigned has not distributed and will not distribute
any prospectus or other offering material in connection with the
Offering other than a preliminary prospectus and the Prospectus or other
material permitted by the Securities Act, in each case in a form
approved for such use by the Company and Morgan Stanley & Co.
Incorporated.
l. Upon execution and delivery of the Underwriting Agreement
by any of the Attorneys-in-Fact on behalf of the undersigned, the
undersigned agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter or the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and to contribute to amounts paid as a result of losses,
claims, damages, liabilities and expenses, to the full extent provided
in, and shall have the rights and duties provided in the Underwriting
Agreement. The undersigned understands that the information set forth
in Schedules I and II hereto is being provided for use in the
Registration Statement, any preliminary prospectus and the Prospectus.
- 8 -
<PAGE> 9
m. Upon execution and delivery of the Underwriting Agreement
by the Attorneys-in-Fact on behalf of the undersigned in accordance with
this Agreement, the undersigned agrees to be bound by and to perform
each of the covenants and agreements of the undersigned as a Selling
Stockholder in the Underwriting Agreement including without limitation,
the indemnification and contribution obligations thereunder.
n. The undersigned agrees to deliver to the Attorneys-in-Fact
such documentation as the Attorneys-in-Fact, the Company or the
Underwriters or any of their respective counsel may reasonably request
in order to effectuate any of the provisions hereof or of the
Underwriting Agreement, all of the foregoing to be in form and substance
satisfactory in all respects to the Attorneys-in-Fact.
The foregoing representations, warranties and agreements are made for the
benefit of, and may be relied upon by, the other Selling Stockholders, the
Attorneys-in-Fact, the Company, the Custodian, the Underwriters and their
respective representatives, agents and counsel and are in addition to, and not
in limitation of, the representations, warranties and agreements of the Selling
Stockholders in the Underwriting Agreement.
5. Irrevocability of Instruments; Termination of this Agreement
a. This Agreement, the deposit of Old Shares pursuant hereto
and all authority hereby conferred, is granted, made and conferred
subject to and in consideration of (i) the interests of the
Attorneys-in-Fact, the Underwriters, the Company and the other Selling
Stockholders who may become parties to the Underwriting Agreement in and
for the purpose of completing the transactions contemplated hereunder
and by the Underwriting Agreement and (ii) the completion of the
registration of certain shares of New Common Stock pursuant to the
Registration Statement and the other acts of the above-mentioned parties
from the date thereof to and including the execution and delivery of the
Underwriting Agreement in anticipation of the sale of such shares of New
Common Stock, including the New Shares, to the Underwriters; and the
Attorneys-in-Fact are hereby further vested with a right and interest in
and to the Old Shares, together with any New Shares issuable in respect
thereof pursuant to the Recapitalization, in each case for the purpose
of irrevocably empowering and securing to them authority sufficient to
consummate said transactions. Accordingly, this Agreement shall be
irrevocable prior to December 31, 1997, and shall remain in full force
and effect until such date. The undersigned further agrees that this
Agreement shall not be terminated by operation of law or upon the
occurrence of any event whatsoever, including the death, disability or
incompetence of any controlling person of the undersigned or of any
other Selling Stockholder or upon any dissolution, winding up,
distribution of assets or other event affecting the legal existence of
the undersigned or of any other Selling Stockholder that is not a
natural person. This Agreement shall inure to the benefit of, and shall
be binding upon, the undersigned and the heirs, executors,
administrators, successors and assigns of the undersigned, as the case
may be. If any event referred to in the second preceding sentence shall
occur, whether with or without notice thereof to the Attorneys-in-Fact
or the Custodian, any of the Underwriters or any other person, the
Attorneys-in-Fact and the
- 9 -
<PAGE> 10
Custodian shall nevertheless be authorized and empowered to deliver the
New Shares in accordance with the terms and provisions of the
Underwriting Agreement and this Agreement and provide for the
distribution of the proceeds therefrom as if such event had not
occurred.
b. Notwithstanding anything to the contrary contained in
Section 5(a) above, if the sale of all of the New Shares contemplated by
this Agreement is not completed by December 31, 1997 or if, prior to
that date, the Custodian receives written notice from the Company or
Morgan Stanley & Co. Incorporated of the termination or abandonment of
the Offering, this Agreement shall terminate as of the earlier of such
date or of the date of the Custodian's receipt of such written notice
(the earlier of such dates, the "Termination Date"); subject, however,
(i) to Section 6 hereof and (ii) to all lawful action of the
Attorneys-in-Fact and the Custodian done or performed pursuant hereto
prior to the Termination Date, and thereafter the Attorneys-in-Fact and
the Custodian shall have no further responsibilities or liabilities to
the undersigned except to return promptly to RNB all certificates for
Old Shares or shares of New Common Stock issued in respect thereof
pursuant to the Recapitalization, as applicable, not purchased by the
Underwriters on or prior to the Termination Date.
6. Liability and Indemnification of the Attorneys-in-Fact and Custodian
a. The Attorneys-in-Fact assume no responsibility or liability
to the undersigned or to any other person, other than to advise the
Custodian as to the amount of the net proceeds from the sale of the New
Shares to be remitted to RNB.
b. The Custodian assumes no responsibility or liability to the
undersigned or to any other person, other than to hold the Old Shares,
together with any shares of New Common Stock issuable in respect thereof
pursuant to the Recapitalization, and to remit promptly to RNB the
proceeds from the sale of the New Shares and to return to RNB in
accordance with the provisions hereof any other shares deposited with
the Custodian pursuant to the terms of this Agreement or issued in
respect thereof pursuant to the Recapitalization.
c. The undersigned agrees to indemnify and hold harmless the
Attorneys-in-Fact and the Custodian, and their respective officers,
agents, successors, assigns and personal representatives with respect to
any act or omission of or by any of them in good faith and any cost,
expense, suit, liability or claim that may arise in connection with any
and all matters contemplated by this Agreement or the Underwriting
Agreement.
d. This Section 6 shall survive termination of this Agreement.
- 10 -
<PAGE> 11
7. Interpretation
a. The representations, warranties and agreements of the
undersigned contained herein and in the Underwriting Agreement shall
survive the sale and delivery of the New Shares and the termination of
this Agreement.
b. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without giving effect
to any choice of law or conflict of laws rules that would cause the
application of laws of other jurisdictions other than Missouri, and the
corporate law of the State of Delaware shall govern all issues and
questions concerning the relative rights of the Company and its
stockholders, in their capacity as stockholders.
c. Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any such provision shall be prohibited by or invalid under
applicable law, it shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
d. The use of the masculine gender in this Agreement includes
the feminine and neuter, and the use of the singular includes the plural
(as well as the converse), wherever appropriate.
e. This Agreement may be executed in separate counterparts,
each of which shall constitute an original, but all of which together
shall constitute one instrument.
8. Agreement Drafted by Company's Counsel
The undersigned acknowledges that the Company's counsel, Sonnenschein
Nath & Rosenthal, drafted this Agreement on behalf of and in the course of its
representation of the Company, and that:
a. A conflict may exist between its interests and those of the
Company and the other Selling Stockholders.
b. The undersigned has been advised by the Company's counsel
to obtain the advice of independent counsel.
c. The undersigned has obtained the advice of independent
counsel.
d. The undersigned has not relied on any representations from
the Company's counsel regarding the consequences of this Agreement,
except to the extent expressly set forth in writing by the Company's
counsel to the undersigned.
- 11 -
<PAGE> 12
9. Notices
Any notice required to be given pursuant to this Agreement shall be
deemed given if in writing and delivered in person, or if given by facsimile
receipt confirmed by telephone and if subsequently confirmed by letter, (i) to
either Timothy S. Webster or David Watson, as Attorneys-in-Fact, c/o American
Italian Pasta Company, 1000 Italian Way, Excelsior Springs, Missouri 64024
(fax: (816) 502-6080); (ii) to Republic New York Securities Corporation, as
Custodian, 452 Fifth Avenue, New York, New York 10018, c/o Ms. Carmen Terrana
(facsimile: (212) 525-6958), or to such other address as the Custodian shall
have specified in a written notice duly given to the undersigned; or (iii) to
the undersigned at the address set forth below.
* * * * *
IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement
and Power of Attorney as of the date first above written.
Signature of Selling Stockholder THOMPSON HOLDINGS, L.P.
guaranteed by:
By: THOMPSON HOLDINGS, INC.,
its general partner
- --------------------------------
By: /s/ Richard C. Thompson
---------------------------------
Richard C. Thompson, President
Name and address to which notices
shall be sent:
Thompson Holdings, L.P.
c/o Richard C. Thompson
Thompson's Pet Pasta Products, Inc.
16 Kansas Avenue
Kansas City, Kansas 66105
Fax: (954) 767-6046
with a copy to:
Dufford & Brown, P.C.
1700 Broadway
Suite 1700
Denver, Colorado 80290-1701
Attn: Edward D. White, Esq.
Fax: (303) 832-3804
(NOTE: The signature must bear a medallion guarantee by an Eligible Guarantor
Institution, as defined by SEC Rule 17Ad-15.)
- 12 -
<PAGE> 13
ACCEPTED by the Attorneys-in-Fact ACCEPTED by the Custodian as of the
as of the date first above set forth: date above set forth:
REPUBLIC NEW YORK SECURITIES
/s/ Timothy S. Webster CORPORATION, as Custodian
- ----------------------------- c/o Carmen Terrana
Timothy S. Webster 452 Fifth Avenue
New York, New York 10018
/s/ David E. Watson By:
- ----------------------------- -------------------------------------
David E. Watson
Its:
-------------------------------------
ACKNOWLEDGED as to Sections 1(e), 2(a),
3, 4(c),4(i) and 6 as of the date
first above set forth:
REPUBLIC NATIONAL BANK OF NEW YORK
452 Fifth Avenue
New York, New York 10018
By:
-------------------------------------
Its:
-------------------------------------
SEE THE ATTACHED INSTRUCTIONS
- 13 -
<PAGE> 14
INSTRUCTIONS
(For completing the Custody Agreement and Power of Attorney)
A. You have been sent seven copies of the Custody Agreement and Power of
Attorney (the "Agreement"). Please complete and return six copies of the
Agreement and stock power(s) as set forth in paragraph D below. One
completed copy of the Agreement and your stock powers will be retained by
the Custodian and one completed copy of the Agreement will be delivered to
each of the Attorneys-in-Fact, the Representatives, and you.
B. Complete the information required by Schedules I, II and III attached
hereto.
C. Each copy of the Agreement and each stock power deposited hereunder must
be executed by you with your signature on the Agreement and the
accompanying stock power(s) and such signature must bear a medallion
guarantee by an Eligible Guarantor Institution. Please sign the stock
powers and the Agreement exactly as your name appears on your stock
certificate(s).
D. Please promptly return (i) at least two stock powers for each stock
certificate listed on Schedule II and (ii) all six executed copies of the
completed Agreement by hand delivery or mail to:
Republic New York Securities Corporation, as Custodian
c/o Ms. Carmen Terrana
452 Fifth Avenue
New York, New York 10018
If any stock certificates are sent by mail, registered mail should be used
and the executed stock powers should be sent under separate cover from the
stock certificate(s).
E. If any stock certificate that Republic National Bank of New York ("RNB")
submits on your behalf represents (after giving effect to the
Recapitalization) a greater number than the number of New Shares to be
sold by you, the Custodian will cause to be delivered to RNB, as pledgee,
a stock certificate for the excess number of shares of New Common Stock as
soon as practicable after Closing, such certificate to be registered in
the same name as the deposited stock certificate.
F. Please contact Timothy S. Webster or David E. Watson if any information or
representation included in the foregoing Agreement should change at any
time prior to termination of a 30-day period commencing on the date of the
final Prospectus relating to the Offering.
- 14 -
<PAGE> 15
SCHEDULE I
THOMPSON HOLDINGS, L.P.
(Name of Selling Stockholder)
Indicate the nature of any position, office or other material
relationship which you have had with the Company or any of its
predecessors or affiliates during the past three years (if none,
please so indicate):
Richard C. Thompson, the president of the corporate general
partner of the Selling Stockholder and the limited partner of
the Selling Stockholder, has been a director of the Company for
more than the past three years.
Number of shares of Old Common Stock beneficially owned ( before
giving effect to the Recapitalization):
156,530
Maximum number of shares of New Common Stock proposed to be offered by
you (after giving effect to the Recapitalization):
630,000
---------------
Initials
<PAGE> 16
SCHEDULE II
THOMPSON HOLDINGS, L.P.
(Name of Selling Stockholder)
Certificate(s) for Shares of Old Common Stock of
American Italian Pasta Company
deposited under
Custody Agreement and Power of Attorney
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF OLD COMMON STOCK NUMBER OF SHARES FROM THE
CERTIFICATE NUMBER REPRESENTED BY CERTIFICATE CERTIFICATE TO BE SOLD
<S> <C> <C>
26 154,965
---------------------------
27 1,565
---------------------------
Total:
---------------------------
</TABLE>
*If no indication is made as to the certificates from which securities to be
sold shall be allocated, then selection will be made at the Custodian's
discretion. The Attorneys-in-fact do not have the power to sell a greater
number of securities than is listed in this column, although they may sell a
lesser number.
---------------
Initials
<PAGE> 17
SCHEDULE III
THOMPSON HOLDINGS, L.P.
(Name of Selling Stockholder)
Please describe below any direct or indirect affiliation or association
with any member of the National Association of Securities Dealers, Inc.
------------------------------------------------------------------------
------------------------------------------------------------------------
---------------
Initials
<PAGE> 1
EXHIBIT 23.1
We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated July 25, 1997
except Note 12, as to which the date is October 7, 1997, in Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-32827) and related Prospectus of
American Italian Pasta Company for the registration of 5,900,000 shares of its
common stock.
/s/ Ernst & Young LLP
Kansas City, Missouri
October 7, 1997
