<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN ITALIAN PASTA COMPANY
(Exact name of registrant as specified in its charter)
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<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:
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<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
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========================================================================================================================
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
BE REGISTERED SHARE(2) PRICE(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$.001 par value..................... 6,210,000 shares $36.25 $225,112,500 $66,409
========================================================================================================================
</TABLE>
(1) Includes 810,000 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(c) under the Securities Act of 1933. Based on the
average of the high and low sales prices of the Class A Common Stock as
reported on the New York Stock Exchange Composite Transactions Tape on April
7, 1998.
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.
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<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
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.
PROSPECTUS (Subject to Completion)
Issued April 9, 1998
5,400,000 Shares
AIPC LOGO
American Italian Pasta Company
CLASS A COMMON STOCK
------------------------
OF THE 5,400,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 1,000,000
SHARES ARE BEING SOLD BY THE COMPANY AND 4,400,000 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 5,400,000 SHARES OF CLASS A COMMON STOCK
BEING OFFERED HEREBY, 4,320,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,080,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." THE CLASS A COMMON STOCK OF THE COMPANY IS
LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "PLB." ON APRIL 7, 1998,
THE REPORTED LAST SALE PRICE OF THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE COMPOSITE TRANSACTIONS TAPE WAS $36 3/8 PER SHARE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 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)................ $ $ $ $
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(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 $750,000.
(3) Certain Selling 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 810,000 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 and proceeds to selling stockholders will be $ ,
$ and $ , respectively. The Company will not receive any
proceeds from the sale of Shares of Class A Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders" and "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 , 1998 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
, 1998
<PAGE> 4
Picture
AIPC's Pasta LaBella Branded Pasta
Picture
*Muellers(R) is a registered trademark of Bestfoods
Products Produced by
AIPC for Bestfoods
Picture
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 OR INCORPORATED BY
REFERENCE 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 SHARES OF 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
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
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
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PAGE
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Additional Information................. 4
Prospectus Summary..................... 5
Risk Factors........................... 11
Use of Proceeds........................ 17
Price Range of Common Stock and
Dividend Policy...................... 17
Capitalization......................... 18
Selected Financial and Other Data...... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
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Management............................. 43
Certain Relationships and Related
Transactions......................... 53
Principal and Selling Stockholders..... 55
Description of Capital Stock........... 57
Shares Eligible for Future Sale........ 59
Certain United States Federal Income
Tax Considerations for Non-U.S.
Holders.............................. 61
Underwriters........................... 64
Legal Matters.......................... 67
Experts................................ 67
Index to Financial Statements.......... F-1
</TABLE>
------------------------
This Prospectus contains forward-looking statements and information based
upon assumptions by the Company's management, as of the date of this Prospectus,
including assumptions about risks and uncertainties faced by the Company.
Readers can identify these forward-looking statements by their use of such verbs
as expects, anticipates, believes or similar verbs or conjugations of such
verbs. If any of management's assumptions prove incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in "Risk Factors"
beginning on page 12. This report has been filed with the Securities and
Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can
be obtained by contacting the SEC's public reference operations or obtaining it
through the SEC's web site on the World Wide Web at http://www.sec.gov. Readers
are strongly encouraged to consider those factors when evaluating any such
forward-looking statement. The Company undertakes no obligation to update any
forward-looking statements in this Prospectus to reflect future events or
developments.
------------------------
The Company holds a number of federally registered and common law
trademarks, which are used throughout this Prospectus. The Company has
registered the following marks with the U.S. Patent and Trademark Office: AIPC
American Italian Pasta Company(R), Pasta LaBella(R), and Montalcino(R). The
Company also has pending trademark applications with the U.S. Patent and
Trademark Office for the following marks: Calabria(TM) and Heartland(TM).
Additionally, a number of federally registered trademarks are used throughout
this Prospectus that are not owned by the Company. Mueller's(R) is a registered
trademark of Bestfoods, formerly CPC International Inc. ("Bestfoods"). San
Giorgio(R) and Ronzoni(R) are registered trademarks of Hershey Foods Corporation
("Hershey"). Prince(R) and Creamette(R) are registered trademarks of Borden
Foods Holdings Corporation ("Borden").
------------------------
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
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.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files 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. The Class A Common Stock is listed on the New York Stock Exchange
and copies of such materials may also be inspected and copied at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10015.
4
<PAGE> 7
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
assumes the U.S. Underwriters' over-allotment option is not exercised.
THE COMPANY
OVERVIEW
AIPC is the second 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
were $135.1 million and $20.7 million, respectively, for the twelve-month period
ended December 31, 1997, and grew at compound annual growth rates ("CAGR") of
30% and 33%, respectively, over the five-year period ended December 31, 1997.
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 1996 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. AIPC is now the
exclusive producer of Mueller's(R) pursuant to a long-term manufacturing and
distribution agreement with Bestfoods, formerly CPC International Inc.
("Bestfoods"). 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 recent months, the Company has added several
new customers including Harris Teeter, Spartan, Meijer and Ahold/Finast. In
addition, AIPC has developed supply relationships with industrial users of
pasta, 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. The Company recently completed a significant portion of
its capital expenditure program initiated in 1997 which increased the Company's
annual pasta production capacity to approximately 500 million pounds and added a
highly-automated durum wheat mill to its South Carolina plant. Management
believes the South Carolina plant is now the largest and most efficient pasta
producing facility in North America in terms of productivity and conversion cost
per pound. The Company anticipates that the planned additional capacity
expansion at the Missouri facility, including new high-speed, high-output pasta
production lines and expansion of its distribution facility, will be completed
by June 1998. This expansion will increase the Company's annual production
capacity to more than 600 million pounds.
5
<PAGE> 8
PROPOSED HARVEST STATES ALLIANCE
In November 1997, the Company announced a letter of intent with Amber
Milling Company, a division of Harvest States Cooperatives ("Harvest States"),
one of the largest agribusiness cooperatives in the United States. The proposed
business arrangement contemplates AIPC constructing a highly efficient,
state-of-the-art pasta production facility adjacent to Harvest States' recently
constructed wheat mill in Kenosha, Wisconsin. Under the terms of the
contemplated arrangement, Harvest States would transfer to AIPC the land and
infrastructure for the facility and supply semolina and other raw materials to
the proposed plant under a long-term supply agreement. AIPC anticipates the
proposed facility would initially target the growing industrial pasta market.
The Company estimates it would invest approximately $30 million in capital
expenditures to construct the facility, with a targeted annual capacity of
approximately 150 million pounds. The Harvest States alliance is subject to
final negotiations and agreement, several pre-conditions and board of directors'
approval from both parties prior to July 1, 1998. There can be no assurance that
a definitive agreement will be reached or that, if reached, the Company will be
able to implement successfully the Harvest States alliance. See "Risk Factors --
Failure to Implement Harvest States Alliance."
Management believes the Harvest States alliance would create strategic
advantages by: (i) accelerating the time line for constructing a third facility
targeting the growing industrial pasta market; (ii) creating highly efficient
capacity to support future growth; (iii) providing long-term access to the
variety of raw materials needed to support the industrial pasta market (several
of which AIPC cannot produce currently in its durum semolina mills); (iv) making
available rail and highway infrastructure allowing for efficient distribution to
AIPC's customers; and (v) providing access to Harvest States' durum wheat
origination network, which is the largest in the United States, and handles over
50% of U.S. durum wheat. The Harvest States alliance would expand AIPC's
vertical integration strategy to Harvest States' Kenosha mill, one of North
America's newest and most efficient mills. Additionally, Harvest States' Kenosha
mill uses the same high-quality, state-of-the-art milling equipment and
technology as AIPC's existing mills, ensuring product consistency for existing
customers.
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 a Low 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 current expansion
programs at its existing 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 supplier relationships. The
Company has followed this strategy since commencing operations in 1988,
beginning with an agreement with Sysco, and has developed strategic supply
relationships with Bestfoods, Sam's Club and leading grocery retailers.
Management believes that these strategic relationships increase sales and
operating efficiencies, facilitate 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
6
<PAGE> 9
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:
- Continue Bestfoods Business Expansion. The Company was selected in
1997 to be the exclusive producer of Bestfoods' Mueller's brand pasta, the
largest pasta brand in North America, and has transferred production of
substantially all of Mueller's primarily to its recently expanded South
Carolina facility. Management believes that the Company's experience in
servicing large pasta supply agreements and its current expansion of its
South Carolina and Missouri milling, pasta production and distribution
facilities will enable AIPC to support potential future growth. Management
anticipates Bestfoods' annual volume requirement will represent an
approximately 60% increase over the Company's fiscal 1997 production
volume.
- Obtain Additional Private Label Volume. The Company intends to
continue to grow its existing private label customer volume 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, discontinued its private label pasta business in 1997.
- Increase Sales to Industrial Customers. The Company believes that
industrial users 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 industrial users of
pasta which may result in incremental growth, new product development and
cost savings opportunities in the future. See "-- Proposed Harvest States
Alliance."
- 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 sales values and margins than traditional pasta
products.
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 32.5% of the outstanding Common Stock. Upon
consummation of the Offering, the Morgan Stanley Stockholders will own
approximately 7.8% of the outstanding Common Stock (3.4% if the U.S.
Underwriters' over-allotment option is exercised). See "Principal and Selling
Stockholders" and "Underwriters." Shares of Class A Common Stock held by the
Morgan Stanley Stockholders 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. See "Description of Capital Stock -- General."
7
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by:
The Company................................ 1,000,000 shares
The Selling Stockholders................... 4,400,000 shares(1)
-----------------
Total................................... 5,400,000 shares
=================
Class A Common Stock offered in:
U.S. Offering.............................. 4,320,000 shares
International Offering..................... 1,080,000 shares
Total................................... 5,400,000 shares
=================
Common Stock outstanding after the 17,978,680 shares(2)
Offering...................................
Use of proceeds.............................. The net proceeds to the Company from the
Offering will be used to repay a portion of
its indebtedness under its credit facility
(the "Credit Facility") 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, 4,048,738 shares are being offered by The Morgan Stanley
Stockholders, 150,000 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, 90,631 shares are
being offered by each of Horst W. Schroeder, Chairman of the Board, and
Timothy S. Webster, President and Chief Executive Officer, and 20,000
shares are being offered by Norman F. Abreo. The shares offered by Messrs.
Schroeder, Webster and Abreo were recently acquired by them pursuant to
exercises of stock options under the Company's 1992 Stock Option Plan. The
Morgan Stanley Stockholders, Thompson Holdings and Messrs. Schroeder,
Webster and Abreo are sometimes referred to herein as the "Selling
Stockholders." Such shares do not include up to 810,000 shares that may
sold by the Selling Stockholders pursuant to the exercise of the U.S.
Underwriters' over-allotment option. See "Principal and Selling
Stockholders."
(2) Does not include 2,002,402 shares of Class A Common Stock issuable upon
exercise of stock options granted under the Company's three stock option
plans, of which options to purchase 1,445,394 shares are currently
outstanding but not exercisable and options to purchase 557,008 shares are
currently outstanding and exercisable. 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.
8
<PAGE> 11
SUMMARY FINANCIAL AND OPERATING DATA
The summary statement of operations data for the fiscal year ended December
31, 1995, the nine-month fiscal period ended September 30, 1996 and the fiscal
year ended September 30, 1997 are derived from, and are qualified by reference
to, the audited Financial Statements of the Company included elsewhere in this
Prospectus. The summary statement of operations data for the fiscal years ended
December 31, 1993 and 1994 have been derived from audited Financial Statements
of the Company not included herein. The summary statement of operations data for
the twelve-month period ended September 30, 1996, and the three-month periods
ended December 31, 1996 and 1997, and the balance sheet data as of December 31,
1997 have been derived from the Company's unaudited 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 Company's
results of operations and financial position for such periods and as of such
dates. The statement of operations data of the Company for the twelve-month
period ended September 30, 1996 are included herein only for comparison
purposes. 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, 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. 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.
<TABLE>
<CAPTION>
NINE-MONTH
FISCAL YEAR ENDED FISCAL PERIOD TWELVE-MONTH FISCAL YEAR
DECEMBER 31, ENDED PERIOD ENDED ENDED
--------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997
------- ------- ------- ------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $47,872 $69,465 $92,903 $92,074 $121,149 $129,143
Cost of goods sold............... 35,081 54,393 73,851 68,555 91,230 93,467
Plant expansion
costs (1)....................... 1,171 484 2,065 -- -- --
------- ------- ------- ------- -------- --------
Gross profit..................... 11,620 14,588 16,987 23,519 29,919 35,676
Selling and marketing expense,
including product introduction
costs (2)....................... 2,883 3,792 5,303 16,798 18,445 13,664
General and administrative
expense......................... 2,049 1,951 2,930 2,805 3,686 3,766
------- ------- ------- ------- -------- --------
Operating profit................. 6,688 8,845 8,754 3,916 7,788 18,246
Interest expense, net............ 3,210 4,975 8,008 8,023 10,770 10,119
------- ------- ------- ------- -------- --------
Income (loss) before income tax
and extraordinary loss.......... 3,478 3,870 746 (4,107) (2,982) 8,127
Income tax....................... (3,221) 1,484 270 (1,556) (1,139) 3,070
------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary loss.............. 6,699 2,386 476 (2,551) (1,843) 5,057
Extraordinary loss, net of income
tax (3)......................... -- 204 -- 1,647 1,647 --
------- ------- ------- ------- -------- --------
Net income (loss)................ $ 6,699 $ 2,182 $ 476 $(4,198) $ (3,490) $ 5,057
======= ======= ======= ======= ======== ========
Pro forma net income (loss)
before extraordinary loss per
common share -- assuming
dilution (4).................... $ .65 $ .23 $ .05 $ (.25) $ (.18) $ .42
Pro forma net income (loss) per
common share -- assuming
dilution (4).................... .65 .21 .05 (.41) (.34) .42
Pro forma weighted average common
shares outstanding -- assuming
dilution (4).................... 10,377 10,389 10,433 10,223 10,219 12,119
<CAPTION>
THREE-MONTH PERIOD ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $29,547 $35,536
Cost of goods sold............... 21,149 25,760
Plant expansion
costs (1)....................... -- 266
------- -------
Gross profit..................... 8,398 9,510
Selling and marketing expense,
including product introduction
costs (2)....................... 4,453 2,631
General and administrative
expense......................... 693 1,188
------- -------
Operating profit................. 3,252 5,691
Interest expense, net............ 2,552 264
------- -------
Income (loss) before income tax
and extraordinary loss.......... 700 5,427
Income tax....................... 268 2,062
------- -------
Income (loss) before
extraordinary loss.............. 432 3,365
Extraordinary loss, net of income
tax (3)......................... -- 2,332
------- -------
Net income (loss)................ $ 432 $ 1,033
======= =======
Pro forma net income (loss)
before extraordinary loss per
common share -- assuming
dilution (4).................... $ .04 $ .19
Pro forma net income (loss) per
common share -- assuming
dilution (4).................... .04 .06
Pro forma weighted average common
shares outstanding -- assuming
dilution (4).................... 10,480 17,455
</TABLE>
(footnotes appear on following page)
9
<PAGE> 12
<TABLE>
<CAPTION>
NINE-MONTH
FISCAL YEAR ENDED FISCAL PERIOD TWELVE-MONTH FISCAL YEAR
DECEMBER 31, ENDED PERIOD ENDED ENDED
--------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997
------- ------- ------- ------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (5)....................... $ 9,495 $12,408 $13,836 $ 8,994 $ 13,936 $ 25,502
EBITDA as a percent of
revenues(5)..................... 19.8% 17.9% 14.9% 9.8% 11.5% 19.7%
Revenue per employee (end of
period)......................... $ 244 $ 288 $ 361 NM $ 445 $ 432
Working capital excluding current
maturities of long-term debt
(average for the period) as a
percent of revenues............. 14.2% 12.0% 4.6% NM 7.0% 8.5%
Cash flows provided by (used in):
Operating activities............ $ 4,787 $ 3,690 $ 5,730 $(7,477) $ (2,960) $ 23,071
Investing activities............ (15,139) (25,431) (38,789) (3,041) (7,125) (28,428)
Financing activities............ 10,382 19,603 33,066 12,318 12,679 6,263
Earnings to fixed
charges......................... 1.87x 1.48x .92x .28x .57x 1.72x
<CAPTION>
THREE-MONTH PERIOD ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OTHER DATA:
EBITDA (5)....................... $ 4,957 $ 7,559
EBITDA as a percent of
revenues(5)..................... 16.8% 21.3%
Revenue per employee (end of
period)......................... NM NM
Working capital excluding current
maturities of long-term debt
(average for the period) as a
percent of revenues............. NM NM
Cash flows provided by (used in):
Operating activities............ $ 2,464 $ 3,291
Investing activities............ (829) (26,302)
Financing activities............ (1,775) 21,974
Earnings to fixed
charges......................... 12.68x 44.65x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and temporary investments.............................. $ 1,687 $ 7,105
Working capital............................................. 14,117 22,119
Total assets................................................ 184,933 192,935
Long-term debt, less current maturities..................... 35,638 6,638
Stockholders' equity........................................ 130,731 167,733
</TABLE>
- ---------------
(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 nine-month fiscal period ended September 30,
1996. Product introduction costs were incurred as follows: $8.1 million for
the nine-month fiscal period ended September 30, 1996, $8.1 million for the
twelve-month period ended September 30, 1996, $2.9 million for the fiscal
year ended September 30, 1997 and $1.5 million for the three-month period
ended December 31, 1996. There were no such costs for the three-month period
ended December 31, 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 Company's
October 1997 initial public offering. The earnings per share amounts prior
to the three-month period ended December 31, 1997 have been restated as
required to comply with Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share." For further discussion of earnings per share
and the impact of SFAS No. 128, see the Notes to the Financial Statements
beginning on page F-7.
(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 1,000,000
shares of Class A Common Stock in the Offering at an assumed offering price
per share of $36 3/8 (the reported last sale price of the Class A Common
Stock on April 7, 1998, as reported on the New York Stock Exchange Composite
Transactions Tape), after deducting underwriting discounts and commission
and estimated offering expenses and the application of the net proceeds to
the Company therefrom. See "Use of Proceeds" and "Capitalization."
10
<PAGE> 13
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.
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.
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 have commenced facility expansions to increase domestic production
capacity. In addition to AIPC's current capital expansion, management believes
that these capacity additions represent more than 200 million pounds in
aggregate. Dakota Growers increased the capacity of its durum wheat milling
operations in December 1996 and has completed a pasta production capacity
expansion increasing its total annual pasta production capacity to approximately
250 million pounds. Dakota Growers also recently acquired Primo Piatta, a
Minnesota-based pasta producer with annual production capacity of approximately
150 to 200 million pounds. Hershey recently added approximately 50 million
pounds of pasta capacity to its facility in Winchester, Virginia. Barilla is
currently building a pasta production plant near Ames, Iowa with an estimated
annual pasta capacity of between 130 and 150 million pounds scheduled for
completion in late 1998 or early 1999. Two major pasta producers have also
reduced their pasta production capacity. Borden closed or sold five of its ten
North American pasta plants in 1997, and Bestfoods eliminated its capacity of
approximately 180 million pounds. Significant 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.
The Department of Commerce currently 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. On
January 22, 1998, the Department of Commerce indicated that it intends to issue
preliminary findings not later than July 1, 1998, with final results of its
review expected by October 1, 1988. The Company cannot predict the outcome of
the Department of Commerce's review. See "Business -- Pasta Industry -- Pasta
Production Capacity" and "-- Competition."
11
<PAGE> 14
DEPENDENCE ON MAJOR CUSTOMERS
Historically, a limited number of customers have accounted for a
substantial portion of the Company's revenues. During 1995, the nine-month
fiscal period ended September 30, 1996, the fiscal year ended September 30, 1997
and the three-month period ended December 31, 1997, Sysco accounted for
approximately 33%, 27%, 27% and 21%, respectively, and sales to Sam's Club
accounted for approximately 23%, 19%, 22% and 26%, 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 Bestfoods.
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. In April 1997, the Company entered into a long-term manufacturing and
distribution agreement with Bestfoods (the "Bestfoods Agreement") that requires
Bestfoods 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 Bestfoods Agreement prevent AIPC from
producing and supplying competitors of Sysco and Bestfoods with certain pasta
products. Under the Sysco Agreement, the Company is restricted from supplying
pasta products to foodservice businesses other than Sysco. Without Bestfoods'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, EXPANSION AND INTEGRATION OF BESTFOODS 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.
The Company is required to produce substantially all of Bestfoods Mueller's
brand pasta, which has averaged approximately 200 million pounds of pasta
annually over the last five years. The Company has successfully completed its
capital expansion of the South Carolina milling, production and distribution
facilities and expects the expansion of its Missouri facilities to be fully
completed in June 1998. Management believes this increase in capacity of
approximately 100% will allow AIPC to meet its significant volume and other
obligations under the Bestfoods Agreement and provide for future growth. There
can be no assurance, however, that such expanded facilities will be adequate to
meet the Bestfoods volume requirements and any future growth or that future
revenues from products produced at the expanded facilities will be sufficient to
recover the Company's investment in the expansion.
FAILURE TO IMPLEMENT HARVEST STATES ALLIANCE
In November 1997, the Company announced a letter of intent with Amber
Milling Company, a division of Harvest States, for the possible construction and
operation by AIPC of a new pasta production facility targeting the industrial
pasta market. The new facility would be located adjacent to the Harvest States
mill in Kenosha, Wisconsin. Reaching a final agreement is subject to several
pre-conditions, and the specific terms of the alliance have not been finalized.
There can be no assurance that the Company will be able to reach a definitive
agreement with Harvest States, that any construction pursuant to such an
agreement will be
12
<PAGE> 15
completed on schedule and within budget or that future revenues from products
produced at the new facility will be sufficient to recover the Company's
contemplated investment in the new facility. Any significant delay or cost
overrun in finalizing the terms of the Harvest States alliance or the
construction of the new facility could have a material adverse effect on the
Company's future 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,
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. 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. 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."
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, Darrel E. Bailey,
Senior Vice President of Institutional Sales and Marketing, 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 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 employment agreements with Messrs. Schroeder,
Webster, Watson, Abreo and Potter. See "Management."
13
<PAGE> 16
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 the Canadian Pacific Rail System. Durum wheat is also shipped to the
Company's mill and production facility in South Carolina from the northern
Midwest and southwest regions of the United States under a 10-year agreement
with the Norfolk Southern Railway Company. Under both agreements, the Company is
obligated to transport specified percentages of the Company's actual wheat
requirements and, in the event such requirements are not met, the Company must
reimburse the carrier for certain of its costs. The Company currently is in
compliance with such volume obligations. An extended interruption in the
Company's ability to ship durum wheat by railroad to its facilities 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 AND STOCK PRICE
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, the market price of the Class A Common Stock
could fluctuate widely in response to various factors related to the Company,
its competitors and the financial markets in general, and unrelated to the
longer term operating performance of the Company. Such factors include, but are
not limited to, quarterly operating results, changes in financial analysts'
recommendations or earnings estimates and changes in general or regional
economic conditions. Further, the stock market has experienced price and volume
fluctuations in recent periods, and its volatility, even if unrelated to the
operating performance of the Company, may adversely affect the market price of
the Class A Common Stock.
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 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.
14
<PAGE> 17
SENSITIVITY TO INTEREST RATE FLUCTUATIONS; COVENANT RESTRICTIONS
As of March 31, 1998, the Company's indebtedness had a weighted average
interest rate of 7.38% and approximately 80%, or $49.0 million, of the Company's
indebtedness bore interest at variable rates. If the Company were to incur
additional amounts of variable-rate indebtedness in the future, 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. In connection with the amendment of the Company's Credit
Facility in October 1997, the Company entered into a $20 million fixed rate
swap.
The limitations contained in the agreements relating to the Company's
Credit Facility 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."
YEAR 2000 COMPLIANCE
Many of the Company's computer software and hardware systems currently are
not, or will or may not be, able to read, calculate or output correctly using
dates after 1999, and such systems will require significant modifications in
order to be "Year 2000 compliant." This issue may adversely affect the
operations and financial performance of the Company because its computer systems
are an integral part of the Company's manufacturing and distribution activities
as well as its accounting and other information systems and because the Company
will have to divert financial resources and personnel to address this issue. The
Company has reviewed its computer hardware and software systems and has begun
upgrading those systems through modification or replacement. The Company
currently anticipates this upgrading to be completed during 1998.
Although the Company is not aware of any material operational impediments
associated with upgrading its computer hardware and software systems to be Year
2000 compliant, there can be no assurance that the upgrade of the Company's
computer systems will be completed on schedule, within budget, or will be free
of defects. If any such risks materialize, the Company could experience material
adverse consequences, material costs or both. Year 2000 compliance may also
adversely affect the operations and financial performance of the Company
indirectly by causing complications of, or otherwise affecting, the operations
of any one or more of the Company's suppliers and customers. The Company intends
to contact its significant suppliers and customers in the first half of calendar
year 1998 in an attempt to identify any potential Year 2000 compliance issues
with them. The Company is currently unable to anticipate the magnitude of the
operational or financial impact on the Company of Year 2000 compliance issues
with its suppliers and customers.
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.
15
<PAGE> 18
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 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."
Stockholders Agreement. In addition, the Stockholders Agreement grants the
Morgan Stanley Stockholders the right to designate one nominee to the Board of
Directors.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 17,978,680 shares of Common Stock, assuming no exercise of
outstanding options. Of these shares, all of the 5,400,000 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"). Of the remaining 12,578,680 shares, 3,493,680 shares of Common
Stock held by certain 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. Beginning 90 days after the date of this Prospectus,
3,492,048 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 90 days after the date of this Prospectus. All officers, directors and
certain 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 90 days after the date of
this Prospectus. Sales, or the possibility of sales, of Common Stock by certain
of the Company's existing stockholders, whether in connection with the exercise
of 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."
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Class
A Common Stock offered by the Company are estimated to be approximately $33.9
million (after deducting underwriting discounts and commissions and estimated
offering expenses), based on an assumed offering price per share of $36 3/8 (the
reported last sale price of the Class A Common Stock on April 7, 1998 as
reported on the New York Stock Exchange Composite Transactions Tape). The
Company intends to use approximately $33.9 million of the net proceeds from the
Offering to repay a portion of its outstanding indebtedness under its Credit
Facility 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."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Class A Common Stock of the Company is listed on the New York Stock
Exchange under the symbol PLB. The Class A Common Stock commenced trading on the
New York Stock Exchange on October 9, 1997. The following table sets forth, for
the periods indicated, the range of high and low reported sales prices per share
of the Class A Common Stock, as reported on the New York Stock Exchange
Composite Transactions Tape:
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
1998
- ------------------------------------------------------------
<S> <C> <C>
First Quarter............................................. $26 $ 19 1/4
Second Quarter............................................ 37 1/4 23 1/4
</TABLE>
On April 7, 1998, the reported last sale price for the Class A Common Stock
as reported on the New York Stock Exchange Composite Transactions Tape was
$36 3/8 per share. As of April 7, 1998, the Company had 16,777,418 shares of
Class A Common Stock outstanding held by approximately 5,600 stockholders of
record as of the Company's record date of December 29, 1997.
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. 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. 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 capitalization of
the Company as of December 31, 1997, and as adjusted to give effect to the
issuance and sale of 1,000,000 shares of Class A Common Stock offered by the
Company hereby and the application of the net proceeds therefrom, which are
estimated to be approximately $33.9 million (after deducting underwriting
discounts and commissions and estimated offering expenses), at an assumed
offering price of $36 3/8 per share (the reported last sale price of the Class A
Common Stock on April 7, 1998 as reported on the New York Stock Exchange
Composite Transactions Tape). The following table should be read in conjunction
with the Financial Statements, including the Notes thereto, appearing elsewhere
in this Prospectus. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Description of Capital
Stock -- General."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, current
portion................................................... $ 913 $ 913
======== ========
Long-term debt and capital lease obligations, less current
portion:
Long-term debt(3)......................................... $ 29,000 $ --
Capital lease obligations................................. 6,638 6,638
-------- --------
Total long-term debt and capital lease obligations,
less current portion.................................. 35,638 6,638
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding and as
adjusted............................................... -- --
Class A Common Stock, $.001 par value, 75,000,000 shares
authorized and 16,776,056 shares issued and outstanding
and 17,789,680 shares issued and outstanding, as
adjusted(1)............................................ 16 17
Class B Common Stock, $.001 par value, 25,000,000 shares
authorized, no shares issued and outstanding and no
shares issued and outstanding, as adjusted............. -- --
Additional paid-in capital................................ 142,008 178,010
Notes receivable from officers............................ (273) (273)
Accumulated deficit....................................... (11,020) (11,020)
-------- --------
Total stockholders' equity............................. 130,731 166,734
-------- --------
Total capitalization................................. $166,369 $173,372
======== ========
</TABLE>
- ---------------
(1) Does not include 2,002,402 shares of Class A Common Stock issuable upon
exercise of stock options granted under the Company's three stock option
plans, of which options to purchase 1,445,394 shares are currently
outstanding but not exercisable and options to purchase 557,008 shares are
currently outstanding and exercisable. See "Management -- Stock Option
Plans."
(2) Adjusted to give effect to the issuance and sale by the Company of 1,000,000
shares of Class A Common Stock in the Offering at an assumed offering price
per share of 36 3/8 (the reported last sale price of the Class A Common
Stock on April 7, 1998, as reported on the New York Stock Exchange Composite
Transactions Tape), after deducting underwriting discounts and commissions
and estimated offering expenses and the application of the net proceeds to
the Company therefrom. Also included is the exercise of options to obtain
Class A Common Stock which was subsequently sold by Messrs. Schroeder,
Webster and Abreo as a part of this Offering. See "Use of Proceeds."
(3) The Company intends to apply the net proceeds to repay a portion of its
outstanding indebtedness under its Credit Facility. As of March 31, 1998,
the Company had $49 million outstanding under the Credit Facility.
18
<PAGE> 21
SELECTED FINANCIAL AND OTHER DATA
The selected statement of operations data presented below for the fiscal
years ended December 31, 1995, the nine-month fiscal period ended September 30,
1996 and the fiscal year ended September 30, 1997 are derived from, and are
qualified by reference to, the Financial Statements of the Company audited by
Ernst & Young LLP, independent auditors, whose report on the fiscal year ended
December 31, 1995, the nine-month fiscal period ended September 30, 1996 and the
fiscal year ended September 30, 1997, appears elsewhere in this Prospectus. The
selected statement of operations data for the fiscal years ended December 31,
1993 and 1994 and the selected balance sheet data as of December 31, 1993, 1994
and 1995 have been derived from audited financial statements of the Company not
included herein. The selected statement of operations data for the twelve-month
period ended September 30, 1996, and the three-month periods ended December 31,
1996 and 1997, and the balance sheet data as of December 31, 1996 and 1997 have
been derived from the Company's unaudited 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 Company's results of
operations and financial position of the Company for such periods and as of such
dates. The statement of operations data of the Company for the twelve-month
period ended September 30, 1996 are included herein only for comparison
purposes. 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, 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. 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 THREE-MONTH PERIOD
FISCAL YEAR ENDED FISCAL PERIOD TWELVE-MONTH FISCAL YEAR ENDED
DECEMBER 31, ENDED PERIOD ENDED ENDED DECEMBER 31,
------------------------------ SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------------
1993 1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- ------------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $ 47,872 $ 69,465 $ 92,903 $92,074 $121,149 $129,143 $ 29,547 $ 35,536
Cost of goods sold.... 35,081 54,393 73,851 68,555 91,230 93,467 21,149 25,760
Plant expansion costs
(1)................. 1,171 484 2,065 -- -- -- -- 266
-------- -------- -------- ------- -------- -------- -------- --------
Gross profit.......... 11,620 14,588 16,987 23,519 29,919 35,676 8,398 9,510
Selling and marketing
expense, including
product introduction
costs (2)........... 2,883 3,792 5,303 16,798 18,445 13,664 4,453 2,631
General and
administrative
expense............. 2,049 1,951 2,930 2,805 3,686 3,766 693 1,188
-------- -------- -------- ------- -------- -------- -------- --------
Operating profit...... 6,688 8,845 8,754 3,919 7,788 18,246 3,252 5,691
Interest expense,
net................. 3,210 4,975 8,008 8,023 10,770 10,119 2,552 264
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
income tax and
extraordinary
loss................ 3,478 3,870 746 (4,107) (2,982) 8,127 700 5,427
Income tax............ (3,221) 1,484 270 (1,556) (1,139) 3,070 268 2,062
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary
loss................ 6,699 2,386 476 (2,551) (1,843) 5,057 432 3,365
Extraordinary loss,
net of income tax
(3)................. -- 204 -- 1,647 1,647 -- -- 2,332
-------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)..... $ 6,699 $ 2,182 $ 476 $(4,198) $ (3,490) $ 5,057 $ 432 $ 1,033
======== ======== ======== ======= ======== ======== ======== ========
Pro forma net income
(loss) before
extraordinary loss
per common share --
assuming dilution
(4)................. $ .65 $ .23 $ .05 $ (.25) $ (.18) $ .42 $ .04 $ .19
Pro forma net income
(loss) per common
share -- assuming
dilution (4)........ .65 .21 .05 (.41) (.34) .42 .04 .06
Pro forma weighted
average common
shares outstanding
-- assuming dilution
(4)................. 10,377 10,389 10,433 10,223 10,219 12,119 10,480 17,455
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
NINE-MONTH THREE-MONTH PERIOD
FISCAL YEAR ENDED FISCAL PERIOD TWELVE-MONTH FISCAL YEAR ENDED
DECEMBER 31, ENDED PERIOD ENDED ENDED DECEMBER 31,
------------------------------ SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------------
1993 1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- ------------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (5)............ $ 9,495 $ 12,408 $ 13,836 $ 8,994 $ 13,936 $ 25,502 $ 4,957 $ 7,559
EBITDA as a percent of
revenues (5)........ 19.8% 17.9% 14.9% 9.8% 11.5% 19.7% 16.8% 21.3%
Revenue per employee
(end of period)..... $ 244 $ 288 $ 361 NM $ 445 $ 432 NM NM
Working capital
excluding current
maturities of
long-term debt
(average for the
period) as a percent
of revenues......... 14.2% 12.0% 4.6% NM 7.0% 8.5% NM NM
Cash flows provided by
(used in):
Operating
activities........ $ 4,787 $ 3,690 $ 5,730 $(7,477) $ (2,960) $ 23,071 $ 2,464 $ 3,291
Investing
activities........ (15,139) (25,431) (38,789) (3,041) (7,125) (28,428) (829) (26,302)
Financing
activities........ 10,382 19,603 33,066 12,318 12,679 6,263 (1,775) 21,974
Earnings to fixed
charges............. 1.87x 1.48x .92x .28x .57x 1.72x 12.68x 44.65x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and temporary
investments......... $ 2,149 $ 11 $ 18 $ 1,818 $ 1,818 $ 2,724 $ 1,678 $ 1,687
Working capital....... 3,077 4,830 6,632 (1,601) (1,601) 12,188 (1,965) 14,117
Total assets.......... 66,337 93,629 135,424 141,688 141,688 158,175 137,974 184,933
Long-term debt, less
current
maturities.......... 40,024 62,375 97,452 93,284 93,284 100,137 92,143 35,638
Stockholders'
equity.............. 16,973 19,401 20,067 15,969 15,969 42,984 16,402 130,731
</TABLE>
- ---------------
(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 nine-month fiscal period ended September 30,
1996. Product introduction costs were incurred as follows: $8.1 million for
the nine-month fiscal period ended September 30, 1996, $8.1 million for the
twelve-month period ended September 30, 1996, $2.9 million for the fiscal
year ended September 30, 1997 and $1.5 million for the three-month period
ended December 31, 1996. There were no such costs for the three-month period
ended December 31, 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 Company's
October 1997 initial public offering. The earnings per share amounts prior
to the three-month period ended December 31, 1997 have been restated as
required to comply with Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share." For further discussion of earnings per share
and the impact SFAS No. 128, see the Notes to the Financial Statements
beginning on page F-7.
(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.
20
<PAGE> 23
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."
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 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 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. The statement of operations
data of the Company for the nine-month period ended September 30, 1995, the
twelve-month period ended September 30, 1996, the calendar year ended December
31, 1996 and the three-month period ended December 31, 1996 are included herein
only for comparison purposes.
OVERVIEW
AIPC is the second 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 include
sales to Bestfoods. 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 Bestfoods 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 over 70% of
the Company's revenues in fiscal 1998 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 generates revenue from Bestfoods. 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 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
21
<PAGE> 24
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 fiscal period ended
September 30, 1996, $8.1 million for the twelve-month period ended September 30,
1996, $2.9 million for the fiscal year ended September 30, 1997 and $1.5 million
for the three-month period ended December 31, 1996. The Company did not incur
product introduction costs during the three-month period ended December 31,
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 durum
cost "pass-through" agreements in 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 following chart
illustrates the fluctuation in the price of durum wheat during the years
1988-1998:
AVERAGE DURUM BUSHEL PRICE
(FOB Minneapolis MN)
[BAR GRAPH]
<TABLE>
<CAPTION>
CROP YEARS AVERAGE BUSHEL PRICE
<S> <C>
1977 3.37
1978 3.66
1979 5.09
1980 6.81
1981 4.61
1982 4.25
1983 4.83
1984 4.45
1985 4.07
1986 3.57
1987 4.13
1988 5.53
1989 4.25
1990 3.48
1991 3.61
1992 3.88
1993 5.84
1994 6.28
1995 7.21
1996 5.65
1997 6.30
</TABLE>
Source: Minneapolis Grain Exchange
The durum cost volatility and the timing and amount of sales price
adjustments impacted profit and margins over the 1994-1997 periods and led to
increases in 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-
22
<PAGE> 25
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.
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 Bestfoods
Agreement. Consequently, the Company expects prospective selling and marketing
expense as a percentage of revenues to decrease relative to historical levels as
the Company generates additional Bestfoods revenues in 1998.
At September 30, 1997, the Company had a net operating loss carryforward of
approximately $26.8 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 THREE-MONTH
FISCAL YEAR TWELVE-MONTH NINE-MONTH FISCAL PERIOD TWELVE-MONTH FISCAL YEAR PERIODS ENDED
ENDED PERIOD ENDED PERIOD ENDED ENDED PERIOD ENDED ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------
1995 1996 1995 1996 1996 1997 1996 1997
------------ ------------ ------------- ------------- ------------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Retail............. 53.1% 59.6% 51.4% 60.7% 59.5% 56.7% 56.3% 63.4%
Institutional...... 46.9 40.4 48.6 39.3 40.5 43.3 43.7 36.6
----- ----- ----- ----- ----- ----- ----- -----
Total revenues....... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- ----- ----- -----
Cost of goods sold... 79.5 73.8 80.8 74.5 75.3 72.4 71.6 72.5
Gross profit before
plant expansion
costs.............. 20.5 26.2 19.2 25.5 24.7 27.6 28.4 27.5
Plant expansion
costs.............. 2.2 -- 2.6 -- -- -- -- .7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit......... 18.3 26.2 16.6 25.5 24.7 27.6 28.4 26.8
Selling and marketing
expense, including
product
introduction
costs.............. 5.7 17.5 5.7 18.2 15.2 10.6 15.1 7.4
General and
administrative
expense............ 3.2 2.9 3.2 3.0 3.0 2.9 2.3 3.4
----- ----- ----- ----- ----- ----- ----- -----
Operating profit..... 9.4 5.8 7.7 4.3 6.5 14.1 11.0 16.0
Interest expense,
net................ 8.6 8.7 8.2 8.7 8.9 7.8 8.6 .7
Income tax........... .3 (1.1) (.2) (1.7) (.9) 2.4 .9 5.8
Extraordinary loss,
net of income
tax................ -- 1.4 -- 1.8 1.4 -- -- 6.6
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).... .5% (3.2)% (.3)% (4.5)% (2.9)% 3.9% 1.5% 2.9%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
23
<PAGE> 26
THREE-MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO THE THREE-MONTH
PERIOD ENDED
DECEMBER 31, 1996
Revenues. Revenues increased $6.0 million, or 20.3%, to $35.5 million for
the three-month period ended December 31, 1997, from $29.5 million for the
three-month period ended December 31, 1996. The increase for the three-month
period ended December 31, 1997 was primarily due to increases in unit volume,
favorable changes in sales mix, and increases in average sales prices related to
the pass through of higher durum wheat costs. Approximately $2.8 million in
revenues related to initial shipments of Mueller's brand pasta to Bestfoods.
Management expects continued increases in revenues as a result of the Company's
long-term supply agreement with Bestfoods.
Revenues for the Retail market increased $5.9 million, or 35.5%, to $22.5
million for the three-month period ended December 31, 1997, from $16.6 million
for the three-month period ended December 31, 1996. The increase primarily
reflects gains in private label volumes and Bestfoods volumes and average sales
price increases related to the pass through of higher durum wheat costs offset
by lower sales volumes of Pasta LaBella flavored pasta as the prior period
included heavy introductory "pipeline" shipments.
Revenues for the Institutional market increased $.1 million, or .8%, to
$13.0 million for the three-month period ended December 31, 1997, from $12.9
million for the three-month period ended December 31, 1996. This increase was
primarily a result of increases in average sales prices related to the pass
through of higher durum wheat costs offset by decreases in spot contract
business volumes due to capacity constraints in the current quarter.
Non-contract unit volumes in the Institutional market generally remained
consistent between periods.
Gross Profit. Gross profit increased $1.1 million, or 13.2%, to $9.5
million for the three-month period ended December 31, 1997, from $8.4 million
for the three-month period ended December 31, 1996. This increase is generally
related to revenue growth. Gross profit as a percentage of revenues decreased to
26.8% for the three-month period ended December 31, 1997 from 28.4% for the
three-month period ended December 31, 1996. The decrease in gross profit as a
percentage of revenues relates to generally lower gross margin Bestfoods
volumes, lower sales volumes of higher margin flavored pasta products, plant
expansion costs, and higher durum wheat costs. Management expects continued
increases in gross profit as a result of continued revenue increases. However,
management expects gross profit as a percentage of revenues to continue to
decrease based on the anticipated higher Bestfoods volumes and related revenue
share and further plant expansion costs.
Selling and Marketing Expense. Selling and marketing expense decreased
$1.9 million, or 40.9%, to $2.6 million for the three-month period ended
December 31, 1997, from $4.5 million for the three-month period ended December
31, 1996. Selling and marketing expense as a percentage of revenues decreased to
7.4% for the three-month period ended December 31, 1997, from 15.1% for the
three-month period ended December 31, 1996. The decrease was primarily due to
the absence of product introduction costs incurred in the Company's fiscal 1997
retail introduction of Pasta LaBella flavored pasta. The Company did not incur
product introduction costs for the three-month period ended December 31, 1997,
compared to $1.4 million of such costs for the three-month period ended December
31, 1996. The decrease in product introduction costs was due to the completion
of the flavored pasta 1997 launch program.
General and Administrative Expense. General and administrative expense
increased $.5 million, or 71.4%, to $1.2 million for the three-month period
ended December 31, 1997, from $.7 million for the three-month period ended
December 31, 1996, and increased as a percentage of revenues to 3.4% for the
three-month period ended December 31, 1997 from 2.4% for the three-month period
ended December 31, 1996. The majority of the increase in general and
administrative expense relates to the one-time realization of a $.3 million
property tax abatement in South Carolina during the three-month period ended
December 31, 1996. The benefit was realized in 1996 as a result of the Company's
reaching certain capital expansion levels in Columbia, S.C. which qualified the
Company for incremental property tax abatements.
Operating Profit. Operating profit increased $2.4 million, or 72.7%, to
$5.7 million for the three-month period ended December 31, 1997, from $3.3
million for the three-month period ended December 31, 1996,
24
<PAGE> 27
and increased as a percentage of revenues to 16.1% for the three-month period
ended December 31, 1997, from 11.2% for the three-month period ended December
31, 1996 as a result of the factors discussed above.
Interest Expense. Interest expense decreased $2.3 million, or 88.5% to $.3
million, for the three-month period ended December 31, 1997, from $2.6 million
for the three-month period ended December 31, 1996. The decrease was primarily
the result of reduced borrowings under the Company's Credit Facility as a result
of the $86.7 million in net proceeds realized from the Company's October 1997
initial public offering of Class A Common Stock.
Income Tax. Income tax expense increased $1.8 million, or 600.0%, to $2.1
million for the three-month period ended December 31, 1997, from $0.3 million
for the three-month period ended December 31, 1996, and reflects an effective
income tax rate of approximately 38%.
Extraordinary Item. During the three-month period ended December 31, 1997,
the Company incurred a $2.3 million (net of tax) extraordinary loss due to the
write-off of deferred debt issuance costs in conjunction with the extinguishment
and restructuring of the Company's principal bank credit agreement. There was no
such item for the three-month period ended December 31, 1996.
Net Income. Net income increased $.6 million, or 150.0%, to $1.0 million
for the three-month period ended December 31, 1997, from $0.4 million for the
three-month period ended December 31, 1996. Diluted earnings per common share
before the extraordinary item was $.19 per share for the three-month period
ended December 31, 1997 compared to $.04 per share for the three-month period
ended December 31, 1996. Diluted earnings per share after the extraordinary item
was $0.06 per share for the three-month period ended December 31, 1997 compared
to $.04 per share in the comparable prior year period.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO TWELVE-MONTH PERIOD ENDED
SEPTEMBER 30, 1996
Revenues. Revenues increased $8.0 million, or 6.6%, to $129.1 million for
the fiscal year ended September 30, 1997, from $121.1 million for the
twelve-month period ended September 30, 1996. The increase for the fiscal year
ended September 30, 1997 was primarily due to increases in unit volume. The
revenues increase was lower than historical periods as the Company planned for
and achieved higher than historical capacity utilization levels which precluded
more significant unit and revenue growth. Management expects increased revenue
as a result of the long-term supply agreement with Bestfoods.
Revenues for the Retail market increased $1.2 million, or 1.7%, to $73.3
million for the fiscal year ended September 30, 1997, from $72.1 million for the
twelve-month period ended September 30, 1996. The increase reflects gains in
private label volumes and lower retail sales volumes of Pasta LaBella flavored
pasta as the prior period included introductory "pipeline" full shipments.
Revenues for the Institutional market increased $6.8 million, or 13.9%, to
$55.9 million for the fiscal year ended September 30, 1997, from $49.1 million
for the twelve-month period ended September 30, 1996. This was primarily the
result of volume gains in ingredient, foodservice, and Contract Sales which were
partially offset by durum wheat related price reductions and changes in sales
mix.
Gross Profit. Gross Profit increased $5.8 million, or 19.4%, to $35.7
million for the fiscal year ended September 30, 1997, from $29.9 million for the
twelve-month period ended September 30, 1996. Gross profit as a percentage of
revenues increased to 27.6% for the fiscal year ended September 30, 1997 from
24.7% for the twelve-month period ended September 30, 1996. These increases were
the result of increases in revenues and lower product costs due to improved
plant efficiencies and capacity utilization.
Selling and Marketing Expense. Selling and marketing expense decreased
$4.8 million, or 26.1%, to $13.7 million for the fiscal year ended September 30,
1997, from $18.4 million reported for the twelve-month period ended September
30, 1996. Selling and marketing expense as a percentage of revenues decreased to
10.6% for the fiscal year ended September 30, 1997, from 15.2% for the
comparable prior period. The decrease was primarily due to lower product
introduction costs incurred in the Company's retail introduction of Pasta
LaBella flavored pasta. The Company incurred $2.9 million of product
introduction costs for the fiscal year ended September 30, 1997, as compared to
$8.1 million for the twelve-month period ended September 30,
25
<PAGE> 28
1996. The decrease in product introduction costs was due to a reduction in
introduction activities as the Company completed its retail launch. The decrease
in product introduction costs was partially offset by increases in other selling
and marketing expenses which supported incremental private label and branded
revenues.
General and Administrative Expense. General and administrative expense
increased $.1 million, or 2.0%, to $3.8 million for the fiscal year ended
September 30, 1997, from $3.7 million for the twelve-month period ended
September 30, 1996. General and administrative expense as a percentage of
revenues decreased to 2.9% for the fiscal year ended September 30, 1997 from 3%
for the twelve-month period ended September 30, 1996.
Operating Profit. Operating profit increased $10.4 million, or 133.3% to
$18.2 million for the fiscal year ended September 30, 1997, from $7.8 million
for the twelve-month period ended September 30, 1996. Excluding product
introduction costs, operating profit increased $5.2 million, or 32.9%, to $21.1
million for the fiscal year ended September 30, 1997, from $15.9 million for the
twelve-month period ended September 30, 1996, and increased as a percentage of
revenues to 16.3% for the fiscal year ended September 30, 1997, from 13.1% for
the twelve-month period ended September 30, 1996.
Interest Expense. Interest expense for the fiscal year ended September 30,
1997, was $10.1 million, decreasing 6.5% from the $10.8 million reported for the
twelve-month period ended September 30, 1996. The decrease was primarily the
result of reduced borrowings under the Company's prior term and revolving credit
facilities resulting from the $22.3 million in proceeds realized from the April
1997 private equity financing.
Income Tax. Income tax increased $4.2 million, or 381.8%, to $3.1 million
for the fiscal year ended September 30, 1997, from $(1.1) million for the
twelve-month period ended September 30, 1996, and reflects an effective income
tax rate of approximately 38%.
Extraordinary Item. During the twelve-month 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 year ended September 30, 1997.
Net Income. Net income increased $8.6 million, or 245.7%, to $5.1 million
for the fiscal year ended September 30, 1997, from $(3.5) million for the
twelve-month period ended September 30, 1996. Diluted earnings per common share
before the extraordinary item was $.42 per share for the fiscal year ended
September 30, 1997 compared to $(.18) per share for the twelve-month period
ended September 30, 1996. Diluted earnings per share after the extraordinary
item was $.42 per share for the fiscal year ended September 30, 1997 compared to
$(.34) per share in the comparable prior year period.
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.
26
<PAGE> 29
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 $.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. General and administrative expense as a percentage of
revenues decreased to 3.0% for the nine-month fiscal period ended September 30,
1996 from 3.2% for the nine-month period ended September 30, 1995. 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.
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
27
<PAGE> 30
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 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 and private label sales.
General and Administrative Expense. General and administrative expense
increased $.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 $.3 million for the fiscal year ended 1995, and reflects an
effective income tax rate of approximately 38% in both periods.
28
<PAGE> 31
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 $.5 million for the fiscal year
ended 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operations
and borrowings under its Credit Facility. Historically, the Company has
generated liquidity through the sale of equity, which proceeds have generally
been used to reduce debt and finance capital expansions. The Company received
approximately $86.7 million in net proceeds from the October 1997 initial public
offering of its Class A Common Stock, which was used to reduce indebtedness.
Cash and temporary investments totaled $1.7 million, and working capital totaled
$14.1 million on December 31, 1997.
The Company's net cash provided by operating activities totaled $3.3
million for the three-month period ended December 31, 1997 compared to $2.5
million for the three-month period ended December 31, 1996. This increase of $.8
million was primarily due to higher net income and the non-cash extraordinary
loss due to early extinguishment of debt, offset by an increase in working
capital.
Cash used in investing activities principally relates to the Company's
investments in manufacturing, distribution and milling assets. Capital
expenditures were $26.3 million for the three-month period ended December 31,
1997 compared to $.8 million in the comparable prior year period. Capital
expenditures were $28.4 million for the fiscal year ended September 30, 1997 and
3.0 million for the nine-month period ended September 30, 1996 and were $38.8
million for the fiscal year ended December 31, 1995, respectively. The increase
in spending for the fiscal year ending September 30, 1997 was a result of the
Company's initial expenditures of $23.7 million of the $86.0 million capital
expansion program discussed above, which the Company expects to complete by June
1998. The increased spending in 1995 was primarily the result of the
construction of the Company's South Carolina manufacturing and distribution
facilities and Missouri distribution center. The increase in spending for the
three-month period ended December 31, 1997 was a result of the Company's
expenditures toward its $86.0 million South Carolina and Missouri capital
expansion programs, which the Company expects to complete during fiscal year
1998. Total spending to date related to the aforementioned capital expansion
programs is approximately $60 million. The Company has current commitments for
$17.5 million in raw material purchases for fiscal year 1998 and has
approximately $20 million in expenditures remaining under the previously
referenced $86.0 million capital expansion program. The Company anticipates the
capital expansion programs will be fully funded by the end of fiscal year 1998.
The Company expects to fund these commitments from operations and borrowings
under the Credit Facility. The Credit Facility currently has a credit commitment
of $150.0 million and has scheduled commitment reductions which begin at the end
of fiscal year 1999. At this time, the current and projected borrowings under
the Credit Facility do not exceed the facility's available commitment. The
facility matures at the end of fiscal year 2002. The Company anticipates that
any borrowing outstanding at that time will be satisfied with funds from
operations or will be refinanced.
Net cash provided by financing activities was $22.0 million for the
three-month period ended December 31, 1997 compared to net cash used of $1.8
million for the three-month period ended December 31, 1996. The $22.0 million is
primarily a result of: (i) $86.7 million in net proceeds from the October 1997
initial public offering; (ii) $21.8 million proceeds from issuance of debt (net
of $.3 million deferred debt issuance costs) offset by (iii) $86.2 million debt
repayment.
The Company plans to use the net proceeds from the Offering to pay a
portion of the outstanding indebtedness under the Company's Credit Facility. The
Company currently uses cash to fund capital expenditures, repayments of debt and
working capital requirements. The Company expects that future cash requirements
will principally be for capital expenditures, repayments of indebtedness under
the Credit Agreement and working capital requirements.
29
<PAGE> 32
The Company entered into an amended and restated credit agreement (the
"Credit Agreement") on October 17, 1997, which provides the Company with $150
million in credit on an unsecured, revolving basis at interest rates which are
250 basis points lower than the previous agreement. Interest is to be charged at
either the base rate (higher of prime or 1/2 of 1% in excess of the federal
funds effective rate) or LIBOR plus an applicable margin based on a sliding
scale of the ratio of the Company's total indebtedness divided by earnings
before interest, taxes, depreciation and amortization (EBITDA). In addition, a
commitment fee is to be charged on the unused facility balance based on the
sliding scale of the Company's total indebtedness divided by EBITDA. The stated
interest plus the commitment fee will be classified as interest expense. The
Credit Agreement contains restrictive covenants which include, among other
things, financial covenants requiring minimum and cumulative earnings levels and
limitations on the payment of dividends, stock purchases and the Company's
ability to enter into certain contractual arrangements. 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 new Credit Agreement.
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 June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income
includes all changes in equity during a period except those due to owner
investments and distributions. It includes items such as foreign currency
translation adjustments, and unrealized gains and losses on available-for-sale
securities. This standard does not change the display or components of
present-day net income. SFAS 130 is not expected to have a material impact on
the Company.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This new standard requires
companies to disclose segment data based on how management makes decisions about
allocating resources to segments and how it measures segment performance. SFAS
131 requires companies to disclose a measure of segment profit or loss
(operating income, for example), segment assets, and reconciliations to
consolidated totals. It also requires entity-wide disclosures abut a company's
products and services, its major customers and the material countries in which
it holds assets and reports revenues. This statement is not expected to have a
significant effect on the Company.
EFFECT OF INFLATION
During the last three fiscal periods, inflation has not had a material
effect on the Company, other than to increase its cost of borrowing and raw
materials. In general, however, the Company has been able to increase the
majority of customer sales prices to recover significant raw material cost
increases. 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.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer hardware and software systems and has
recently begun upgrading those systems through modification or replacement. The
Company currently anticipates this upgrading to be completed during 1998.
The Company expects to incur approximately $100,000 in each fiscal quarter
beginning with the second quarter of 1998 through the first quarter of 1999 to
resolve the Company's Year 2000 compliance issues. All expenses incurred in
connection with Year 2000 compliance will be expensed as incurred, other than
acquisitions of new software or hardware, which will be capitalized. See "Risk
Factors -- Year 2000 Compliance."
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BUSINESS
OVERVIEW
AIPC is the second 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 is on target to nearly double
its capacity in June 1998 with the completion of the expansion of its Missouri
facility. The Company's revenue and operating income were $135.1 million and
$20.7 million, respectively, for the twelve-month period ended December 31,
1997, and grew at CAGRs of 30% and 33%, respectively, over the five-year period
ended December 31, 1997.
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 trade sources and the Company's own analysis. The Company has a
long-term supply agreement with Sysco, the nation's largest marketer and
distributor of foodservice products. AIPC is now the exclusive producer of
Mueller's, the largest pasta brand in the United States, pursuant to a long-term
manufacturing and distribution agreement with Bestfoods. 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 recent months the Company has
added several new customers including Harris Teeter, Spartan, Meijer and
Ahold/Finast. In addition, AIPC has developed supply relationships with
industrial users of pasta, 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. The Company recently completed a significant portion of
its capital expenditure program initiated in 1997 which increased the Company's
annual pasta production capacity to approximately 500 million pounds and added a
highly-automated durum wheat mill to its South Carolina plant. Management
believes the South Carolina plant is now the largest and most efficient pasta
producing facility in North America in terms of productivity and conversion cost
per pound. The Company anticipates that the planned additional capacity
expansion at the Missouri facility, including new high-speed, high-output pasta
production lines and expansion of its distribution facility, will be completed
by June 1998. This expansion will increase the Company's annual production
capacity to more than 600 million pounds.
PROPOSED HARVEST STATES ALLIANCE
In November 1997, the Company announced a letter of intent with Amber
Milling Company, a division of Harvest States Cooperatives, one of the largest
agribusiness cooperatives in the United States. The proposed business
arrangement contemplates AIPC constructing a highly efficient, state-of-the-art
pasta production facility adjacent to Harvest States' recently constructed wheat
mill in Kenosha, Wisconsin. Under the terms of the contemplated arrangement,
Harvest States would transfer to AIPC the land and infrastructure for the
facility and supply semolina and other raw materials to the proposed plant under
a long-term
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supply agreement. AIPC anticipates the proposed facility would initially target
the growing industrial pasta market. The Company estimates it would invest
approximately $30 million in capital expenditures to construct the facility,
with a targeted annual capacity of approximately 150 million pounds. The Harvest
States alliance is subject to final negotiations and agreement, several
pre-conditions and board of directors' approval from both parties prior to July
1, 1998. There can be no assurance that a definitive agreement will be reached
or that, if reached, the Company will be able to implement successfully the
Harvest States alliance. See "Risk Factors -- Failure to Implement Harvest
States Alliance."
Management believes the Harvest States alliance would create strategic
advantages by: (i) accelerating the time line for constructing a third facility
targeting the growing industrial pasta market; (ii) creating highly efficient
capacity to support future growth; (iii) providing long-term access to the
variety of raw materials needed to support the industrial pasta market (several
of which AIPC cannot produce currently in its durum semolina mills); (iv) making
available rail and highway infrastructure for efficient distribution to AIPC's
customers; and (v) providing access to Harvest States' durum wheat origination
network, which is the largest in the United States, and handles over 50% of U.S.
durum wheat. The Harvest States alliance would expand AIPC's vertical
integration strategy to Harvest States' Kenosha mill, one of North America's
newest and most efficient mills. Additionally, Harvest States' Kenosha mill uses
the same high-quality, state-of-the-art milling equipment and technology as
AIPC's existing mills, ensuring product consistency for existing customers.
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 a Low 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 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 current
expansion programs at its existing facilities, and ongoing improvement
programs. See "-- Proposed Harvest States Alliance" and "-- 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 supplier relationships. The
Company has followed 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. The Company is also the sole
producer of Mueller's, the largest pasta brand in the United States, under
the Bestfoods Agreement. Management believes that these strategic
relationships increase sales and operating efficiencies, facilitate AIPC's
investment in new technology, create distribution synergies, and enable
closer involvement in its customers' pasta businesses.
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- 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)
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:
- Continue Bestfoods Business Expansion. The Company was selected in
1997 to be the exclusive producer of Bestfoods' Mueller's brand pasta, the
largest pasta brand in North America and has transferred production of
substantially all of Mueller's primarily to its recently expanded South
Carolina facility. Management believes that the Company's experience in
servicing large pasta supply agreements and its current expansion of its
South Carolina and Missouri milling pasta production and distribution
facilities will enable AIPC to support potential future growth. Management
anticipates Bestfoods's annual volume requirements will represent an
approximately 60% increase over the Company's fiscal 1997 production
volume.
- Obtain Additional Private Label Customers. The Company intends to
continue to grow its existing 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, discontinued its private label pasta
business in 1997.
- Increase Sales to Industrial Customers. The Company believes that
industrial users 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 industrial users of
pasta which may result in incremental growth, new product development and
cost savings opportunities in the future. See "-- Proposed Harvest States
Alliance"
- 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.
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
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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.
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 1997, 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 .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 Bestfoods 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 24.0% of the total pounds
sold in the branded Retail market for the 53 weeks ended September 30, 1997.
Borden, which produced 20.4% of the total pounds sold in the Retail market for
the 53 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. Bestfoods 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 Bestfoods. Bestfoods has
transferred substantially all of its Mueller's brand pasta production to AIPC.
See "-- Production and Supply Agreements."
Between the first quarter of 1994 and the first quarter of fiscal 1998,
sales of private label pasta products increased from 18.7% to 22.0% of the total
pounds of pasta sold in the Retail market based on Information Resources, Inc.
InfoScan Review data. Management believes that sales of private label pasta
products will continue to grow at a rate in excess of the overall Retail pasta
market. Following Borden's departure from the private label market, AIPC has
become 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
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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,
International Home Foods, Inc., 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 expansion of the Company's Missouri facility, AIPC will have
increased its production capacity to over 600 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 substantially completed capital
expansion, management believes that these capacity additions represent more than
200 million pounds in aggregate. Dakota Growers increased the capacity of its
durum wheat milling operations in December 1996 and has completed a pasta
production capacity expansion increasing its total annual pasta production
capacity to 240 million pounds. In late 1997 Hershey added approximately 50
million pounds of pasta capacity to its facility in Winchester, Virginia.
Barilla is currently building an integrated milling and pasta production
facility near Ames, Iowa with an estimated annual pasta capacity between 130 and
155 million pounds scheduled for completion in late 1998 or early 1999. Two
major pasta producers have also reduced pasta production capacity. Borden closed
or sold five of its ten North American pasta plants in 1997, and Bestfoods
eliminated its capacity of approximately 180 million pounds. In addition, on
February 23, 1998, Dakota Growers acquired all of the outstanding stock of Primo
Piatta, Inc. ("Primo"), a Minnesota-based pasta producer. Primo's assets include
two production facilities with total annual capacity of approximately 175
million pounds and a distribution center located in Minneapolis. AIPC and Dakota
Growers are currently the only major pasta producers in the United States that
own vertically-integrated milling and pasta production facilities. Barilla's
planned facility in Ames, Iowa will also be vertically integrated.
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. Management estimates pasta imported from foreign
producers during 1996 represented approximately 12% 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. 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.
The Department of Commerce currently is conducting an
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administrative review of its anti-dumping and countervailing duty orders of July
1996 relating to three Turkish and 16 Italian pasta producer, including Barilla
and De Cecco. On January 22, 1998, the Department of Commerce indicated that it
intends to issue preliminary findings not later than July 1, 1998, with the
final results of its review expected by October 1, 1998. 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 periods 1997, 1996 and 1995.
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. AIPC also intends to continue to assist its customers with innovative
products and packaging, and the development of additional value-added products
intended to generate higher margins than traditional pasta products.
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 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.
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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 ("HACCP") 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 HACCP 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
Bestfoods and Sysco.
Under the Bestfoods Agreement, Bestfoods closed its pasta production
facility formerly dedicated to the production of Mueller's brand pasta in
December 1997 and AIPC became the exclusive producer of Mueller's, with the
exception of two specialty items which Bestfoods currently purchases from
another supplier. Bestfoods 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 is 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.
Bestfoods 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 Bestfoods. Without
Bestfoods'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
Bestfoods Agreement may be terminated by Bestfoods upon certain events,
including (i) a failure by AIPC to satisfy certain minimum production
requirements for any reason other than the fault of Bestfoods 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 brand names. 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 twelve-month period ended
December 31, 1997, 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 and 1997, 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, 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.
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Durum wheat is a commodity 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. The February 1998 average price per bushel of durum wheat was
$5.95. The Company manages its durum wheat cost risk through durum "pass-
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 65% of AIPC's total revenue for the
twelve-month period ended December 31, 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 generates
Bestfoods revenues in 1998. 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 March 31, 1998, the Company's facilities had combined annual
milling and production capacity of approximately 600 million pounds of durum
semolina and 500 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 completed a significant portion of its $86.0 million capital
expenditure program which, when completed, will nearly double its current pasta
production capacity from 330 million pounds per year to approximately 600
million pounds per year in 1998. The Company recently completed the construction
of a durum wheat mill in South Carolina which adjoins the existing plant
facility, representing a 200% increase in the facility's pasta production
capacity, and a doubling of the capacity of the South Carolina distribution
facility. The additional capacity at the Missouri facility, scheduled for
completion in June 1998, 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. 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."
To date, 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. The current expansion of the Missouri facility is
progressing on-time and on-budget. See "Risk Factors -- Substantial Planned
Investments in Milling and Production Facilities" and "Management of Growth and
Implementation of Bestfoods Business."
Proposed Harvest States Alliance. In November 1997, the Company announced a
letter of intent with Amber Milling Company, a division of Harvest States
Cooperatives, one of the largest agribusiness cooperatives in the United States.
The proposed business arrangement contemplates AIPC constructing a highly
efficient, state-of-the-art pasta production facility adjacent to Harvest
States' recently constructed wheat mill in Kenosha, Wisconsin. Under the terms
of the contemplated arrangement, Harvest States would transfer to AIPC the land
and infrastructure for the facility and supply semolina and other raw materials
to the proposed plant under a long-term supply agreement. AIPC anticipates the
proposed facility would initially target the growing industrial pasta market.
The Company estimates it would invest approximately $30 million in capital
expenditures to construct the facility, with a targeted annual capacity of
approximately 150 million pounds. The Harvest States alliance is subject to
final negotiations and agreement, several pre-conditions and
38
<PAGE> 41
board of directors' approval from both parties prior to July 1, 1998. There can
be no assurance that a definitive agreement will be reached or that, if reached,
the Company will be able to implement successfully the Harvest States alliance.
See "Risk Factors -- Failure to Implement Harvest States Alliance."
Management believes the Harvest States alliance would create strategic
advantages by: (i) accelerating the time line for constructing a third facility
targeting the growing industrial pasta market; (ii) creating highly efficient
capacity to support future growth; (iii) providing long-term access to the
variety of raw materials needed to support the industrial pasta market (several
of which AIPC cannot produce currently in its durum semolina mills); (iv) making
available rail and highway infrastructure for efficient distribution to AIPC's
customers; and (v) providing access to Harvest States' durum wheat origination
network, which is the largest in the United States, and handles over 50% of U.S.
durum wheat. The Harvest States alliance would expand AIPC's vertical
integration strategy to Harvest States' Kenosha mill, one of North America's
newest and most efficient mills. Additionally, Harvest States' Kenosha mill uses
the same high-quality, state-of-the-art milling equipment and technology as
AIPC's existing mills, ensuring product consistency for existing customers.
Milling and Pasta Production Processes. Durum wheat is currently delivered
to AIPC's mills in Missouri and South Carolina by railcar directly from the
durum wheat elevators in the northern United States and Canada under a long-term
rail contract with the Canadian Pacific Rail System and the Norfolk Southern
Railway Company. 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 mills where a single AIPC team member monitors and
directs the mill's entire milling, cleaning and storage process.
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.
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<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 and recently completed the
expansion of its South Carolina distribution facility. 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. Most of the Company's customers use inventory management
systems which track sales of particular products and rely on reorders being
rapidly filled by suppliers. The
40
<PAGE> 43
Company works with its customers to forecast consumer demand which allows the
Company to anticipate customer demand.
SALES AND MARKETING
AIPC actively markets its products through approximately 19 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 current and
planned hardware and software upgrades will adequately address any systems
operations issues relating to the year 2000. See "Risk Factors -- Year 2000
Compliance."
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
41
<PAGE> 44
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."
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., International
Home Food Products Inc., 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 March 31, 1998, the Company employed 380 full-time persons, of whom
200 were salaried employees and 180 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.
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<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........................ 36 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
Darrel E. Bailey.......................... 45 Senior Vice President -- Institutional
Sales
David B. Potter........................... 39 Senior Vice President -- Procurement
Jerry Dear................................ 50 Senior Vice President -- Retail Markets
Jonathan E. Baum.......................... 37 Director
David Y. Howe............................. 33 Director
Robert H. Niehaus......................... 42 Director
John P. O'Brien........................... 56 Director
William R. Patterson...................... 56 Director
Lawrence B. Sorrel........................ 39 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 October 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. 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 LLP, most
recently as partner-in-charge of its Kansas City and Omaha Business Consulting
Group practice. Mr. Watson is a certified public accountant.
Darrel E. Bailey has served as Senior Vice President -- Institutional Sales
since 1996. Mr. Bailey joined the Company in May 1993 as Vice President of Sales
and Marketing. He was named Senior Vice President in
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<PAGE> 46
1995. Prior to joining the Company, Mr. Bailey was employed by Hallmark Cards,
Inc. as Marketing Business Manager.
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 1981 to 1993, most recently as Business Logistics Manager.
Jerry Dear was named Senior Vice President -- Retail Markets in February
1998. Mr. Dear joined the Company in 1994 and served as Business Development
Manager and Senior Business Development Manager until 1995, when he was named
Vice President of Retail Sales. Prior to joining the Company, Mr. Dear worked
for Pillsbury as Director of Corporate Sales and Development from 1984 to 1994.
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., Sinter Metals, Inc., Milk
Specialties Company and Furnishings International, Inc.
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
where he has been employed since 1982. 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
Allegiance Telecom, Inc., Silgan Holdings Inc., Fort James Corporation,
Waterford Wedgewood UK, plc, of which he is the Chairman, and Waterford Crystal
Ltd.
John P. O'Brien has been Managing Director of Inglewood Associates, Inc., a
private investment and consulting firm specializing in turnarounds of
financially under-performing companies since April 1993. Mr. O'Brien has also
been Chairman of the Board of two Inglewood Associates, Inc. portfolio
companies-Jeffery Mining Products, L.P. (a manufacturer and distributor of
underground mining products) since October 1995 and Allied Construction
Products, Inc. (a manufacturer and distributor of hydraulic and pneumatic
demolition, compaction, boring and trench shoring devices) since 1993. Prior to
joining Inglewood, he was the Southeast Regional Managing Partner for Price
Waterhouse and a member of the firm's Policy Board and Management Committee from
July 1984 to April 1990. Mr. O'Brien is also a director of Premix, Inc.
William R. Patterson is currently Vice President of PSF Holdings, L.L.C.,
and the Executive Vice President, Chief Financial Officer and Treasurer of its
wholly-owned subsidiary, Premium Standard Farms, Inc. ("PSF, Inc."), a
fully-integrated pork producer and processor. From January to October 1996, Mr.
Patterson was a principal of Patterson Consulting LLC and served as the Acting
Chief Financial Officer of the predecessor company of PSF, Inc. Prior to joining
the predecessor to PSF, Inc. in 1996, Mr. Patterson was a partner in Arthur
Andersen LLP from 1976 through 1995. He is also a director of the Paul Mueller
Company.
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 Renaissance Media Group,
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
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<PAGE> 47
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
The Company's Board of Directors consists of nine directors, divided into
three classes, with the members of each class serving staggered three-year
terms. The current term of the first class expires at the annual meeting of
stockholders to be held in 2001, the current term of the second class expires in
1999 and the current term of the third class expires in 2000. Messrs. Howe,
O'Brien and Patterson are included in the first class, Messrs. Baum, Niehaus and
Thompson are included in the second class and Messrs. Webster, Schroeder and
Sorrel are included in the third class. Directors hold office for a term of
three years and 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.
COMPENSATION OF DIRECTORS
Effective January 1, 1998, all directors who are not employees of AIPC or
employees of significant stockholders ("Outside Directors") will be paid an
annual retainer of $15,000, payable in shares of the Company's Class A Common
Stock immediately following AIPC's annual meeting of stockholders, and paid
$1,500 in cash for each meeting of the Board of Directors attended.
Additionally, Outside Directors who are members of a committee of the Board of
Directors will be paid $500 in cash for each committee meeting attended. An
Outside Director who is a chairman of such a committee will also be paid an
annual cash retainer of $2,500. 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 meeting of Board
committees. On February 25, 1998, the Company issued 544 shares of Class A
Common Stock to each of Messrs. O'Brien, Patterson and Thompson.
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, O'Brien, 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.
Baum, Patterson and Thompson serve on the Audit Committee.
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<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 (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 $250,000 84,622 $ 7,151(2)
President and
Chief Executive Officer
Horst W. Schroeder................. 1997 183,700 180,000 84,622 --
Chairman of the Board
David E. Watson.................... 1997 159,931 90,000 -- 5,244(3)
Executive Vice President and
Chief Financial Officer
Norman F. Abreo.................... 1997 137,423 80,000 -- 3,223(3)
Executive Vice
President--Operations
Darrel E. Bailey................... 1997 147,249 30,000 15,330 4,208(3)
Senior Vice President--
Institutional Sales and Marketing
</TABLE>
- ---------------
(1) For purposes of the foregoing table, the Company's 1997 fiscal year extended
from October 1, 1996 to September 30, 1997.
(2) 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.
(3) Represents payments under the American Italian Pasta Company Retirement
Savings Plan.
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<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.................. -- -- -- -- -- --
Darrel E. Bailey................. -- -- -- -- -- --
</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.
The following table sets forth certain information with respect to the
aggregate exercises during fiscal 1997 by the Named Executive Officers and the
number and value of options held by such officers as of 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 $3,352,903 $1,282,729
Horst W. Schroeder...... -- -- 263,169 136,953 3,352,903 1,282,729
David E. Watson......... -- -- 44,899 44,752 457,267 390,339
Norman F. Abreo......... -- -- 53,937 35,713 575,492 272,114
Darrel E. Bailey........ -- -- 27,116 18,077 133,411 88,939
</TABLE>
- ---------------
(1) Based on the initial public offering price of the Class A Common Stock of
$18 per share on October 9, 1997.
EMPLOYMENT AGREEMENTS
Mr. Webster. Mr. Webster entered into an employment agreement with the
Company effective October 15, 1997 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"). In connection with the Company's initial public
offering, Mr. Webster was granted options to purchase 398,583 shares of Class A
Common Stock at the initial public offering price of $18 per share. 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 severance 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
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<PAGE> 50
resignation for good reason; (ii) if the employment agreement expires and the
Company does not offer Mr. Webster a new 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
Stockholders Agreement.
Mr. Schroeder. In connection with the Company's initial public offering
effective October 15, 1997, Mr. Schroeder entered into an employment agreement
with the Company terminating October 15, 2000. Under the agreement, Mr.
Schroeder serves 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 by Mr. Schroeder of his employment for good reason,
the unvested portion of Mr. Schroeder's options under the Company's stock option
plans will become immediately vested. Mr. Schroeder was also granted options to
purchase 275,942 shares of the Company's Class A Common Stock, 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 and Abreo. Messrs. Watson and Abreo have entered into
employment agreements with the Company effective October 15, 1997 and
terminating October 15, 2000. 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 and Abreo to annual base salaries of $180,000 and $160,000, 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. Effective October 8, 1997, Messrs. Watson and Abreo each
received options to purchase 61,320 shares, respectively, of Class A Common
Stock at $18 per share. 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 and Abreo 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 and Abreo will vest immediately upon (i) resignation for good
reason or (ii) a change in control of the Company.
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."
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<PAGE> 51
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 958,013 shares of Common Stock at exercise
prices ranging from $2.33 to $12.23 per share (with a weighted average exercise
price of $7.50 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.
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
49
<PAGE> 52
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 in its sole discretion
that it 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 40,012 shares of Common Stock at exercise prices
ranging from $4.92 to $12.23 per share (with a weighted average exercise price
of $10.68 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") effective October 7,
1997. 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. In connection with the Company's initial public
offering, the Board of Directors granted options to purchase an aggregate of
993,391 shares of Class A Common Stock at an exercise price of $18 per share.
The stock options expire 10 years from the date of grant, unless terminated
earlier in accordance with the terms of the 1997 Plan, and become exercisable
over the next five years in varying amounts depending on the terms of the
individual option agreements. As of the date of this Prospectus, options to
purchase 1,004,377 shares of Common Stock at exercise prices ranging from $18.00
to $27.56 per share (with a weighted average exercise price of $18.32 per share)
were issued and outstanding under the 1997 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
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<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,
1997 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." Decisions with respect to the base salary and cash bonuses paid
to executive officers are 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 are made by the Board of Directors or a
committee comprised solely of outside directors.
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<PAGE> 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
Effective upon completion of this 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, Thompson, Webster, Watson, Abreo and Bailey and
certain other existing stockholders of the Company (collectively, the "Existing
Stockholders") amended their existing Stockholders Agreement, which sets forth
certain rights and obligations of such Existing Stockholders. The amended
Stockholders Agreement grants the Morgan Stanley Stockholders and Citicorp
certain demand registration rights and contains 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, the Morgan Stanley
Stockholders have the right to designate one director nominee so long as the
Morgan Stanley Stockholders own any shares of the outstanding Common Stock of
the Company. The Existing Stockholders will agree to vote all of their shares of
Class A Common Stock in favor of the director nominee designated pursuant to the
Stockholders Agreement. At least two members of the Board of Directors will be
independent directors. Additionally, certain members of the Company's senior
management, including Messrs. Schroeder, Webster, Watson, Abreo, Potter, Mike
Willhoite, Dear, Bailey and Robert Evans have agreed to certain restrictions and
limitations on the ability to sell or transfer shares of Common Stock as
provided in the Stockholder Agreement.
1997 PRIVATE EQUITY FINANCING
In April 1997, the Company sold an aggregate of 3,174,528 shares of Class A
Common Stock 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 purchased 427,219
shares for $2,999,861. Mr. Schroeder, a Director of the Company, purchased
49,056 shares for $344,480. 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,
$136,375 by Mr. Bailey, $91,472 by Mr. Potter and $7,500 by Mr. Dear. 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, $36,375 to
Mr. Bailey $21,472 to Mr. Potter and $7,500 to Mr. Dear. Each of these loans are
evidenced by a promissory note made payable to the Company and secured by shares
of 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, both 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.
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, Bailey, Potter and Dear, to purchase shares of Class A Common
Stock at prices ranging between $4.92 and $7.02 per
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<PAGE> 56
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 March
31, 1998.
<TABLE>
<CAPTION>
NUMBER OF ORIGINAL LOAN BALANCE AT
EXECUTIVE OFFICER SHARES BALANCE MARCH 31, 1998
----------------- --------- ------------- --------------
<S> <C> <C> <C>
Timothy S. Webster...................................... 21,339 $138,559 $120,959
David E. Watson......................................... 14,269 84,735 60,601
Norman F. Abreo......................................... 7,217 46,422 39,788
Darrel E. Bailey........................................ 8,738 53,875 --
David B. Potter......................................... 5,083 31,422 21,472
Jerry Dear.............................................. 1,068 7,500 7,500
</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
$133,359 during fiscal 1995 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 $648,014 for the
nine-month fiscal period ended September 30, 1996 and the fiscal year ended
September 30, 1997, respectively. Such sales were on substantially the same
terms as the Company sells such products to unaffiliated third parties.
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<PAGE> 57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A 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 SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
---------------------- ----------------------
CLASS A CLASS A CLASS A
COMMON STOCK(1) SHARES COMMON STOCK(1)(2)
---------------------- BEING ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(3) OFFERED(2) NUMBER PERCENT(4)
- ------------------------ ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
The Morgan Stanley
Leveraged Equity Fund
II, L.P.(5)......... 3,830,281 22.8% 2,842,157 988,124 5.5%
1221 Avenue of the
Americas
New York, NY 10020
Morgan Stanley Capital
Partners III,
L.P.(5)............. 1,626,068 9.7 1,206,581 419,487 2.3
1221 Avenue of the
Americas
New York, NY 10020
Citicorp Venture
Capital, Ltd.(6).... 1,047,298 6.2 -- 1,047,298 5.8
399 Park Avenue
New York, NY 10043
Richard C. Thompson
(7)................. 380,753 2.3 150,000 230,753 1.3
16 Kansas Avenue
Kansas City, KS 66105
Horst W.
Schroeder(8)(9)..... 456,169 2.7 90,631 365,538 2.0
Jonathan E. Baum(10).. 376,859 2.3 -- 376,859 2.1
David Y. Howe......... -- -- -- -- --
Robert H. Niehaus..... -- -- -- -- --
John P. O'Brien....... 1,544 * -- 1,544 *
William R. Patterson.. 544 * -- 544 *
Lawrence B. Sorrel.... -- -- -- -- --
Timothy S.
Webster(9)(11)...... 354,837 2.1 90,631 264,206 1.5
David E. Watson(9).... 94,771 * -- 94,771 *
Norman F. Abreo(9).... 70,193 * 20,000 50,193 *
Darrel E. Bailey(9)... 59,131 * -- 59,131 *
All directors and
executive officers as
a group (12
persons)(9)......... 1,794,801 10.2 351,262 1,443,539 7.8
</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.
(2) Certain Selling Stockholders have granted an option to the U.S.
Underwriters to purchase up to an aggregate of 810,000 additional Shares of
Class A Common Stock to cover over-allotments, if any. Such 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.
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<PAGE> 58
(3) Based upon 16,777,418 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 17,978,680 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) The general partner of MSLEF and the general partner of the general partner
of the MSCP Funds are wholly owned subsidiaries of Morgan Stanley Dean
Witter, the parent of Morgan Stanley & Co. Incorporated.
(6) The shares beneficially owned by Citicorp Venture Capital, Ltd. include
157,103 shares held by an affiliate of Citicorp.
(7) All of such shares are held by Thompson Holdings, L.P., a limited
partnership of which Mr. Thompson is a limited partner with a trust for the
benefit of his family. Mr. Thompson is also the sole shareholder of the
corporation which is the general partner of the limited partnership.
(8) The shares beneficially owned by Mr. Schroeder include 114,565 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. As of the date of this
Prospectus, Mr. Schroeder has options to purchase 585,433 shares of Common
Stock under the Company's stock option plans.
(9) 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 (318,566 shares), Mr. Webster
(318,566 shares), Mr. Watson (44,899 shares), Mr. Abreo (62,976 shares),
Mr. Bailey (36,154 shares), and all executive officers and directors as a
group (781,161 shares). As of the date of this Prospectus, Mr. Abreo has
options to purchase 130,970 shares of Common Stock under the Company's
stock option plan.
(10) Includes 355,248 shares held by George K. Baum Capital Partners, L.P. and
21,611 shares held by George K. Baum Employee Equity Fund, L.P. 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.
(11) 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. As of
the date of this Prospectus, Mr. Webster has options to purchase 708,074
shares of Common Stock of the Company under the Company's stock option
plans.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
GENERAL
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"). From time to time, shares of Class A Common
Stock held by the Morgan Stanley Stockholders will automatically be converted
pursuant to the 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
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.
Class B Common Stock. Under the Charter, 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
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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 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
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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 Stockholders Agreement, the Morgan Stanley Stockholders
have the right to designate one director nominee so long as the Morgan Stanley
Stockholders own any shares of the outstanding Common Stock of the Company. See
"Certain Relationships and Related Transactions -- Stockholders Agreement."
LISTING
The Class A Common Stock is traded on the New York Stock Exchange.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is UMB Bank, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 17,978,680 shares of Common Stock assuming no exercise of
outstanding stock options. Of these shares, all of the 5,400,000 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"). Of the remaining 12,578,680 shares, 3,493,680 shares of Common
Stock held by certain 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
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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 179,787 shares immediately after the Offering, assuming 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 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 90 days after the date of this Prospectus, 3,492,680 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 90 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 Morgan
Stanley Stockholders and Citicorp certain "demand" registration rights with
respect to the shares of Common Stock held by them. The other Existing
Stockholders are 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."
Certain members of the Company's senior management, including Messrs.
Schroeder, Webster, Watson, Abreo, Potter, Willhoite, Dean, Bailey and Evans
have agreed to certain restrictions and limitations on the transferability of
shares of Common Stock owned by them as provided in the Stockholders Agreement.
See "Certain Relationships and Related Transactions -- Stockholders Agreement."
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.
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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, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers 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.
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 on or before December 31,
1999 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 on or before December 31, 1999 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.
Recently finalized United States Treasury Regulations applicable to
dividends paid after December 31, 1999 (the "Final Regulations") (which, until
such date was extended, was to apply to dividends paid after December 31, 1998)
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 (rather than a U.S.
person subject to the backup withholding rules discussed below). The
presumptions would not apply for purposes of granting a reduced rate of
withholding under a treaty. Under the Final Regulations, to obtain a reduced
rate of withholding under a treaty a Non-United States Holder will 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 Final Regulations also 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.
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
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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 Final Regulations will 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 on
or before December 31, 1999 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 correct
taxpayer identification number and other information to the Company. In
addition, backup withholding and such additional information reporting will
generally not apply to dividends paid on or before December 31, 1999 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 on or before December
31, 1999 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. For dividends paid after December 31, 1999, the Final Regulations
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.
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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, (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 or (iv) effective after December 31, 1999, certain brokers that are
foreign partnerships with U.S. partners or that are engaged in a U.S. 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.
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. For proceeds from the disposition of the Class A Common
Stock after December 31, 1999, the Final Regulations provide more detailed rules
concerning such documentation.
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.
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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
Incorporated, 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
SHARES
NAME ---------
----
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
BT Alex. Brown Incorporated...............................
Goldman, Sachs & Co.......................................
George K. Baum & Company..................................
---------
Subtotal............................................... 4,320,000
---------
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............................................... 1,080,000
---------
Total.................................................. 5,400,000
=========
</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
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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.
65
<PAGE> 68
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.
The 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 810,000 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 90 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 or in connection with 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 (a) the
sale of the Shares to the Underwriters, (b) 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, (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 the 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 herein which first became exercisable more than 90 days after the date
of the Prospectus, (f) the issuance by the Company of shares of Common Stock
pursuant to any existing 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 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
66
<PAGE> 69
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 7.8% of the
Common Stock (3.4% if the over-allotment option granted to the U.S. Underwriters
is exercised in full). Currently, affiliates of Morgan Stanley & Co.
Incorporated and Morgan Stanley & Co. International Limited have designated two
members to the Board of Directors (Messrs. Niehaus and Sorrel). Messrs. Niehaus
and Sorrel 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 Incorporated (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. 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.
The Class A Common Stock is traded on the New York Stock Exchange under the
symbol "PLB."
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.
EXPERTS
The financial statements of the Company at September 30, 1996 and 1997, and
for the fiscal year ended December 31, 1995, for the nine-month fiscal period
ended September 30, 1996 and the fiscal year ended September 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.
67
<PAGE> 70
AMERICAN ITALIAN PASTA COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets at September 30, 1996 and 1997 and December
31, 1997 (unaudited)...................................... F-3
Statements of Operations for the fiscal year ended December
31, 1995, the fiscal nine-months ended September 30, 1996
and the fiscal year ended September 30, 1997 and for the
three-month periods ended December 31, 1996 and 1997
(unaudited)............................................... F-4
Statements of Stockholders' Equity for the fiscal year ended
December 31, 1995, the fiscal nine-months ended September
30, 1996 and the fiscal year ended September 30, 1997 and
for the three-month period ended December 31, 1997
(unaudited)............................................... F-5
Statements of Cash Flows for the fiscal year ended December
31, 1995, the fiscal nine-months ended September 30, 1996
and the fiscal year ended September 30, 1997 and for the
three-month periods ended December 31, 1996 and 1997
(unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
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 September 30, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1995, the nine-month fiscal period ended September 30, 1996 and the
fiscal year ended September 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 September 30, 1996 and 1997, and the results of its operations and
its cash flows for the year ended December 31, 1995, the nine-month fiscal
period ended September 30, 1996 and the fiscal year ended June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
October 27, 1997 except Note 13, as
to which the date is April 6, 1998
F-2
<PAGE> 72
AMERICAN ITALIAN PASTA COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- ------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS (Note 2)
Current assets:
Cash and temporary investments........................ $ 1,818 $ 2,724 $ 1,687
Trade and other receivables........................... 12,494 9,180 12,799
Prepaid expenses and deposits......................... 1,879 1,028 2,656
Inventory............................................. 14,374 13,675 15,282
Deferred income taxes (Note 3)........................ 269 635 257
-------- -------- --------
Total current assets.................................... 30,834 27,242 32,681
Property, plant and equipment:
Land and improvements................................. 4,413 4,540 4,540
Buildings............................................. 37,491 37,491 37,491
Plant and mill equipment.............................. 81,461 84,233 84,685
Furniture, fixtures and equipment..................... 3,635 4,581 4,900
-------- -------- --------
127,000 130,845 131,616
Accumulated depreciation.............................. (23,247) (29,332) (31,019)
-------- -------- --------
103,753 101,513 100,597
Construction in progress.............................. -- 23,721 49,637
-------- -------- --------
Total property, plant and equipment..................... 103,753 125,234 150,234
Deferred income taxes (Note 3).......................... 4,479 1,124 1,359
Other assets............................................ 2,622 4,575 659
-------- -------- --------
Total assets............................................ $141,688 $158,175 $184,933
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 7,193 $ 8,644 $ 10,729
Income tax payable.................................... -- 134 1,003
Accrued expenses...................................... 3,664 5,447 5,919
Current maturities of long-term debt (Notes 2 & 12)... 8,078 829 913
Revolving line of credit facility (Notes 2 & 12)...... 13,500 -- --
-------- -------- --------
Total current liabilities............................... 32,435 15,054 18,564
Long-term debt (Notes 2 & 12)........................... 93,284 100,137 35,638
Commitments and contingencies (Note 4)
Stockholders' equity: (Notes 6, 11 & 12)
Preferred stock, $.001 par value:
Authorized shares 10,000,000....................... -- -- --
Class A common stock, $.001 par value:
Authorized shares -- 75,000,000.................... 8 11 16
Class B common stock, $.001 par value:
Authorized shares -- 25,000,000.................... -- -- --
Additional paid-in capital............................ 33,071 55,324 142,008
Notes receivable from officers........................ -- (298) (273)
Accumulated deficit................................... (17,110) (12,053) (11,020)
-------- -------- --------
Total stockholders' equity.............................. 15,969 42,984 130,731
-------- -------- --------
Total liabilities and stockholders' equity.............. $141,688 $158,175 $184,933
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 73
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------
1995 1996 1996 1997 1996 1997
------------ ------------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues (Note 5)............ $92,903 $92,074 $121,149 $129,143 $29,547 $35,536
Cost of goods sold........... 73,851 68,555 91,230 93,467 21,149 25,760
Plant expansion costs (Note
8)......................... 2,065 -- -- -- -- 266
------- ------- -------- -------- ------- -------
Gross profit................. 16,987 23,519 29,919 35,676 8,398 9,510
Selling and marketing
expense, including product
introduction costs (Note
10)........................ 5,303 16,798 18,445 13,664 4,453 2,631
General and administrative
expense.................... 2,930 2,805 3,686 3,766 693 1,188
------- ------- -------- -------- ------- -------
Operating profit............. 8,754 3,916 7,788 18,246 3,252 5,691
Interest expense, net........ 8,008 8,023 10,770 10,119 2,552 264
------- ------- -------- -------- ------- -------
Income (loss) before income
tax expense (benefit) and
extraordinary item......... 746 (4,107) (2,982) 8,127 700 5,427
Income tax expense (benefit)
(Note 3)................... 270 (1,556) (1,139) 3,070 268 2,062
------- ------- -------- -------- ------- -------
Income (loss) before
extraordinary item......... 476 (2,551) (1,843) 5,057 432 3,365
Extraordinary item:
Loss due to early
extinguishment of
long-term debt, net of
income taxes (Note 2)... -- (1,647) (1,647) -- -- (2,332)
------- ------- -------- -------- ------- -------
Net income (loss)............ $ 476 $(4,198) $ (3,490) $ 5,057 $ 432 $ 1,033
======= ======= ======== ======== ======= =======
Net income (loss) per common
share (Note 13):
Before extraordinary item.... $ 0.05 $ (0.25) $ (0.18) $ 0.44 $ 0.04 $ 0.20
Extraordinary item........... -- (0.16) (0.16) -- -- (0.14)
------- ------- -------- -------- ------- -------
Total........................ $ 0.05 $ (0.41) $ (0.34) $ 0.44 $ 0.04 $ 0.06
======= ======= ======== ======== ======= =======
Weighted-average common
shares outstanding......... 10,195 10,223 10,219 11,466 10,230 16,430
======= ======= ======== ======== ======= =======
Net income (loss) per common
share -- assuming dilution
(Note 13):
Before extraordinary item.... $ 0.05 $ (0.25) $ (0.18) $ 0.42 $ 0.04 $ 0.19
Extraordinary item........... -- (0.16) (0.16) -- -- (0.13)
------- ------- -------- -------- ------- -------
Total -- assuming dilution... $ 0.05 $ (0.41) $ (0.34) $ 0.42 $ 0.04 $ 0.06
======= ======= ======== ======== ======= =======
Weighted-average common
shares outstanding......... 10,433 10,223 10,219 12,119 10,480 17,455
======= ======= ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 74
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
CLASS A CLASS A ADDITIONAL RECEIVABLE TOTAL
COMMON COMMON PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL OFFICERS DEFICIT EQUITY
---------- ------- ---------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
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 3,174,528 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.................................. -- -- -- -- 5,057 5,057
---------- --- -------- ----- -------- --------
Balance at September 30, 1997................. 11,466,056 11 55,324 (298) (12,053) 42,984
Issuance of 5,310,000 shares of Class A Common
Stock, net of issuance costs (unaudited).... 5,310,000 5 86,684 -- -- 86,689
Payment on notes receivable from officers
(unaudited)................................. -- -- -- 25 -- 25
Net income (unaudited)........................ -- -- -- -- 1,033 1,033
---------- --- -------- ----- -------- --------
Balance at December 31, 1997 (unaudited)...... 16,776,056 $16 $142,008 $(273) $(11,020) $130,731
========== === ======== ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 75
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, -------------------
1995 1996 1997 1996 1997
------------ ------------- ------------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........................ $ 476 $ (4,198) $ 5,057 $ 432 $ 1,033
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operations:
Depreciation and amortization.......... 6,279 5,434 7,828 1,787 1,868
Deferred income tax expense
(benefit)........................... 264 (1,556) 2,989 -- 1,194
Extraordinary loss due to early
extinguishment of long-term debt.... -- 1,647 -- -- 2,332
Loss on disposal of property, plant and
equipment........................... 439 -- -- -- --
Changes in operating assets and
liabilities.........................
Trade and other receivables............ (4,586) (1,785) 3,347 2,955 (3,619)
Prepaid expenses and deposits.......... (364) (952) 464 42 (1,250)
Inventory.............................. (2,814) (1,830) 1,086 233 (1,607)
Accounts payable and accrued
expenses............................ 6,610 (3,961) 2,792 (2,104) 3,041
Other.................................. (574) (276) (492) (881) 299
-------- -------- -------- ------- -------
Net cash provided by (used in) operating
activities............................. 5,730 (7,477) 23,071 2,464 3,291
Investing activities:
Additions to property, plant and
equipment........................... (38,789) (3,041) (28,428) (829) (26,302)
-------- -------- -------- ------- -------
Net cash used in investing activities.... (38,789) (3,041) (28,428) (829) (26,302)
Financing activities:
Additions to deferred debt issuance
costs............................... (71) (2,083) (2,115) -- (325)
Proceeds from issuance of debt......... 40,795 86,470 11,730 320 21,763
Net borrowings under revolving line of
credit facility..................... -- 13,500 (5,500) (2,000) --
Principal payments on debt and capital
lease obligations................... (7,848) (85,669) (19,810) (95) (86,178)
Proceeds from issuance of common stock,
net of issuance costs............... 190 100 21,958 -- 86,714
-------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities............................. 33,066 12,318 6,263 (1,775) 21,974
-------- -------- -------- ------- -------
Net increase (decrease) in cash and
temporary investments.................. 7 1,800 906 (140) (1,037)
Cash and temporary investments at
beginning of period.................... 11 18 1,818 1,818 2,724
-------- -------- -------- ------- -------
Cash and temporary investments at end of
period................................. $ 18 $ 1,818 $ 2,724 $ 1,678 $ 1,687
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 76
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 period 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 or the first Friday of the following month of each quarter.
For purposes of the financial statements and notes thereto, the 1997 fiscal year
is described as having ended on September 30, 1997.
UNAUDITED FINANCIAL INFORMATION
The Company has included information for the twelve months ended September
30, 1996 in the statements of operations for comparative purposes. This
information is unaudited. In addition, the financial information as of December
31, 1997 and for the three-month periods ended December 31, 1996 and 1997 is
unaudited. The Company believes that such information includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows.
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
pre-established 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 September 30,
1996 and 1997 was $60,000 and $196,000, respectively. At September 30, 1996 and
1997, approximately 34% and 37%, 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
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
F-7
<PAGE> 77
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 September 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). 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>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods............................... $10,809 $ 9,310
Raw materials, packaging materials and
work-in process............................ 3,565 4,365
------- -------
$14,374 $13,675
======= =======
</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>
The Company capitalizes interest costs associated with the construction and
installation of plant and equipment. During the fiscal year ended December 31,
1995, approximately $1,559,000 of interest cost was capitalized. There was no
interest cost capitalized in fiscal 1996. During the year ended September 30,
1997, approximately $488,000 of interest cost was capitalized.
F-8
<PAGE> 78
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Debt issuance costs (Note 2)................................ $2,143 $4,258
Package design costs........................................ 1,456 1,598
Other....................................................... 1,150 1,702
------ ------
4,749 7,558
Accumulated amortization.................................... (2,127) (2,983)
------ ------
$2,622 $4,575
====== ======
</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 $3,436,000 at September 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 $378,000 at
September 30, 1997.
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 equal to or greater than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
2. LONG-TERM DEBT
The Company refinanced certain of its credit facilities subsequent to
September 30, 1997 as more fully described in Note 12.
F-9
<PAGE> 79
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
2. LONG-TERM DEBT -- (CONTINUED)
The principal maturity terms of the new $150 million unsecured, revolving
credit facility are as follows:
<TABLE>
<CAPTION>
FACILITY AMOUNT SCHEDULED COMMITMENT REDUCTION
-------- -------------- ------------------------------
(IN THOUSANDS)
<S> <C> <C>
Scheduled Commitment Reduction................... $ 10,000 September 30, 1999
Scheduled Commitment Reduction................... 15,000 September 30, 2000
Scheduled Commitment Reduction................... 25,000 September 30, 2001
Final Maturity................................... 100,000 September 30, 2002
--------
$150,000
========
</TABLE>
Interest is to be charged at either the base rate (higher of prime or 1/2
of 1% in excess of the federal funds effective rate) or LIBOR plus an applicable
margin based on a sliding scale of the ratio of the Company's total indebtedness
divided by earnings before interest, taxes, depreciation and amortization
(EBITDA). In addition, a commitment fee is to be charged on the unused facility
balance based on the sliding scale of the Company's total indebtedness divided
by EBITDA. The stated interest plus the commitment fee will be classified as
interest expense.
Long-term debt, as reclassified to reflect the refinancing events described
above, consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Term loans.................................................. $ 94,813 $ 93,938
Capital lease, 15-year term with three, five-year renewal
options, at an imputed interest rate of 12.5%............. 3,586 3,482
Capital lease, eight-year term at an imputed interest rate
of 8.5%................................................... 2,260 2,054
Other....................................................... 703 1,492
-------- --------
101,362 100,966
Less current portion........................................ 8,078 829
-------- --------
$ 93,284 $100,137
======== ========
</TABLE>
In February 1996, the Company refinanced certain of its credit facilities.
The unamortized balance of debt issuance costs of $2.6 million which related to
the previous debt were written off, net of related tax benefits of $1 million,
as an extraordinary loss on debt extinguishment as required by generally
accepted accounting principles.
F-10
<PAGE> 80
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
2. LONG-TERM DEBT -- (CONTINUED)
The following information related to the old revolving credit facility is
presented for the year ended December 31, 1995, the nine-month fiscal period
ended September 30, 1996 and the year ended September 30, 1997.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average interest rate...................... 9.0% 8.4% 8.5%
</TABLE>
Annual maturities of long-term debt and capital lease obligations for each
of the next five years ended September 30, including the principal amortization
provisions of the refinanced credit agreement, are as follows:
<TABLE>
<CAPTION>
LONG TERM CAPITAL LEASES
YEAR DEBT AND OTHER TOTAL
---- --------- -------------- --------
<S> <C> <C> <C>
1998.................................. $ -- $1,520
1999.................................. -- 1,496
2000.................................. -- 1,220
2001.................................. -- 994
2002.................................. 93,938 990
Thereafter............................ -- 5,235
------- ------
93,938 11,455 $105,393
Less imputed interest................. -- 4,427 4,427
------- ------ --------
Present value of net minimum
payments............................ 93,938 7,028 100,966
Less current portion.................. -- 829 829
------- ------ --------
Long-term obligations................. $93,938 $6,199 $100,137
======= ====== ========
</TABLE>
The new revolving credit agreement contain various restrictive covenants
which include, among other things, financial covenants requiring minimum and
cumulative earnings levels and limitations on the payment of dividends, stock
purchases, and the Company's ability to enter into certain contractual
arrangements. The facility is unsecured.
The Company leases certain assets under capital lease agreements. At
September 30, 1996 and 1997, the cost of these assets was $7,128,000 and
$7,949,000, respectively, and related accumulated amortization was $642,000 and
$687,000, respectively.
F-11
<PAGE> 81
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
3. INCOME TAXES
At September 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
2012........................................................ 58
-------
$26,797
=======
</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 approximately $1
million 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>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 9,730 $10,183
State enterprise zone credits............................. 1,031 1,031
AMT credit carryforward................................... 561 676
Other..................................................... 1,888 732
------- -------
Total deferred tax assets................................... 13,210 12,622
Deferred tax liabilities:
Book basis of tangible assets greater than tax............ 6,721 9,404
Other..................................................... 710 428
------- -------
Total deferred tax liabilities.............................. 7,431 9,832
------- -------
Net deferred tax assets before allowance.................... 5,779 2,790
Valuation allowance for deferred tax assets................. (1,031) (1,031)
------- -------
Net deferred tax assets..................................... $ 4,748 $ 1,759
======= =======
</TABLE>
F-12
<PAGE> 82
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
3. INCOME TAXES -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense......................... $ 6 $ -- $ 81
Deferred tax expense (benefit)..................... 264 (1,556) 2,989
---- ------- ------
Net income tax expense (benefit)................... $270 $(1,556) $3,070
==== ======= ======
</TABLE>
The reconciliation of income tax computed at the U.S. statutory tax rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes.................. $746 $(4,107) $8,127
U.S. statutory tax rate............................ x34% x34% x34%
---- ------- ------
Federal income tax expense (benefit) at U.S.
statutory rate................................... 254 (1,396) 2,763
State income tax expense(benefit), net of federal
tax effect....................................... 30 (165) 325
Other, net......................................... (14) 5 (18)
---- ------- ------
Net income tax expense (benefit)................... $270 $(1,556) $3,070
==== ======= ======
</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
September 30, 1997, cumulative expansion expenditures are $23,721,000, including
capitalized interest of $488,000. 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 credit facilities and cash provided by operations.
The Company had durum wheat purchase commitments totaling approximately
$8.0 million and $15.1 million at September 30, 1996 and 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
September 30, 1997.
F-13
<PAGE> 83
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
5. MAJOR CUSTOMERS
Sales to a certain customer during the year ended December 31, 1995, the
fiscal nine-months ended September 30, 1996 and the year ended September 30,
1997 represented 33%, 27% and 27% of revenues, respectively. Sales to a second
customer during the year ended December 31, 1995, the fiscal nine-months ended
September 30, 1996 and the year ended September 30, 1997 represented 23%, 19%
and 22% 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 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 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>
NUMBER OF OPTION PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- ------------ ---------------- -----------
<S> <C> <C> <C> <C>
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.............................. 262,052 $7.02-$12.23 $ 8.87
Canceled/Expired..................... (96,334) $4.92-$12.23 $12.09
---------
Outstanding at
September 30, 1997................. 1,179,326 $2.33-$12.23 $ 6.83 734,877
=========
</TABLE>
The following table summarizes outstanding and exercisable options at
September 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 4.92 338,563 4.92
$7.02.............................. 169,244 7.02 57,028 7.02
$12.23............................. 338,489 12.23 112,830 12.23
</TABLE>
F-14
<PAGE> 84
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 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 and assumptions, 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 which is
not materially different from amounts reported in the accompanying statements of
operations.
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 $139,000, $124,000 and $200,000 for the year ended December 31,
1995, the fiscal nine-months ended September 30, 1996 and the year ended
September 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 $2,065,000 for the year ended December 31, 1995.
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $9,675 $8,101 $9,899
====== ====== ======
Cash paid for income tax........................... $ 100 $ 50 $ --
====== ====== ======
</TABLE>
F-15
<PAGE> 85
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 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
ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 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 1,633
Introductory trade incentives............................... 268 --
Other....................................................... 296 588
------ ------
Total product introduction costs............................ $8,122 $2,865
====== ======
</TABLE>
There were no such costs in 1995.
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 September 30, 1997. The loans which were
evidenced by promissory notes are payable in equal installments over three years
commencing upon termination of certain transfer restrictions applicable to such
shares under the Stockholders Agreement, not later than December 31, 1998. 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 September 30, 1997.
12. SUBSEQUENT EVENTS
PUBLIC OFFERING OF COMMON STOCK AND RECAPITALIZATION
On October 8, 1997, the Company completed an 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 were offered
by the Company and 2,590,000 shares were sold by certain selling stockholders.
The offering of 5,310,000 primary shares at $18 per share, generated $95.6
million of gross proceeds. Net proceeds of the offering were $87 million, after
deducting the expenses of the offering. The Company used the proceeds of the
offering to pay down the Company's outstanding debt. 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. All share and per share data
included in the financial statements and accompanying footnotes have been
restated to reflect the recapitalization of New Class A Common Stock. Shares of
New Class A Common Stock held by persons other than private equity funds
sponsored by Morgan
F-16
<PAGE> 86
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
12. SUBSEQUENT EVENTS -- (CONTINUED)
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.
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.
1997 EQUITY INCENTIVE PLAN
In October 1997, the Board of Directors adopted the 1997 Equity Incentive
Plan for all employees. 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. On October 9, 1997, the Board of Directors granted options to
purchase 993,391 shares of common stock at $18 per share. 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.
REVOLVING CREDIT FACILITY
On October 17, 1997, the Company completed a restructuring of its primary
bank credit facility. The restructured facility initially provides the Company
with $150 million in credit on an unsecured, revolving basis at interest rates
which are 250 basis points lower than the previous agreement. As a result of the
restructuring the Company anticipates a first quarter extraordinary charge of
approximately $2.3 million, net of tax, related to the write off of current and
deferred debt issuance costs.
The current and noncurrent portions of long-term debt outstanding at
September 30, 1997 have been reclassified in the Company's balance sheet to
reflect the scheduled maturities of the new debt. The terms of the new debt are
described more fully in Note 2.
13. NET INCOME (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128 "Earnings Per Share" in its first quarter
ended on December 31, 1997. SFAS No. 128 replaced the former reporting of
primary and fully diluted earnings per share with its required reporting of
basic and diluted earnings per share. Under the new requirements, the dilutive
effect of
F-17
<PAGE> 87
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
13. NET INCOME (LOSS) PER COMMON SHARE -- (CONTINUED)
stock options is excluded from basic earnings per share but included in the
computation of diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
SFAS No. 128 requirements.
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 October 1997 filing date for its 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
initial public offering price of $18 per share, as if the stock and options were
outstanding for all periods presented.
The following table sets forth the computation of the numerator and
denominator used in the calculation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------
1995 1996 1996 1997 1996 1997
------------ ------------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Income (loss) before
extraordinary item..... $ 476 $(2,551) $(1,843) $ 5,057 $ 432 $ 3,365
Extraordinary item:
Loss due to early
extinguishment of
long-term debt, net
of income taxes...... -- (1,647) (1,647) -- -- (2,332)
------- ------- ------- ------- ------- -------
Numerator for basic and
diluted earnings per
share..................... $ 476 $(4,198) $(3,490) $ 5,057 $ 432 $ 1,033
======= ======= ======= ======= ======= =======
Denominator:
Denominator for basic
earnings per share --
weighted average
shares................. 10,195 10,223 10,219 11,466 10,230 16,430
Effect of dilutive
securities:
Employee stock options.... 238 -- -- 653 250 1,025
------- ------- ------- ------- ------- -------
Dilutive potential common
shares.................... 238 -- -- 653 250 1,025
------- ------- ------- ------- ------- -------
Denominator for diluted
earnings per share --
adjusted weighted average
shares.................... 10,433 10,223 10,219 12,119 10,480 17,455
======= ======= ======= ======= ======= =======
</TABLE>
F-18
<PAGE> 88
AIPC'S PASTA PRODUCTION FACILITIES
PICTURE PICTURE
PICTURE PICTURE
<PAGE> 89
AIPC LOGO
<PAGE> 90
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.
[ALTERNATE INTERNATIONAL COVER PAGE]
PROSPECTUS (Subject to Completion)
Issued April 9, 1998
5,400,000 Shares
AIPC LOGO
American Italian Pasta Company
CLASS A COMMON STOCK
------------------------
OF THE 5,400,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 1,000,000
SHARES ARE BEING SOLD BY THE COMPANY AND 4,400,000 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 5,400,000 SHARES OF CLASS A COMMON STOCK
BEING OFFERED HEREBY, 1,080,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 4,320,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." THE CLASS A COMMON STOCK OF THE COMPANY IS
LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "PLB." ON APRIL 7, 1998,
THE REPORTED LAST SALE PRICE OF THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE COMPOSITE TRANSACTIONS TAPE WAS $36 3/8 PER SHARE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 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 $750,000.
(3) Certain Selling 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 810,000 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 and proceeds to selling stockholders will be $ ,
$ and $ , respectively. The Company will not receive any
proceeds from the sale of Shares of Class A Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders" and "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 , 1998 at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
ALEX. BROWN & SONS
INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
GEORGE K. BAUM & COMPANY
, 1998
<PAGE> 91
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 Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $66,409
NASD Examination Fee........................................ 23,011
New York Stock Exchange Listing Fee......................... 1,500
Accounting Fees and Expenses................................ 50,000
Printing and Engraving Expenses............................. 150,000
Legal Fees and Expenses..................................... 125,000
Blue Sky Fees and Expenses.................................. 15,000
Transfer Agent and Registrar Fees and Expenses.............. 1,000
Miscellaneous............................................... 318,080
--------
Total..................................................... $750,000
========
</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 director, except (i) for a
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for
II-1
<PAGE> 92
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.
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 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 a consulting agreement
between HWS Associates, Inc., an entity owned by Mr. Schroeder, and the
Company (the "Schroeder Consulting Agreement").
(b) 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.
(c) 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 (a) - (c) 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.
(d) 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.
(e) On July 7, 1995, the Company issued to JSS Management Co. Ltd., of
which James Schlindwein, a former 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.
(f) 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 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 B. Potter.
II-2
<PAGE> 93
In each of the sales of securities referenced in paragraphs (d) - (f)
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.
(g) 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.
(h) On February 25, 1998, the Company issued 544 shares of Class A Common
Stock to each of John P. O'Brien, William R. Patterson and Richard C.
Thompson, all directors of the Company, pursuant to an exemption from
registration requirements set forth in Section 4(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 Registration Statement
and is hereby incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed as part of this 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> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this 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 9th day of April, 1998.
AMERICAN ITALIAN PASTA COMPANY
By: /s/ TIMOTHY S. WEBSTER
------------------------------------
Name: Timothy S. Webster
Title: President and Chief Executive
Officer
II-4
<PAGE> 95
POWER OF ATTORNEY AND SIGNATURES
Each of the undersigned hereby severally constitute and appoint Timothy S.
Webster and David E. Watson, and each of them singly, with power of substitution
and resubstitution, as his or her true and lawful attorneys, with full power to
them and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
Registration Statement, including any filings pursuant to Rule 462(b) under the
Securities Act of 1933, and generally to do all things in our names and on our
behalf in such capacities to enable American Italian Pasta Company to comply
with the provisions of the Securities Act of 1933, and all requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ HORST W. SCHROEDER Chairman of the Board of Directors April 9, 1998
- ---------------------------------------
Horst W. Schroeder
/s/ TIMOTHY S. WEBSTER President, Chief Executive Officer and April 9, 1998
- --------------------------------------- Director (Principal Executive Officer)
Timothy S. Webster
/s/ DAVID E. WATSON Executive Vice President and Chief April 9, 1998
- --------------------------------------- Financial Officer, Treasurer and Secretary
David E. Watson (Principal Financial and Accounting
Officer)
/s/ JONATHAN E. BAUM Director April 9, 1998
- ---------------------------------------
Jonathan E. Baum
/s/ DAVID Y. HOWE Director April 9, 1998
- ---------------------------------------
David Y. Howe
/s/ ROBERT H. NIEHAUS Director April 9, 1998
- ---------------------------------------
Robert H. Niehaus
/s/ JOHN P. O'BRIEN Director April 9, 1998
- ---------------------------------------
John P. O'Brien
/s/ WILLIAM R. PATTERSON Director April 9, 1998
- ---------------------------------------
William R. Patterson
/s/ LAWRENCE B. SORREL Director April 9, 1998
- ---------------------------------------
Lawrence B. Sorrel
/s/ RICHARD C. THOMPSON Director April 9, 1998
- ---------------------------------------
Richard C. Thompson
</TABLE>
II-5
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and restated Certificate of Incorporation dated
October 7, 1997, attached as Exhibit 3.1 to the Company's
registration statement on Form S-1, as amended (Commission
file no. 333-32827) (the "1997 Registration Statement"), is
incorporated by reference herein as Exhibit 3.1
3.2 Amended and restated By-Laws dated October 7, 1997, attached
as Exhibit 3.2 to the 1997 Registration Statement, are
incorporated by reference herein as Exhibit 3.2
4.1 Specimen certificate representing the Company's Class A
Convertible Common Stock, par value $0.001 per share,
attached as Exhibit 4.1 to the 1997 Registration Statement,
is incorporated by reference herein as Exhibit 4.1
4.2 Specimen certificate representing the Company's Class B
Convertible Common Stock, par value $0.001 per share,
attached as Exhibit 4.2 to the 1997 Registration Statement,
is incorporated by reference herein as Exhibit 4.2
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, and Bankers Trust Company, as Arranger and Agent,
dated as of October 30, 1992, as amended and restated as of
October 17, 1997, attached as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the period ended January
2, 1998 (Commission file no. 001-13403), is incorporated by
reference herein as Exhibit 10.1
10.2+ Manufacturing and Distribution Agreement dated as of April
15, 1997 between Bestfoods and the Company, attached as
Exhibit 10.2 to the 1997 Registration Statement, is
incorporated by reference herein as Exhibit 10.2
10.3+ Amended and Restated Supply Agreement dated October 29,
1992, as amended July 1, 1997, between the Company and Sysco
Corporation, attached as Exhibit 10.3 to the 1997
Registration Statement, is incorporated by reference herein
as Exhibit 10.3
10.4 Warehouse Lease dated May 23, 1995 between the Company and
Lanter Company, which is attached as Exhibit 10.4 to the
1997 Registration Statement, is incorporated by reference
herein as Exhibit 10.4
10.5 Warehouse lease dated September 2, 1997 between the Company
and Lanter Company
10.6 Employment Agreement between the Company and Timothy S.
Webster effective October 8, 1997, which is attached as
Exhibit 10.5 to the 1997 Registration Statement, is
incorporated by reference herein as Exhibit 10.6
10.7 Employment Agreement dated September 30, 1997 between the
Company and Horst W. Schroeder, which is attached as Exhibit
10.6 to the 1997 Registration Statement, is incorporated by
reference herein as Exhibit 10.7
10.8 Employment Agreement dated September 30, 1997 between the
Company and David E. Watson, which is attached as Exhibit
10.7 to the 1997 Registration Statement, is incorporated by
reference herein as Exhibit 10.8
10.9 Employment Agreement dated September 30, 1997 between the
Company and Norman F. Abreo, which is attached as Exhibit
10.8 to the 1997 Registration Statement, is incorporated by
reference herein as Exhibit 10.9
10.10 Second Amended and Restated Shareholders' Agreement dated
April 7, 1998 by and between the Company and the
stockholders named therein.
</TABLE>
II-6
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.11 American Italian Pasta Company 1992 Stock Option Plan, which
is attached as Exhibit 10.11 to the 1997 Registration
Statement, is incorporated by reference herein as Exhibit
10.11
10.12 American Italian Pasta Company 1993 Non-Qualified Stock
Option Plan, which is attached as Exhibit 10.12 to the 1997
Registration Statement, is incorporated by reference herein
as Exhibit 10.12
10.13 1996 Salaried Bonus Plan, which is attached as Exhibit 10.13
to the 1997 Registration Statement, is incorporated by
reference herein as Exhibit 10.13
10.14 1997 Equity Incentive Plan, which is attached as Exhibit
10.14 to the 1997 Registration Statement, is incorporated by
reference herein as Exhibit 10.14
23.1 Consent of Ernst & Young LLP
23.2 Consent of Sonnenschein Nath & Rosenthal (included in
Exhibit 5.1 and 8.1)
24.1 Powers of Attorney (included on signature page)
27.1 Restated Financial Data Schedule
</TABLE>
- ---------------
+ The Commission has granted confidential treatment with respect to portions of
this document. The redacted material has been filed separately with the
Commission.
II-7
<PAGE> 1
EXHIBIT 1.1
_________ SHARES
AMERICAN ITALIAN PASTA COMPANY
CLASS A COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
April __, 1998
<PAGE> 2
April __, 1998
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 _________ shares of Class A Common Stock, par
value $.001 per share, of the Company (the "FIRM SHARES"), of which _________
shares are to be issued and sold by the Company (the "COMPANY SHARES") and
_________ shares (the "FIRM SHAREHOLDERS SHARES") are to be sold by the Firm
Selling Shareholders.
It is understood that, subject to the conditions hereinafter stated,
_________ Firm Shares (the "U.S. FIRM SHARES"), consisting of _________ Company
Shares (the "U.S. COMPANY SHARES") and _________ 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.
2
<PAGE> 3
and International Underwriters of even date herewith), and _________ Company
Shares (the "INTERNATIONAL COMPANY 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."
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 _________
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 3 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-_____) 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 statement at the time of effectiveness
pursuant to Rule 430A under the Securities
3
<PAGE> 4
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
4
<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, issued and outstanding capital stock of the Company will be
as set forth in the Prospectus under the caption "Capitalization" in
the column entitled "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 have been duly
authorized and the Shares, when issued and delivered in accordance with
the terms of this Agreement will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company,
taken as a whole, 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 performance by the
Company of its obligations under this 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.
(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).
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(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 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
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<PAGE> 7
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 Amended and Restated Stockholders Agreement
dated as of October 6, 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"), 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 no subsidiaries.
(r) 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 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.
(s) 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
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<PAGE> 8
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.
(t) 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.
(u) 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 (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(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 (ii) 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.
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<PAGE> 9
(x) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
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
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
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<PAGE> 10
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
Shareholder'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 (ii) 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 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
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<PAGE> 11
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
_________ Additional Shares and the U.S. Underwriters shall have a one-time
right to purchase, severally and not jointly, up to _________ 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 Additional Selling Shareholders 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 5 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 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
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Underwriters, it will not, during the period ending 90 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 conversion from time to time of Class A Common
Stock into shares of Class B Non-Voting Common Stock, par value $.001 per share,
(and vice versa), (E) the grants of stock options to employees, directors or
consultants pursuant to the terms of a plan disclosed in the Registration
Statement which first become exercisable more than 90 days after the date of the
Prospectus, (F) the issuance by the Company of shares of Common Stock pursuant
to any 401(k) plan, (G) bona fide charitable donations or estate planning
dispositions, provided that, prior to such transfer, the transferee in any such
transaction agrees in writing to be bound by the terms of this paragraph and the
form and substance of such writing has received written approval from Morgan
Stanley & Co. Incorporated, or (H) transfers due to the death or disability of a
seller, provided that the transferee agrees in writing to be bound by the terms
of this paragraph and the form and substance of such writing has received
written approval from Morgan Stanley & Co. Incorporated. In addition, each
Selling Shareholder agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated (except with respect to the Morgan Stanley
Stockholders (as defined in the Registration Statement and Prospectus), a
written consent must be received from all the U.S. Representatives) on behalf of
the Underwriters, it will not, during the period ending 90 days after the date
of the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected
by you at a price that
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<PAGE> 13
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 April __, 1998, or at such
other time on the same or such other date, not later than April __, 1998, 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 3
or at such other time on the same or on such other date, in any event not later
than ___________, 1998, 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 3:00 p.m. (New York City
time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
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(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.
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 or on
behalf of each Firm Selling Shareholder, dated the Closing Date and
signed by or on behalf of such Firm Selling Shareholder, 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;
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(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 "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 have been duly authorized and when issued and
delivered in accordance with the terms of this Agreement, will be
non-assessable, and the issuance of such Shares 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 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 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 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
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<PAGE> 16
Agreements," " -- 1996 Salaried 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;
(viii) to such counsel's knowledge, after due inquiry, 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) the Company (A) is in compliance with any and all
applicable Environmental laws, (B) has received all permits,
licenses or other approvals required under applicable
Environmental Laws to conduct its business and (C) 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, licences
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, taken as a whole; and
(xi) 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
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<PAGE> 17
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;
(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;
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(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 and are valid and
binding agreements of 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 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)(xi) above.
With respect to Section 6(d)(xi) above, Sonnenschein Nath &
Rosenthal and Davis Polk & Wardwell may state that their opinion and
belief are based upon their participation in the preparation of the
18
<PAGE> 19
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.
(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.
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.
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
19
<PAGE> 20
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 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 June 30, 1999 that satisfies the
provisions
20
<PAGE> 21
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 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) all expenses in connection with any offer and
sale of the Share outside of the United States, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
with offers and sales outside of the United States, (viii) the costs and charges
of any transfer agent, registrar or depositary, (ix) 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, and (x) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is
21
<PAGE> 22
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 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 from and against any and all losses, claims, damages and
22
<PAGE> 23
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 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) 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,
23
<PAGE> 24
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 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. 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. 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
24
<PAGE> 25
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(e) 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 and the Underwriters 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 and 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 respectively bear to the sum of the
aggregate Public Offering Price of the Shares. The relative fault of the Sellers
on the one hand and the Underwriters 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
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 9 are several in
proportion to the respective number of Shares they have purchased hereunder, and
not joint.
(f) The Sellers and the Underwriters 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 any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter
25
<PAGE> 26
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 9
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, 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.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
26
<PAGE> 27
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 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
27
<PAGE> 28
(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:
---------------------------------
Name:
Title:
<PAGE> 29
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:
<PAGE> 30
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:
<PAGE> 31
SCHEDULE I
PART A
SELLING SHAREHOLDER NUMBER OF FIRM SHARES
TO BE SOLD
- ------------------------------------------------ --------------------
Thompson Holdings, L.P................................
The Morgan Stanley Leveraged
Equity Fund II, L.P.............................
Morgan Stanley Capital Partners III, L.P..............
MSCP III 892 Investors, L.P...........................
Morgan Stanley Capital Investors, L.P.................
-------------------
Total ............................................ ===================
<PAGE> 32
SCHEDULE I
PART B
NUMBER-OF-ADDITIONAL
SELLLING SHAREHOLDER SHARES TO BE SOLD
- ------------------------------------------------------ --------------------
The Morgan Stanley Leveraged
Equity Fund II, L.P............................
Morgan Stanley Capital Partners III, L.P.............
MSCP III 892 Investors, L.P..........................
Morgan Stanley Capital Investors, L.P................
--------------------
Total ......................................... ====================
2
<PAGE> 33
SCHEDULE II
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ---------------------------------------------------------- ---------------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................
BT Alex. Brown Incorporated...................................
Goldman, Sachs & Co...........................................
George K. Baum & Company......................................
Burnham Securities Inc........................................
Donaldson, Lufkin & Jenrette
Securities Corporation..................................
A.G. Edwards & Sons, Inc......................................
Furman Selz LLC...............................................
J.J.B. Hilliard, W.L. Lyons, Inc..............................
Janney Montgomery Scott Inc...................................
Edward D. Jones & Co., L.P....................................
Kirkpatrick, Pettis, Smith, Polian Inc........................
Merrill Lynch Pierce, Fenner & Smith
Incorporated............................................
Prudential Securities Incorporated............................
The Robinson-Humphrey Company, Inc............................
Smith Barney Inc..............................................
Stephens Inc.................................................. ---------------
Total U.S. Firm Shares...................................... ===============
</TABLE>
<PAGE> 34
SCHEDULE III
INTERNATIONAL UNDERWRITERS
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------- ---------------------
Morgan Stanley & Co.
International Limited...............
BT Alex. Brown International..........
Goldman Sachs International...........
George K. Baum & Company..............
---------------------
Total International Shares......... =====================
<PAGE> 35
EXHIBIT A
[FORM OF LOCK-UP LETTER]
April , 1998
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 ________ 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 90 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> 36
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
sentences 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 90 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
__________, 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
<PAGE> 1
[SONNENSCHEIN NATH & ROSENTHAL LETTERHEAD]
EXHIBIT 5.1
April 8, 1998
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, MO 64024
Re: American Italian Pasta Company
Registration Statement on Form S-1
Reg. No. 333- (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
6,210,000 shares of Class A Common Stock, $.001 par value per share, of the
Company, of which 1,000,000 shares are proposed to be issued and sold by the
Company (the "Primary Shares") and up to 5,210,000 shares are proposed to be
sold by certain selling stockholders (the "Selling Stockholders") of the Company
including 810,000 shares that may be sold by the Selling Stockholders
pursuant to the U.S. Underwriters' over-allotment option (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 Bylaws, 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.
<PAGE> 2
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 8.1
[SONNENSCHEIN NATH & ROSENTHAL LETTERHEAD]
April 8, 1998
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Ladies and Gentlemen:
We have acted as special counsel for American Italian Pasta Company, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-1 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the issuance by the
Company of shares of Class A Common Stock, $.001 par value per share.
We have examined the Registration Statement which has been filed with the
Commission. In addition, we have examined, and have relied as to matters of fact
upon, the originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such other and
further investigations, as we have deemed relevant and necessary as a basis for
the opinion hereinafter set forth.
In addition, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that the statements made in the
Registration Statement under the caption "Certain United States Federal Income
Tax Considerations For Non-U.S. Holders" insofar as they purport to constitute
summaries of matters of United States federal income tax law and regulations or
legal conclusions with respect thereto, constitute accurate
<PAGE> 2
[SNR LETTERHEAD]
American Italian Pasta Company
April 8, 1998
Page 2
summaries of the matters described therein in all material respects.
We do not express any opinion herein concerning any law other than the
federal law of the United States. This opinion is rendered to you solely in
connection with the above-described transaction and may not be relied upon for
any other purpose without our prior written consent.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
included therein.
Very truly yours,
/s/ Sonnenschein Nath & Rosenthal
SONNENSCHEIN NATH & ROSENTHAL
<PAGE> 1
EXHIBIT 10.5
WAREHOUSE LEASE
Agreement of Warehouse Lease made the 2nd day of September, 1997,
between LANTER COMPANY, a Delaware corporation, having its principal office at
1600 Collinsville Avenue, Madison, IL 62060 (hereinafter referred to as
"Lessor") and AMERICAN ITALIAN PASTA COMPANY, (hereinafter referred to as
"Lessee".)
WITNESSETH
Lessee is the fee owner of the land described in Exhibit A attached hereto
and by this reference made a part hereof (the "Land"). Lessor and Lessee do
hereby enter into this Lease on the understanding and agreement that Lessee
shall transfer the Land to Lessor subsequent to the execution of this Lease. The
Lessor shall, and does hereby, demise and lease to the Lessee a building (the
"Building"), consisting of 121,752 square feet of warehouse space, together with
the Land on which the Building is located, together with all rights, alleys,
rights of way, easements and appurtenances belonging or appertaining to the
Building or the Land (The Building, Land, and all other improvements, rights,
easements and appurtenances relating thereto being hereinafter referred to
collectively as the "Premises"), upon the following terms, covenants and
conditions. The Building shall be constructed by Lanter, at Lanter's sole cost
and expense, in accordance with the Plans and Specifications dated May 22, 1997,
prepared by ASI Incorporated for Lanter Company in Columbia, South Carolina,
(the "Plans and Specifications"). The Building, when fully racked, shall have a
gross storage capacity of approximately 23,212 pallet positions based on
seven-high stacking configuration in a double-deep racking system.
1. TERM - The initial term of this Lease ("Initial Term") shall be for 12
years commencing on the date of actual occupancy of the Premises by the Lessee,
or on the date which is thirty (30) days following the date of substantial
completion of the Building, whichever is first to occur (hereinafter referred
to as the "Commencement Date"). Lessor will use its best efforts to have the
Building substantially completed by December 1, 1997. Construction of the
Premises shall not be considered substantially complete until (i) it is
substantially completed in every respect in accordance with the Plans and
Specifications, (ii) a certificate of occupancy for the Building has been
issued and delivered to Lessee, and (iii) the Building is in such condition to
allow proper storage of Lessee's product therein.
2. RIGHT OF EXTENSION - Lessee is hereby granted three (3) separate options to
extend the term of this Lease, each option period to be for five (5) years.
Except as to Fixed Rental (hereinafter defined), and as otherwise provided
herein, Lessee's occupancy of the Premises during such period(s) shall be on
and subject to the same terms and conditions as the Initial Term hereof. This
Lease shall automatically renew for each of said extension periods unless
Lessee gives written notice to Lessor of its intention not to extend this Lease
at least six (6) months prior to the end of the then current term.
<PAGE> 2
3. RENT-
(a) Lessee hereby covenants and agrees to pay to Lessor at its office or
such other place as Lessor may from time to time designate, as rent for the
Premises during the term of this Lease, a rental as set forth below, payable
monthly in advance on the first day of each and every month, commencing on the
Commencement Date. If the Commencement Date hereunder is other than the first of
a month, rental for the partial month shall be prorated on a daily basis.
(b) Initial Term. Rent for the Initial Term shall consist of:
1. FIXED RENTAL = $740,000.00 per year for the Initial Term,
Payable $61,666.67 per month.
2. VARIABLE RENTAL. Subject to Section 11 herein, Variable Rental shall
be equal to the sum of real estate taxes and assessments levied, assessed
or imposed upon the Premises from and after the Commencement Date, and
insurance and maintenance expenses incurred by Lessor for the Premises from
and after the Commencement Date and during the term of this Lease (referred
to collectively as the "Variable Rental Elements"). Utilities are to be
paid directly by Lessee as hereinafter provided. Maintenance expenses shall
consist of all expenses necessary to maintain all portions of the Premises
in good repair, including the racks, the heating and cooling system, docks
and accessories, security system, fire prevention equipment, routine
housekeeping, rodent control, upkeep, maintenance and repair of grounds,
driveways, and parking areas and any expenses necessary to maintain the
compatibility of the Premises with the storage of food products.
Notwithstanding the foregoing, in no event shall the Variable Rental
Elements include, or Lessee be liable for or be required to pay, any of the
following: (i) repairs that are attributable to any latent defects (latent
defects as used herein shall mean a defect which is a departure from the
Plans and Specifications not apparent upon an ordinary and reasonable
inspection by a professional engineer qualified to make such inspection);
(ii) costs attributable to any construction defects or to correct any work
not in compliance with the Plans and Specifications; (iii) costs covered by
any warranty or guaranty; (iv) costs related to casualties or liabilities
which are reimbursed by insurance; (v) costs attributable to Lessor's
negligence; (vi) debt service; (vii) the costs of capital improvements to
the Premises, unless Lessee has approved such costs in advance in writing;
or (viii) maintenance and repair costs in excess of $2,500, unless Lessee
has approved such costs in advance in writing.
Subject to Section 6 hereof, Lessor shall pay all real estate taxes and
insurance premiums for the Premises and forward copies of said bills and
evidence of payment thereof to Lessee. Lessee shall reimburse Lessor for
the amounts shown as paid on said bills within 15 days of Lessee's receipt
of said bills. Lessor will provide an itemized bill of its maintenance
expenses for the Premises to Lessee on a monthly basis. Lessee shall
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<PAGE> 3
reimburse Lessor for said maintenance expenses within 15 days of Lessee's
receipt of said statements.
(c) Extension Term. Rent for any extension of this Lease shall consist
of (i) Fixed Rental in an amount to be negotiated in good faith by Lessor and
Lessee with the understanding and agreement that the Fixed Rental for any
extension term shall be significantly lower than the Fixed Rental for the
Initial Term; and (ii) Variable Rental as set forth in (b) above.
4. OPTION TO PURCHASE THE LEASES PREMISES --
(a) Exercise of Option. Lessee shall have the right and option to
purchase the Premises at any time during the Initial Term or any extension term
of this Lease only upon the terms and conditions stated below. Lessee shall
exercise its aforesaid option by giving Lessor written notice of Lessee's
election to exercise its option and specifying the date, time and place of
closing, which date (the "Closing Date") shall be neither earlier than thirty
(30) days nor later than sixty (60) days after the notice is given.
(b) Quality of Title. If said notice of election to purchase be given as
aforesaid, Lessor shall and covenants and agrees to sell and convey title to
the Premises to Lessee (said title to be subject to the same exceptions,
easements and other matters to which title was subject at the time title was
conveyed by Lessee to Lessor, except as hereinafter provided) on the Closing
Date free and clear of all liens and encumbrances whatsoever except (i) those
described in Exhibit B attached hereto, (ii) those to which the Leased Premises
became subject with Lessee's written consent, or which resulted from any
failure of Lessee to perform any of its agreements or obligations under this
Lease, and (iii) taxes and assessments, general and special, for the then
current year, if any (the "Permitted Encumbrances"). Lessee's rights under this
Section 4 shall be prior to the lien of any mortgage (and collateral mortgage
documents) on the Premises, so long as, in connection with closing, Lessee
agrees that all or a designated portion of the Purchase Price be paid to such
mortgagee, as specified in writing by Lessor and such mortgagee.
(c) Option Terms and Purchase Price. Lessee shall have the right to
purchase the Premises only upon the conditions set forth in this Section 4 and
for the price and sums (the "Purchase Price") as follows:
1. If (i) the stock ownership of Lessor by the Lanter Family, as
hereinafter defined, falls below 50% of the total voting power of all stock
entitled to vote; (ii) Lessor sells, transfers or conveys the Premises to a
person or entity other than Lessee, a member of the Lanter Family or an
entity controlled by the Lanter Family; or (iii) Lessor is unable or
refuses to finance or construct an expansion of the Premises, as requested
by Lessee pursuant to Section 32 hereof (unless Lessor's refusal is based
upon (x) a material adverse change in the financial condition of Lessee or
(y) the failure of Lessor and Lessee to reach agreement, upon good faith
negotiations, as to the terms and conditions of the expansion), then at
Lessee's option, Lessee may purchase the Premises from the first
anniversary date of the Commencement Date of this Lease for the price set
forth below based upon the Closing Date of the purchase of the Premises:
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<PAGE> 4
(i) From the first anniversary date of the Commencement Date of this
Lease but before the second anniversary date of the Commencement Date of this
Lease the purchase price shall be $5,079,000.00.
(ii) From the second anniversary date but before the third anniversary
date $4,843,000.00.
(iii) From the third anniversary date but before the fourth
anniversary date $4,585,000.00.
(iv) From the fourth anniversary date but before the fifth
anniversary date $4,303,000.00.
(v) From the fifth anniversary date but before the sixth anniversary
date $3,992,000.00.
(vi) From the sixth anniversary date but before the seventh
anniversary date $3,654,000.00.
(vii) From the seventh anniversary date but before the eighth
anniversary date $3,284,000.00.
(viii) From the eighth anniversary date but before the ninth
anniversary date $2,879,000.00.
(ix) From the ninth anniversary date but before the tenth anniversary
date $2,436,000.00.
(x) From the tenth anniversary date but before the eleventh
anniversary date $1,951,000.00.
(xi) From the eleventh anniversary date but before the twelfth
anniversary date $1,420,000.00.
(xii) From the twelfth anniversary date of the Commencement Date of
this Lease, if Lessee has exercised its option to extend the term of this Lease
as provided in Section 2 hereof, but before the Lease has terminated, the
purchase price shall be $1,000,000.00.
The Lanter Family is defined to be Wayne Lanter, Steve Lanter, Jeff
Lanter, David Lanter (collectively the "Lanters") and any spouse or child of
the Lanters, and any trust whose primary beneficiary is any of the
aforementioned persons, and the estate of any of the aforementioned persons
during its administration.
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<PAGE> 5
2. In addition, Lessee may purchase the Premises at any time from
and after the fifth anniversary date of the Commencement Date of this
Lease for the price determined below based upon the Closing Date of the
purchase of the Premises.
(i) From the fifth anniversary date of the Commencement Date
of this Lease but before the sixth anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$4,492,000.00.
(ii) From the sixth anniversary date of the Commencement Date
of this Lease but before the seventh anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$4,154,000.00.
(iii) From the seventh anniversary date of the Commencement
Date of this Lease but before the eighth anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$3,784,000.00.
(iv) From the eighth anniversary date of the Commencement Date
of this Lease but before the ninth anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$3,279,000.00.
(v) From the ninth anniversary date of the Commencement Date
of this Lease but before the tenth anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$2,936,000.00.
(vi) From the tenth anniversary date of the Commencement Date
of this Lease but before the eleventh anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$2,451,000.00.
(vii) From the eleventh anniversary date of the Commencement
Date of this Lease but before the twelfth anniversary date of the
Commencement Date of this Lease, the purchase price shall be
$1,920,000.00.
(viii) From the twelfth anniversary date of the Commencement
Date of this Lease if Lessee has exercised its option to extend the
term of this Lease as provided in Section 2 hereof but before the
Lease has terminated, the purchase price shall be $1,500,000.00.
Lessee shall also pay any sums that are, pursuant to any provisions of this
Lease, due and owing from Lessee to Lessor on the Closing Date. The Purchase
Price shall be paid in cash or certified check on the Closing Date unless
otherwise agreed to by the parties.
Nothing in this Section 4 shall release or discharge Lessee from its duty
or obligation under this Lease to make any payment of any rent or other sums
which, in accordance with the terms of this Lease, become due and payable prior
to the Closing Date or its duty and obligation
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<PAGE> 6
to fully perform and observe all covenants and conditions herein stated to be
performed and observed by Lessee prior to the Closing Date.
(d) Title Policy. Lessor shall deliver to Lessee, at Lessor's expense, at
or prior to the Closing Date, a title policy in the amount of the total Purchase
Price. The policy shall be issued by a nationally recognized title insurance
company. The title policy shall insure merchantable fee simple title in Lessee,
subject only to the Permitted Encumbrances and shall include such reasonable
endorsements as may be requested by Tenant.
(e) At or before the Closing Date, Lessor shall deliver to Lessee the
following:
(i) an affidavit in form and substance acceptable to Lessee
that Lessor is not a "foreign person" within the meaning of Section
1445(e)(3) of the Internal Revenue Code of 1986, as amended;
(ii) a closing statement in form and content acceptable to
Lessor and Lessee;
(iii) a warranty deed, properly executed and conveying the
Premises to Lessee free and clear of all liens and encumbrances whatsoever
except for the Permitted Encumbrances;
(iv) a Bill of Sale duly executed by Lessor conveying to Lessee
title to any personal property, if any, to be conveyed with the Premises,
which personal property shall be free and clear of any liens and
encumbrances with full warranties of title; and
(v) any other documents and instruments, or agreements as may
be required in furtherance of the purchase of the Premises.
(f) On the Closing Date and upon delivery of the above documents and
instruments and satisfaction of any and all other conditions herein set forth,
Lessee shall pay the full purchase price for the Premises to Lessor, whereupon,
this Lease shall, ipso facto, terminate.
(g) Except as otherwise provided herein, closing costs shall be
apportioned between Lessor and Lessee as is customary where the Premises are
located.
(h) In addition, Lessor shall pay the sales, transfer and documentary
taxes and conveyance fees, if any, that might become due because of the
transfer of the Premises.
(i) If for any reason whatsoever the purchase of the Premises by Lessee
pursuant to valid notice of election to purchase given as aforesaid is not
effected on the Closing Date, this Lease shall be and remain in full force and
effect according to its terms the same as though no notice of election to
purchase had been given.
(j) The right of Lessee to exercise an option to purchase the Premises
under the provisions of this Section shall, at Lessee's option, remain
unimpaired notwithstanding any
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<PAGE> 7
condemnation of title to, or the damage or destruction by fire or other casualty
of, all or any part of the Leased Premises, and the provisions of Sections 15
and 16 shall be construed in the light of the effect of said option exercised by
Lessee. If Lessee shall exercise its said option and pay the full Purchase
Price, then the condemnation awards or insurance proceeds received by Lessor,
whether received prior to or after closing, shall belong and be paid to Lessee
notwithstanding any other provision in Sections 15 and 16. Notwithstanding the
foregoing, if after exercise of this option but prior to the Closing Date any of
the Premises are destroyed or substantially damaged by fire or any other cause,
or the Premises or part thereof is taken by eminent domain (or is the subject of
a pending or contemplated taking which has not been consummated), Lessee shall
also have the right to cancel this option by written notice. If this option is
canceled, this Lease shall be and remain in full force and effect according to
its terms the same as though no election to purchase had been exercised.
f) If Lessor receives any insurance proceeds due to damage to or
destruction of the Premises, or condemnation award for the Premises, then the
Purchase Price shall be reduced to the extent Lessor retains such proceeds or
award and does not restore the Premises to its original or equivalent condition.
g) Notwithstanding anything else contained herein, the purchase rights
of Lessee herein shall not terminate hereunder until (i) an Event of Default by
Lessee has occurred hereunder and (ii) sixty (60) days have elapsed from the
date Lessor gave written notice to Lessee of the occurrence of an Event of
Default, and either (iii) this Lease has terminated or (iv) Lessee's right of
occupancy of the Premises under the Lease has been terminated. Lessee's purchase
rights shall also terminate when (i) the Initial Term or any option term expires
and Lessee has given written notice to Lessor that it will not renew the Lease
pursuant to Section 2 hereof, or (ii) the third option period has expired.
5. FIRST MONTH'S RENT AND DEPOSIT - Lessee shall deposit upon execution of
this Lease $61,666.67 with Lessor as security for the payment of rent and the
compliance by Lessee with other terms of this Lease. This deposit shall be
applied to the first month's Fixed Rental under this Lease.
6. TAXES - Promptly upon receipt and prior to payment thereof, Lessor shall
provide a copy to Lessee of all bills for real estate taxes and assessments
levied, assessed or imposed upon the Premises during the term of this Lease.
Lessor agrees that Lessee shall have the right, in Lessee's or Lessor's name,
but at Lessee's sole cost and expense, to contest the amount or validity or any
tax or assessment by appropriate proceedings, timely instituted, provided that
(a) Lessee gives Lessor written notice of Lessee's intention to do so at least
twenty (20) days prior to the delinquency thereof and (b) Lessee diligently
prosecutes any such contest, at all times effectively stays or prevents any
official or judicial sale of the Premises, under execution or otherwise, pays
any final judgment enforcing any tax or assessment so contested, and promptly
procures and records satisfaction thereof. Lessor shall pay all real estate
taxes and assessments unless Lessee gives written notice to Lessor as set forth
above and notifies Lessor that payment thereof, or payment thereof under
protest, would operate as a bar to such contest or interfere materially with the
prosecution thereof, in which event Lessor shall, upon request by Lessee,
postpone or defer
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payment of such tax or assessment if (i) neither the Premises nor any portion
thereof would, by reason of such postponement or deferment, be in danger of
being forfeited or lost, and (ii) Lessee shall have deposited with Lessor cash,
a certificate of deposit payable to Lessor, bond or other security reasonably
acceptable to Lessor in the amount of the tax or assessment so contested and
unpaid. Lessor shall, if requested by Lessee, cooperate with Lessee in any such
proceedings; provided, however, that Lessor shall not be liable for any expenses
whatsoever in connection therewith.
7. SHORT FORM LEASE - This Lease shall not be recorded, but the parties agree
to execute a Short Form Lease setting forth the above option to purchase,
substantially in the form attached hereto as Exhibit C.
8. UTILITIES - Lessee agrees to promptly pay all electric, gas, water and
sewer services and other utilities used or consumed on the Premises.
9. COMPATIBILITY OF PREMISES - Lessor understands that the Premises must be
compatible with the storage of food products, as specified on Exhibit D attached
hereto and by this reference made a part hereof, and the Premises will be so
maintained. The expenses for such maintenance shall be included in the Variable
Rental Elements.
10. INSURANCE -
(a) Property
(i) Lessor shall throughout the life of this Lease, keep the
Premises and all parts thereof constantly insured in an amount equal to the full
replacement value thereof, except for land and such parts as, in the opinion of
Lessor and Lessee, are not properly subject to insurance, in such insurance
company or companies authorized to do business in the State of South Carolina as
may be approved by Lessee. The form of the policy or policies and the risks
covered thereby, shall be as from time to time reasonably directed by Lessee,
and if no form is prescribed by Lessee, such insurance policy shall be
"all-risk" extended coverage insurance. The term "full replacement value," as
used herein, shall mean the full actual replacement cost. Concurrently with the
execution of this Lease and thereafter not less than thirty (30) days prior to
the expiration date of the expiring policy(ies) Lessor shall deliver to Lessee a
copy or certificate of the policy provided for in this Section.
(ii) Lessor shall also provide a standard form Warehousemen's
Legal Liability Insurance in the event that a Materials Handling Service
Agreement, is entered into by and between Lessor and Lessee.
(iii) Lessee shall provide insurance covering Lessee's inventory
and personal property for its full replacement value. Lessor shall not provide
insurance protection for Lessee's personal property and inventory, except
Warehousemen's Legal Liability Insurance under the condition stated in
subparagraph (ii) above.
(b) Indemnification - Liability Insurance
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(i) Lessor shall not be liable to Lessee for any loss or damage
to Lessee or to any other person or to the property of Lessee or of any other
person except to the extent that such loss or damage shall be caused by the
intentionally tortious or negligent act of Lessor, its agents, servants or
employees. Subject to Section 10(c) of this Lease, Lessee shall and does hereby
agree to indemnify and save harmless Lessor, its successors or assigns, from all
claims and demands of every kind (unless arising out of or resulting from the
negligent or intentional act or omission of Lessor), that may be brought
against Lessor, its successors or assigns or any of them for or on account of
any damage, loss or injury to persons or property in or about the premises or
the Building and its appurtenances, including damage to the Premises, (i)
arising from or out of Lessee's use or occupancy thereof or (ii) occasioned
wholly or in part by any act or omission of Lessee, its agents, servants,
contractors, employees or invitees, and from any and all costs and expenses,
reasonable counsel fees and other charges which may be imposed upon Lessor, its
successors and assigns, or which Lessor, its successors or assigns may incur in
consequence thereof. Subject to Section 10(c) of this Lease, Lessor shall and
does agree to indemnify and save harmless Lessee, its successors or assigns,
from all claims and demands of every kind that may be brought against Lessee,
its successors or assigns or any of them, for or on account of any damage,
loss or injury to persons or property in or about the Premises arising out of
the negligent or intentional act or omission of Lessor, its agents, servants,
contractors, employees or invitees, and from any and all costs and expenses,
reasonable counsel fees and other charges which may be imposed upon Lessee, its
successors and assigns, or which Lessee, its successors or assigns may incur in
consequences thereof. The provisions of this subsection 10(b) shall survive the
termination of this Lease.
(ii) Lessee covenants and agrees that Lessee will, throughout the
term of this Lease, carry and pay for comprehensive commercial general liability
with contractual liability insurance coverage with a company reasonably
satisfactory to Lessor, with a minimum limit of $3,000,000.00 combined single
limit per occurrence, and will furnish Lessor with an original signed
counterpart of the certificate evidencing such coverage. All insurance
maintained by Lessee under this Lease shall name Lessor and/or Lessor's designee
as additional insureds, and shall also contain a provision stating that such
policy or policies shall not be canceled or materially altered except after 30
days' prior written notice to Lessor, and if applicable, Lessor's designee. If
at any time Lessee does not comply with the covenants made in this subsection,
in addition to any other remedies to which Lessor may be entitled, Lessor may,
at Lessor's option, cause insurance as aforesaid to be issued, and Lessee agrees
to pay the premium for such insurance within 10 days of lessor's written
demand, together with 15% of such premium for reimbursement to Lessor for
Lessor's ancillary administrative expenses related thereto.
(c) Subrogation - Each party (the "Releasing Party") hereby releases the
other party (the "Released Party") from any and all liability or responsibility
(to the Releasing Party by way of subrogation or otherwise) which the Released
Party would, but for this Section 10(c) have had to the Releasing Party during
the term of this Lease, resulting from the occurrence of any accident or
occurrence or casualty (i) which is or would be covered by a fire and extended
coverage policy (with vandalism and malicious mischief endorsement attached)
(irrespective of whether such coverage is being carried by the Releasing Party),
or (ii) covered by any other
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casualty or property damage insurance being carried by the Releasing Party at
the time of such occurrence, even if such casualty resulted in whole or in part
from any act or neglect of the Released Party, its partners, officers, agents or
employees; provided however, that the releases herein contained shall not apply
to any loss or damage occasioned by the intentionally tortious act of the
Released Party. Each Party hereto shall obtain a waiver from any insurance
carrier with which it carries insurance covering the Premises or the contents
thereof, releasing its subrogation rights against the other party.
11. REPAIRS, MAINTENANCE, SECURITY, HOUSEKEEPING, SANITATION - In the event
that a Materials Handling Service Agreement is entered into by and between
Lessor and Lessee, Lessor shall maintain all portions of the Premises in good
repair and shall be responsible for all repairs to racks, heating, docks and
accessories, including security system and fire prevention equipment. Lessor
will also be responsible for and shall conduct throughout the term hereof: (a)
routine housekeeping operations to keep the Premises free from dirt and debris
and (b) insect and rodent control including trapping not only in the storage
area but also the dock area and building perimeter. Should said Materials
Handling Service Agreement not be entered into as hereinabove provided, or if
entered into, be terminated prior to the expiration of the term of this Lease,
Lessee shall assume responsibility subject to Section 10(c) hereof, for all
maintenance, security, housekeeping, and sanitation referred to in this Lease
including this Section 11 and Sections 3 and 9, herein, and maintenance costs
shall be removed as a Variable Rental Element from the calculation of Variable
Rental. In the event that Lessee assumes responsibility for the maintenance of
the Building, it shall not be responsible for the cost or repair of latent
defects (as defined in Section 3(b)), construction defects, costs attributable
to correct any work not in compliance with the Plans and Specifications, or
costs attributable to Lessor's negligence, and such repairs shall be made by
Lessor at its sole cost and expense. In addition, Lessee, for purposes of its
maintenance obligations hereunder, shall have the benefit of all warranties and
guarantees which Lessor may have upon construction of the Building, to the
extent said warranties and guarantees are assignable, and Lessor shall assign to
Lessee all of said warranties and guarantees, to the extent assignable.
12. DEFAULT
A. Events of Default - The following events shall be deemed to be events
of default by Lessee under this Lease:
(1) Lessee shall fail to pay any installment of the rent herein
reserved when due, or any other payment or reimbursement to Lessor required
herein when due, and such failure shall continue for a period of ten (10)
days after written notice thereof to Lessee.
(2) Lessee shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors.
(3) Lessee shall file a petition under any section or chapter of the
National Bankruptcy Code, as amended, or under any similar law or statute
of the United States or
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any State thereof, or an order for relief shall be entered against Lessee in any
proceedings filed against Lessee thereunder.
(4) A receiver or trustee shall be appointed for all or substantially
all of the assets of Lessee.
(5) Lessee shall fail to discharge any lien placed upon the Premises
arising from a debt asserted against Lessee within twenty (20) days after
any such lien or encumbrance is filed against the Premises; provided,
however, the notwithstanding the foregoing, Lessee shall have the right to
contest any mechanics' or other similar lien if it notifies Lessor in
writing of its intention to do so, posts a bond with surety sufficient to
satisfy any and all mechanics' liens and similar liens and all costs
associated therewith, it diligently prosecutes such protest, and at all
times effectively stays or prevents any official or judicial sale of the
Premises, or any part thereof or interest therein and pays or otherwise
satisfies any final judgment adjudging or enforcing such contested lien
claim and thereafter promptly procures record release or satisfaction
thereof.
(6) Lessee shall fail to comply with any term, provision or covenant
of this Lease other than the foregoing in this Section 12 shall not
cure such failure within thirty (30) days after written notice thereof to
Lessee (or such longer period as required to cure the default, if Lessee
is diligently pursuing the cure of said default).
B. Remedies
(1) Upon the occurrence of any of such events of default described in
Section 12 hereof, Lessor shall have the option to pursue any one or more
of the following remedies without any notice or demand whatsoever.
(a) Terminate this Lease, in which event Lessee shall
immediately surrender the Premises to Lessor, and if Lessee fails so
to do, Lessor may, without prejudice to any other remedy which it may
have for possession or arrearage in rent, enter upon and take
possession of the Premises and expel or remove Lessee or any other
person who may be occupying the Premises or any part thereof, by force
if necessary, without being liable for prosecution or any claim of
damages therefor.
(b) Enter upon and take possession of the Premises and expel or
remove Lessee and any other person who may be occupying such Premises
or any part thereof, without terminating this Lease and without being
liable for prosecution or any claim for damages therefor, and relet
the premises and receive the rent therefor.
(c) Enter upon the Premises, without terminating this Lease and
without being liable for prosecution or any claim for damages
therefor, and do whatever Lessee is obligated to do under the terms of
this Lease; and Lessee agrees to
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reimburse Lessor on demand for any expenses which Lessor may incur in
thus effecting compliance with Lessee's obligations under this Lease,
and Lessee further agrees that Lessor shall not be liable for any
damages resulting to the Lessee from such action, whether caused by
the negligence of Lessor or otherwise.
(d) Alter all locks and other security devices at the Premises
without terminating this Lease.
In the event Lessee fails to pay any installment of rent hereunder after
written notice to Lessee and within the cure period provided, to help
defray the additional cost to Lessor for processing such late payments,
Lessee shall pay to Lessor on demand a late charge in an amount equal to
five percent (5%) of such installment; and the failure to pay such amount
within ten (10) days after demand therefor shall be an event of default
hereunder. The provision for such late charge shall be in addition to all
of Lessor's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Lessor's remedies in any
manner.
(2) Exercise by Lessor of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be in acceptance of surrender
of the premises by Lessee, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Lessor and Lessee. All claims for damages by reason of such
re-entry and/or repossession and/or alteration of locks or other security
devices are hereby waived, as are all claims for damages by reason of any
distress warrant, forcible detainer proceedings, sequestration proceedings
or other legal process. Lessee agrees that any re-entry by Lessor may be
pursuant to judgment obtained in forcible detainer proceedings or other
legal proceedings and Lessor shall not be liable in trespass or otherwise.
(3) In the event Lessor elects to terminate the Lease by reason of an
event of default, then notwithstanding such termination, Lessee shall be
liable for and shall pay to Lessor, at the address specified for notice to
Lessor herein; (a) the sum of all rental and other indebtedness accrued to
date of such termination; (b) plus, as damages, an amount equal to the
difference between (i) the total rental hereunder for the remaining portion
of the Lease term (had such term not been terminated by Lessor prior to the
date of expiration stated in Section 1) and (ii) the then present value of
the then fair rental values of the Premises for such period.
(4) In the event that Lessor elects to repossess the Premises without
terminating the Lease, then Lessee shall be liable for and shall pay to
Lessor, at the address specified for notice to Lessor herein, all rental
and other indebtedness accrued to the date of such repossession, plus
rental required to be paid by Lessee to Lessor during the remainder of the
Lease term until the date of expiration of the term as stated in Section 1
diminished by any net sums thereafter received by Lessor through reletting
the Premises during said period (after deducting expenses incurred by
Lessor as provided in
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subsection (5) below). In no event shall Lessee be entitled to any excess
of any rental obtained by reletting over and above the rental herein
reserved. Actions to collect amounts due by Lessee to Lessor under this
subsection may be brought from time to time, on one or more occasions,
without the necessity of Lessor's waiting until expiration of the Lease
term.
(5) In case of any event of default by Lessee, or threatened or
anticipatory default, Lessee shall also be liable for and shall pay to
Lessor, at the address specified for notice to Lessor herein, in addition
to any sum provided to be paid above, reasonable brokers' fees incurred by
Lessor in connection with reletting the whole or any part of the Premises,
the costs of removing and storing Lessee's property, the costs of
repairing, altering, remodeling or otherwise putting the Premises into
condition acceptable to a new tenant or tenants, and all reasonable
expenses incurred by Lessor in enforcing or defending Lessor's rights
and/or remedies including reasonable attorney's fees, which shall not be
less than fifteen percent (15%) of all sums then owing by Lessee to Lessor
whether suit is actually filed or not.
(6) In the event of Lease termination or repossession of the Premises
for an event of default by Lessee, Lessor shall not have any obligation to
relet or to attempt to relet the Premises, or any portion thereof, or to
collect rental after reletting; and in the event of reletting, Lessor may
relet the whole or any portion of the Premises for any period to any tenant
and for any use and purpose.
(7) If Lessee should fail to make any payment or cure any default
hereunder within the time herein permitted, Lessor, without being under any
obligation to do so and without thereby waiving such default, may make
such payment and/or remedy such other default for the account of Lessee
(and enter the Premises for such purpose), and thereupon Lessee shall pay
lessor, upon demand, all costs, expenses and disbursements (including
reasonable attorney's fees) reasonably incurred by Lessor in taking such
remedial action.
(8) In the event Lessor shall have taken possession of the Premises
pursuant to the authority herein granted, then Lessor shall have the right
to keep in place and use all of the furniture, fixtures and equipment at
the Premises, including that which is owned by or leased to Lessee at all
times prior to any foreclosure thereon by Lessor or repossession thereof by
any lessor thereof or third party having a lien thereon. Lessor shall also
have the right to remove from the Premises (without the necessity of
obtaining a distress warrant, writ of sequestration or other legal process)
all or any portion of such furniture, fixtures, equipment and other
property located thereon and to place same in storage at any premises
within the County in which the Premises is located; and in such event,
Lessee shall be liable to Lessor for costs incurred by Lessor in connection
with such removal and storage. Lessor shall also have the right to
relinquish possession of all or any portion of such furniture, fixtures,
equipment and other property to any person ("Claimant") claiming to be
entitled to possession thereof who presents to Lessor a copy of any
instrument represented to Lessor by Claimant to have been executed by
Lessee (or
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any predecessor of Lessee) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or
other property, without the necessity on the part of the Lessor to inquire
into the authenticity of said instrument's copy of Lessee's or Lessee's
predecessor's signature thereon and without the necessity of Lessor making
any nature of investigation or inquiry as to the validity of the factual or
legal basis upon which Claimant purports to act; and Lessee agrees to
indemnify and hold Lessor harmless from all cost, expense, loss, damage and
liability incident to Lessor's relinquishment of possession of all or any
portion of such furniture, fixtures, equipment or other property to
Claimant. The rights of Lessor herein stated shall be in addition to any
and all other rights which Lessor has or may hereafter have at law or in
equity; and Lessee stipulates and agrees that the rights herein granted
Lessor are commercially reasonable.
(9) Nothing herein shall be construed to give rise to or create a
warehouseman's lien on or security interest in, any of Lessee's product
stored on the Premises.
13. ASSIGNMENT OR SUBLETTING - Lessee shall not sublet or assign the Lease
hereunder except with the written consent of Lessor which consent shall not be
unreasonably withheld. Such consent is not necessary if the Lease or assignment
is made to a subsidiary, affiliate or parent company of Lessee for storage of
the same products as stored by Lessee, but such consent and permission of Lessor
must be obtained for products which are not the same. Consent of the Lessor will
not be unreasonably withheld particularly if such products are compatible and do
not alter the physical character of the Building. Provided the Lessee performs
all its covenants, agreements, and obligations hereunder, the Lessee shall have
the peaceful and quiet enjoyment of the Premises without hindrance on the part
of Lessor and the Lessor will warrant and defend the Lessee in the peaceful and
quiet enjoyment of the Premises against the lawful claims of all persons
claiming by, through, or under Lessor.
14. ACCESS TO PREMISES -
(a) If a Materials Handling Service Agreement is in effect between Lessor
and Lessee regarding the Premises, Lessor and its representative may, enter the
Premises at all reasonable times for the purpose of: (1) examining the same or
to make any alterations or repairs to the Promises that Lessor may deem
necessary for safety or preservation of the facility; (2) exhibiting the
Premises for sale or mortgage financing, (3) during the last six (6) months of
the term of this Lease for exhibiting the Premises and putting up the usual
notice "to rent", which notice shall not be removed, obliterated, or hidden by
Lessee; (4) performing under a materials handling Service Agreement between
Lessor and Lessee; provided, however, that any such action by Lessor as
aforesaid in this section shall cause as little inconvenience to Lessee as
reasonably practicable, and such action shall not be deemed an eviction or
disturbance of Lessee nor shall Lessee be allowed any abatement of rent, or
damage for an injury of inconvenience occasioned thereby.
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(b) If a Materials Handling Service Agreement is not in effect between
Lessor and lessee, regarding the premises, lessor and its representative may,
upon notifying Lessee in writing at least twenty-four (24) hours in advance
thereof, enter the Premises at all reasonable times for the purpose of: (1)
examining the same or to make any alterations or repairs to the Premises that
Lessor may deem necessary for safety or preservation of the facility; (2)
exhibiting the Premises for sale or mortgage financing, (3) during the last six
(6) months of the term of this Lease for exhibiting the Premises and putting up
the usual notice "to rent", which notice shall not be removed, obliterated, or
hidden by Lessee, provided, however, that any such action by Lessor as aforesaid
in this section shall cause as little inconvenience to Lessee as reasonably
practicable, and such action shall not be deemed an eviction or disturbance of
Lessee nor shall Lessee be allowed any abatement of rent, or damage for an
injury of inconvenience occasioned thereby.
15. DAMAGE OR DESTRUCTION -
(a) If during the term of this Lease the Premises are damaged by fire or
other casualty, but not to the extent that Lessee is prevented from carrying on
business in the Premises, Lessor shall promptly cause the Premises and the
improvements thereon to be repaired or restored at its sole cost and risk to
substantially the condition in which they existed prior to such damage. If such
damage renders any portion of the Premises untenantable, the rent reserved
hereunder (except for variable rent) shall be reduced during the period of its
untenantability proportionately to the amount by which the area so rendered
untenantable bears to the entire area of the Premises, and such reduction shall
be apportioned from the date of the casualty to the date when the Premises is
rendered fully tenantable. Provided, however, that if Lessor under a Materials
Handling Service Agreement then in existence between Lessor and Lessee, can meet
Lessee's service requirements for the Premises without additional cost to
Lessee, despite the damage to the Premises; then no abatement of rent shall
occur. Notwithstanding the foregoing, in the event such fire or other casualty
damages or destroys any of Lessee's leasehold improvements, alterations,
betterments, fixtures or equipment (exclusive of any such leasehold
improvements, alterations, betterments, fixtures or equipment provided to Lessee
by Lessor at Lessor's expense at the commencement of this Lease, which shall be
restored by Lessor), Lessee shall cause the same to be repaired or restored at
Lessee's sole expense (other than Lessee's personal property or equipment, which
Lessee may elect, in Lessee's sole discretion, to repair or restore).
(b) If during the term of this Lease the Premises are rendered wholly
untenantable as a result of fire, the elements, or other casualty, Lessor and
Lessee shall cause such damage to be repaired in accordance with the provisions
of subsection 15(a). Such restoration shall be completed as promptly as
reasonably possible under the circumstances and the fixed rent reserved
hereunder shall abate until the Premises are again rendered tenantable.
Notwithstanding the foregoing, in the event that it is reasonably determined by
Lessor and Lessee that the Premises cannot be repaired by Lessor within one
hundred twenty (120) days, and if Lessor is unable to provide alternative,
comparable warehouse space sufficient to meet Lessee's service requirements
without additional cost to Lessee, then Lessee shall have the right
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to terminate this Lease by written notice to Lessor within thirty (30) days
after the date of such casualty.
16. CONDEMNATION -
(a) If during the term of this Lease all or a substantial part of the
Premises are taken by or under power of eminent domain, this Lease shall
terminate as of the date of such taking, and the rent (fixed and variable) shall
be apportioned to and abate from and after, the date of taking. Lessee shall
have no right to participate in any award or damages for such taking and,
subject to Section 16(d) below, hereby assigns all of its right title and
interest therein to Lessor. For the purposes of this Section, "a substantial
part of the Premises" shall mean such part that the remainder thereof is
rendered inadequate for Lessee's business and that such remainder cannot
practicably be repaired and improved so as to be rendered adequate to permit
Lessee to carry on its business with substantially the same efficiency as before
the taking, as determined in Lessor's and Lessee's reasonable judgment.
(b) If during the term of this Lease less than a substantial part of the
Premises (as hereinabove defined) is taken by or under power of eminent domain,
this Lease shall remain in full force and effect according to its terms, and
Lessee shall not have the right to participate in any award or damages for such
taking and Lessee hereby assigns, subject to Section 16(d) below, all of its
right, title and interest in and to the award to Lessor. In such event Lessor
shall at its expense promptly make such repairs and improvements as shall be
necessary to make the remainder of the Premises adequate to permit Lessee to
carry on its business to substantially the same extent and with substantially
the same efficiency as before the taking. If as a result of such taking, any
part of the Premises is rendered permanently unusable, the rent reserved
hereunder shall be reduced in such amount as may be fair and reasonable, which
amount shall not exceed the proportion which the area so taken or made unusable
bears to the total area which was usable by Lessee prior to the taking. If the
taking does not render any part of the Premises unusable, there shall be no
abatement of rent.
(c) For purposes of this Section, "taking" shall include a negotiated sale
or lease and transfer of possession to a condemning authority under bona fide
threat of condemnation, and Lessor alone shall have the right to negotiate with
the condemning authority and conduct and settle all litigation connected with
the condemnation. As used herein, the words "award or damages" shall, in the
event of such sale or settlement, include the purchase or settlement price.
(d) Nothing herein shall be deemed to prevent Lessee from claiming and
receiving from the condemning authority, if legally payable, compensation for
the taking of Lessee's own tangible property and damages for Lessee's loss of
business, business interruption, or removal and relocation; provided such
compensation does not in any way decrease the amount of the award or damages to
which Lessor may be entitled by reason of such taking.
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17. SUBORDINATION -
(a) This Lease shall be subject to and subordinate at all times to the
lien of any mortgages and/or deeds of trust now or hereafter made on the
Premises and to all advances made or hereafter to be made thereunder (unless the
mortgagee or holder of the deed of trust elects to have Lessee's interest
hereunder superior to the interest of the mortgagee or holder of such deed of
trust) on or subject to the following conditions: (i) Lessee and the respective
mortgagee have entered into the Non-Disturbance Agreement hereinafter described;
(ii) the respective mortgagee shall agree in writing that the lien of its
mortgage shall be fully released upon exercise by Lessee of its option to
purchase hereunder and upon payment to said mortgagee of the Purchase Price, or
part thereof as is specified in writing by Lessor and said mortgagee; and (iii)
the mortgagee shall not interfere with, hinder or molest Lessee's right of quiet
enjoyment under this Lease, nor the right of Lessee to continue to occupy the
Premises, and all portions thereof, and to conduct its business thereon and to
be entitled to the rights, benefits and options (including but not limited to
options to renew and purchase) granted to Lessee herein in accordance with the
covenants, conditions, provisions, terms and agreements of this Lease. Subject
to the above conditions, Lessee agrees to execute, within ten (10) days of
Lessor's request therefor, any and all documents which are desired to effect or
confirm such subordination.
(b) As long as Lessee is paying the rent and observing and performing all
other terms as provided for in this Lease, the mortgagee, or if more than one,
mortgagees, shall not disturb Lessee's possession. To assure that Lessee's quiet
enjoyment of the Premises shall not be disturbed, Lessee and mortgagee have
entered, or in the case of mortgages filed after the date hereof, will enter
into an agreement (the "Non-Disturbance Agreement") substantially in the form
attached hereto as Exhibit E and made a part hereof.
(c) In the event that Lessor should at any time fail to pay any
installment or interest under any mortgage, or any other sum required to be paid
by Lessor, which failure constitutes a default under any mortgage so as to
permit a foreclosure thereof, Lessee, upon being notified by such mortgagee of
Lessor's default, shall have the right, but not the obligation, to pay such
principle, interest or other sums of which Lessor is in default, and to deduct
the amount of such payment, along with the costs incurred by Lessee on account
of Lessor's default, from the successive installments of rent then due or
thereafter due, until Lessee is fully reimbursed for any and all such payments,
costs, expenses and interests.
18. RIGHT TO PERFORM COVENANTS - If Lessee shall fail to perform any covenant
or duty required of it by this Lease or by law shall take any action requiring
Lessor's consent without having obtained such consent, Lessor shall have the
right (but not the obligation), after giving Lessee such notice and right to
cure as provided for herein, to perform such covenant or duty or to take any
action to terminate any acts of Lessee undertaken without Lessor's consent, and
if necessary to enter the Premises for such purposes without notice. The cost
thereof to Lessor shall be payable by Lessee, within ten (10) days of Lessor's
demand therefor, and Lessor shall have the same rights and remedies with
respect to such costs as for rent. If Lessor shall fail
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to perform any covenant or duty required of it by this Lease or by law, Lessee
shall have the right (but not the obligation), upon thirty (30) days prior
written notice to Lessor, to perform such covenant. The cost thereof to Lessee
shall be payable by Lessor within ten (10) days after Lessee's demand therefor,
and if Lessor fails to so pay Lessee, Lessee shall have the right to offset such
costs against any and all rent due hereunder, or, in the event Lessee exercises
the option to purchase set forth in Section 4 of this Lease, to credit any and
all of said costs against the Purchase Price.
19. WATER AND OTHER DAMAGE - Unless caused by Lessor's intentionally tortious
act, Lessor shall not be liable for, and Lessor is hereby released and relieved
from, and Lessee hereby waives, all claims and demands of any kind by reason of
or resulting from, damage or injury to person or property of Lessee, or any
other party, directly or indirectly caused by (a) dampness, water, rain or snow,
in any part of the Premises or in any part of the building, the land, or of any
portion thereof leased to Lessee (whether attributable to roof leakage or
otherwise) and/or (b) any leak or break in any gas or electric line in any part
of the Premises, or any leak or break in any pipes, appliances or plumbing, or
from sewers, or from any other place or any part of the buildings, land, or any
portion thereof leased to Lessee.
20. COVENANT OF QUIET ENJOYMENT - So long as the Lessee pays the rent, and
performs all of its obligations in this Lease, the Lessee's possession of the
Premises will not be disturbed by Lessor, or any party claiming by, through or
under Lessor.
21. LIMITATION ON TENANTS RECOURSE - The Lessee's sole recourse against the
Lessor, and any successor to the interest of the Lessor in the Premises, is to
the interest of the Lessor, and any such successor, in the Premises. The Lessee
will not have any right to satisfy any judgment which it may have against the
Lessor, or any such successor, from any other assets of the Lessor, or any such
successor. In this Section the terms "Lessor" and "successor" include the
shareholders, venturers, and partners of "Lessor" and "successor" and the
officers, directors, and employees of "Lessor" and "successor". The provisions
of this section are not intended to limit the Lessee's right to seek
injunctive relief or specific performance, or the Lessee's right to claim the
proceeds of insurance (if any) specifically required to be maintained by the
Lessor hereunder. This provision will not be applicable to losses, damages or
liabilities suffered by lessee arising out of any fraud or willful or
intentional misrepresentation in this Lease by Lessor or other intentionally
tortious act of Lessor.
22. MISCELLANEOUS - ESTOPPEL CERTIFICATES - Within no more than thirty (30)
days after written request by Lessor, Lessee will execute, acknowledge, and
deliver to Lessor a certificate stating (a) that this Lease is unmodified and in
full force and effect, or, if the Lease is modified, the way in which it is
modified accompanied by a copy of the modification agreement, (b) the date to
which rental and other sums payable under this Lease have been paid, (c) that no
notice has been received by Lessee of any default which has not been cured, or,
if such a default has not been cured, what Lessee intends to do in order to
effect the cure, and when it will do so, (d) that Lessee has accepted and
occupied the Premises, (e) that Lessee has no claim or offset against Lessor, or
if it does, stating the circumstances which gave rise to the claim or offset,
(f) that Lessee is not aware of any prior assignment of this Lease by Lessor,
or, if it is, stating the
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date of the assignment and assignee (if known to Lessee), and (g) such other
matters as may be reasonably requested by Lessor. Any such certificate may be
relied upon by any prospective purchaser of the Premises and any prospective
mortgagee or beneficiary under any deed of trust or mortgage encumbering the
Premises. If Lessor submits a completed certificate to Lessee, and if Lessee
fails to object to its contents within thirty (30) days after its receipt of the
completed certificate, the matters stated in the certificate will conclusively
be deemed to be correct. Furthermore, Lessee irrevocably appoints Lessor as
Lessee's attorney-in-fact to execute and deliver on Lessee's behalf any
completed certificate to which Lessee does not object within thirty (30) days
after its receipt.
23. HOLDING OVER - At the termination of this Lease by lapse of time, Lessee
shall forthwith surrender possession of the Premises or, failing to do so, shall
pay, at the election of Lessor, for each day possession is withheld, double the
Fixed Rental herein to be paid by Lessee hereunder. The provisions of this
Section shall not be held to be a waiver by Lessor of any right of re-entry, nor
shall the receipt of such double rent, or any other act in apparent affirmance
of the tenancy, operate to create a periodic tenancy or a tenancy at will or as
a waiver of the right to terminate this Lease at any time.
24. USE OF PROPERTY -
(a) Manner of Use - Lessee shall not cause or permit the property to be
used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, or which constitutes a nuisance or waste.
Lessor shall obtain and pay a Certificate of Occupancy and Lessee shall obtain
and pay for all other permits, including floor tax or personal property tax,
required for or related to Lessee's occupancy of the property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating or required as a direct
result of, the Lessee's use of or activities conducted on the Premises,
including the Occupational Safety and Health Act, federal, state, and local
environmental laws and regulations, and the Americans with Disabilities Act.
Lessee shall use the Premises as a warehouse for food products and other
products dealt in by Lessee or its affiliates so long as compatible with the
operation of the Premises as a food warehouse.
Lessee may not make material changes, alterations, or improvements to the
Premises without Lessor's written approval, which approval shall not be
unreasonably withheld.
(b) Hazardous Materials - As used in this Lease, the term "Hazardous
Materials" means any flammable items, explosives, radioactive materials,
hazardous or toxic substances, material or waste or related materials, including
any substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials" or "toxic substances" now
or subsequently regulated under any applicable federal, state or local laws or
regulations, including without limitation petroleum-based products, paints,
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and
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<PAGE> 20
materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons. Lessee shall not cause or
permit any Hazardous Material (other than insecticides, pesticides and other
substances used in the ordinary course of Lessee's business for pest control, if
used in accordance with government standards for a food warehouse) to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Premises by Lessee, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Lessor.
Lessee represents and warrants that Lessee shall defend, indemnify and
hold Lessor harmless from and against any and all claims, damages, demands,
actions, causes of action, costs and expenses, including fines, penalties and
reasonable attorney fees, on account of, or in any way relating to Hazardous
Materials introduced to or used upon the Premises by Lessee.
25. COMPATIBLE WAREHOUSE CUSTOMERS - Lessor hereby agrees that if and to the
extent Lessee does not need or use all of the Premises in connection with the
warehousing of its products, Lessor will use its best efforts to obtain
additional compatible warehouse customers for the Premises to utilize space not
needed by Lessee in connection with its use of the Premises. Such additional
warehouse customers and the length of their respective lease, storage or
warehouse agreement shall be subject to the prior written approval of Lessee.
All storage charges paid by such additional warehouse customers shall be applied
to reduce the amount of Fixed Rental and Variable Rental payable by Lessee
hereunder.
26. ENTIRE AGREEMENT - This Lease contains the entire agreement between the
parties and any executory agreement hereafter made shall be ineffective to
change, modify or discharge the Lease in whole or in part unless such executory
agreement is in writing and signed by both of the parties hereto.
27. GOVERNING LAW - This Lease shall be interpreted and enforced in accordance
with and governed by the laws of the State of South Carolina, and any litigation
which may arise shall be litigated in the State of Missouri, except that any
litigation affecting possession of, or an estate in, the Premises requiring
enforcement in South Carolina shall be litigated in South Carolina.
28. NOTICES - Notices and demands shall be given by Certified Mail at the
addresses below, or at such other address as either party may by notice
designate:
LESSEE: AMERICAN ITALIAN PASTA COMPANY
1000 Italian Way
Excelsior Springs, MO 64024
LESSOR: LANTER COMPANY
1600 Collinsville Avenue
P. 0. Box 68
Madison, IL 62060
Attention: President
20
<PAGE> 21
29. SURVIVAL OF OBLIGATIONS - All obligations of Lessee or Lessor which by
their nature involve performance, in any particular, after the end of the term,
or which cannot be ascertained to have been fully performed until after the term
of this Lease has expired or been terminated, and all representations,
warranties and indemnifications set forth herein, shall survive the expiration
or sooner termination of the term of this Lease.
30. REPRESENTATIONS AND WARRANTIES OF LESSOR -
(a) Lessor is a Delaware corporation, duly organized validly existing and
in good standing in the State of South Carolina. Lessor has full right and
authority to enter into this Lease for the full term hereof and has taken all
action necessary to authorize this Lease.
(b) All utilities necessary for the use and operation of the Premises
under this Lease are available at the Premises.
(c) Lessor has not dealt with or used any real estate agent or broker in
connection with this Lease.
(d) To the best of Lessor's knowledge, the Premises are in compliance with
all applicable statutes, ordinances, rules, regulations, orders and other
governmental requirements. The Premises shall be constructed by Lessor in
accordance with all applicable building codes, laws and regulations.
31. SIGNS - Lessee shall have the right to erect such signs on the Premises as
it desires.
32. EXPANSION OF PREMISES - Lessor acknowledges and agrees that it agreed to
construct the Building and to enter into this Lease with Lessee on the
understanding that Lessee may desire, during the Initial Term or any renewal
term of this Lease, that the Building described in this Lease be expanded to
accommodate the distribution and warehouse needs of Lessee. Lessor, upon written
notification by Lessee, agrees to finance and construct any such expansion of
the Building as desired by Lessee, and such expansion space (the "Expansion
Space" shall be deemed to be a part of the Premises and shall be leased to
Lessee on the same terms and conditions as set forth in this Lease, except for
(i) Fixed Rental, which shall be adjusted to reflect the cost to Lessor of
constructing the Expansion Space and shall be negotiated in good faith by Lessor
and Lessee, and (ii) the Purchase Price under Section 4 hereof, which also shall
be accordingly adjusted by agreement of the Lessor and Lessee. Upon completion
of the Expansion Space, Lessor and Lessee shall execute an addendum to this
Lease reflecting the correct legal description of the Premises, including the
Expansion Space, the revised Purchase Price under Section 4, and the revised
Fixed Rental, and shall also execute and record an amendment to the Memorandum
of Lease to reflect the foregoing.
33. ARBITRATION - Except for a dispute relating to a failure by Lessee to pay
Fixed Rental herein, in the event of any dispute between the parties regarding
any matter arising under this Lease, Lessor and Lessee will make a sincere and
earnest effort to resolve and settle such
21
<PAGE> 22
dispute by friendly and good faith negotiation and discussion. If, despite such
cooperative effort, any such dispute cannot be resolved within thirty (30) days,
the dispute shall thereafter, upon ten (10) days prior written notice from one
party to the other, be submitted and settled by arbitration. Such arbitration
shall be effected by arbitrators selected as provided below and shall be
conducted in accordance with the rules of the American Arbitration Association
existing at the time of submission and in accordance with the laws of the State
of South Carolina.
The dispute shall be submitted to three (3) arbitrators, one of whom shall be
selected by the Lessor, one of whom shall be selected by Lessee, and the third
of whom shall be selected by the two arbitrators so selected, or if they cannot
agree, such third arbitrator shall be selected by the American Arbitration
Association. In the event either Lessor or Lessee, within thirty (30) days after
any notice of arbitration referred to above shall not have selected its
arbitrator and given notice thereof to the other party, such arbitrator shall be
selected by the American Arbitration Association. Any necessary arbitration
hearings shall be conducted, unless otherwise agreed by all of the arbitrators
in Columbia, South Carolina. The costs of arbitration shall be assumed and paid
one half by Lessor and one half by Lessee, but the individual costs and expenses
of each party (including attorney's fees) shall be assumed and paid by the party
incurring the same.
34. OPERATING AGREEMENT. The Lessor and Lessee have entered into an Operating
Agreement dated _____, 1997 ("Operating Agreement" also referred to herein as
the Materials Handling Service Agreement), pursuant to which the Lessor shall
operate the Premises for the Lessee. The parties agree that no default under
the Operating Agreement by the Lessor shall result in a default in the Lessee's
obligation hereunder. In the event of a conflict between the obligations of the
parties hereunder and their obligations under the Operating Agreement, the
obligations under the Operating Agreement shall govern, but only if the
Operating Agreement is in effect.
IN WITNESS WHEREOF, the parties hereto have executed this document as of
the date above first written.
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<PAGE> 23
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
WITNESSED BY: LESSOR: LANTER COMPANY
Rhonda L. Farmer By: Steve Lanter
- -------------------------- ---------------------------
Admin. Assistant President & COO
- -------------------------- ------------------------------
Title Title
WITNESSED BY: LESSEE: AMERICAN ITALIAN PASTA
COMPANY
T. S. Webster By: David Watson
- --------------------------- ---------------------------
President EXEC VP & CFO
- --------------------------- ------------------------------
Title Title
23
<PAGE> 1
EXHIBIT 10.10
D R A F T
SECOND AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
April 7, 1998
among
American Italian Pasta Company
and
Certain of its Shareholders
<PAGE> 2
D R A F T
THIS SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
dated as of April 7, 1998 ("Agreement") is by and among American Italian Pasta
Company, a Delaware corporation (the "Company"), and each of the other
signatories listed on the signature pages hereof.
W I T N E S S E T H:
WHEREAS, the Company, The Morgan Stanley Leveraged Equity Fund II,
L.P., a Delaware limited partnership ("MSLEF II"), Morgan Stanley Capital
Partners III, L.P. ("MSCP"), Morgan Stanley Capital Investors, L.P. and MSCP III
892 Investors, L.P., each a Delaware limited partnership (collectively, the
"MSCP Funds") and each of the other signatories hereto are parties to the
Amended and Restated Shareholders Agreement dated as of October 6, 1997 (the
"Amended Original Agreement");
WHEREAS, the Shareholders (as defined below) presently own a number of
shares of Class A common stock, par value $0.001 per share (the "Common Stock"),
of the Company;
WHEREAS, the MS Shareholders, the Company and certain stockholders
expect to consummate the Offering (as defined herein) shortly following the date
hereof;
WHEREAS, in connection with the Offering, the Company and the
Shareholders wish to further amend and restate in its entirety the Amended
Original Agreement; and
WHEREAS, the execution of this Agreement constitutes the consent of the
Company and each of the Shareholders to the amendment and restatement of the
Amended Original Agreement effective immediately after the Offering Closing (as
defined below), thereby binding each Shareholder to this Agreement in accordance
with Section 7.5 of the Amended Original Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used in this Agreement, have
the following meanings:
"Adverse Person" means, as determined in the sole discretion of the
Board, (i) any transferee that intends to cause, or is reasonably likely to
cause, or whose ownership of Common
<PAGE> 3
D R A F T
Stock would cause an adverse impact on the business, interests or prospects of
the Company or (ii) any transferee that is a competitor or supplier of the
Company or an Affiliate of any such competitor or supplier.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, provided that no shareholder of the Company shall be deemed an
Affiliate of any other shareholder solely by reason of any investment in the
Company. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Board" means the board of directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"Business Plan" has the meaning specified in Section 2.5(b) of this
Agreement.
"Bylaws" means the bylaws of the Company, as amended from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended from time to time.
"Chairman" means the chairman of the board of directors of the Company.
"Chief Executive Officer" means the chief executive officer of the
Company.
"Citicorp" means Citicorp Venture Capital, Ltd. or CCT III Partners,
L.P.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning specified in the recitals to this
Agreement.
"Director" means any member of the Board.
"Disability" means the inability to perform such Management
Shareholder's duties as an employee for a period of sixty consecutive days.
"Disadvantageous Condition" has the meaning specified in Section 5.1(a)
of this Agreement.
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<PAGE> 4
D R A F T
"Exchange" means the New York Stock Exchange or such other stock
exchange or quotation system on which the Common Stock is then listed or
included.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fully Diluted" means, with respect to Common Stock, all outstanding
shares of Common Stock, shares of Common Stock issuable in respect of securities
convertible into or exchangeable for Common Stock, and shares of Common Stock
issuable upon exercise of stock appreciation rights or options, warrants and
other rights to purchase or subscribe for Common Stock or securities convertible
into or exchangeable for Common Stock.
"Losses" means any losses, claims, damages, liabilities or expenses.
"Management Shareholders" means Horst W. Schroeder, Timothy S. Webster,
Jerry Dear, Mike Willhoite, David E. Watson, Darrel Bailey, Robert Evans, Norman
Abreo and David B. Potter and each other employee of the Company who may become
a party to this Agreement.
"Management Shareholder Allotment" shall have the meaning given it in
Section 3.1(d).
"Maximum Offering Size" has the meaning specified in Section 5.1(f) of
this Agreement.
"MS Permitted Transferee" means (i) any general or limited partner of
any MS Shareholder (a "MS Partner"), and any corporation, partnership.
Affiliated Employee Benefit Trust or other entity which is an Affiliate of any
MS Partner (collectively, the "MS Affiliates"); (ii) any managing director,
general partner, director, limited partner, officer or employee of a MS
Shareholder or a MS Affiliate (collectively, "MS Associates"); (iii) the heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries of
any MS Associate: and (iv) a trust, the beneficiaries of which, or a
corporation, limited liability company or partnership, the shareholders,
members or general or limited partners of which, include only MS Shareholders,
MS Affiliates, MS Associates, their spouses or their lineal descendants.
"MS Selling Shareholders" means, with respect to any registration of
Registrable Stock under the Securities Act, the MS Shareholders who exercise
their rights under Sections 5.1(a), 5.1(b) or 5.2 of this Agreement to have
Registrable Stock included in such registration.
"MS Shareholder" means, collectively, the MSCP Funds, MSLEF II and the
MS Permitted Transferees.
"Offering" means the offering of shares of Common Stock pursuant to
Securities Act registration statement No. 333-_______.
"Offering Closing" means the consummation of the Offering.
"Offering Closing Date" means the date of the Offering Closing.
"Permitted Transferee" means:
(i) For purposes of Section 3.3 only, any person (subject to
Section 3.1(b)) (A) in an Underwritten Offering pursuant to Section
5.1, (B) in an open market sale in accordance with Rule 144, or (C) in
a private transaction for cash;
(ii) spouses, parents, children, grandchildren, grandparents,
brothers, sisters and spouses and children of brothers and sisters, and
trusts if the majority of the beneficial
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<PAGE> 5
D R A F T
interests are held by such persons (for purposes of this clause,
Permitted Transferees shall include such relatives whether or not they
were adopted); provided that no more that 5,000 Shares are transferred
pursuant to this clause (ii) in any calendar year;
(iii) any charitable foundation or trust or a not-for-profit
(all as determined under the Code) if the transferee does not give,
directly or indirectly, any consideration for such transfer; provided
that no more that 5,000 Shares are transferred pursuant to this clause
(iii) in any calendar year;
(iv) the Company for payment of the exercise price of awards
granted by the Company to such Management Shareholder pursuant to
compensation plans adopted by the Company or for payment of the
applicable taxes (federal, state and local) due to the Company upon
exercise of such awards to the extent permitted by the pertinent
compensation plan, the Board or a committee thereof; or
(v) as the Board may otherwise permit in its sole discretion.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Registrable Stock" means any Shares until the first to occur of (i) a
registration statement covering such Shares has been declared effective by the
SEC and such Shares have been disposed of pursuant to such effective
registration statement, (ii) such Shares have been sold in compliance with all
of the applicable conditions of Rule 144, (iii) such shares are eligible to be
sold pursuant to Rule 144(k), or (iv) such Shares have otherwise been
transferred, the Company has delivered a new certificate or certificates for
such Shares not bearing the legend required pursuant to this Agreement and such
Shares may be resold without registration under the Securities Act.
"Registration Expenses" means (i) all SEC, stock exchange or NASDAQ
registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Shares), (iii)
printing expenses, (iv) internal expenses of the Company (including without
limitation all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) reasonable fees and disbursements of counsel
for the Company and customary fees and expenses for independent certified public
accountants retained by the Company (including any costs associated with the
delivery by independent certified public accountants of a comfort letter or
letters requested pursuant to Section 5.4(h) hereof), (vi) the reasonable fees
and expenses of any special experts retained by the Company in connection with
such registration, (vii) reasonable fees and expenses of no more than one
counsel for all of the Selling Shareholders, (viii) fees payable to the National
Association of Securities Dealers, Inc and (ix) fees and disbursements of
underwriters customarily paid by issuers or sellers of securities in firm-
commitment
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<PAGE> 6
D R A F T
underwritings; provided, however, that the term "Registration Expenses" shall
not include any (w) underwriting or brokerage fees, discounts or commissions,
(x) transfer taxes, (y) out-of-pocket expenses of the Selling Shareholders (or
of the agents who manage their accounts) or (z) any fees and expenses of
underwriters' counsel (other than pursuant to clause (ii) of this paragraph);
provided, further, that the counsel for the Selling Shareholders contemplated by
clause (vii) of this definition shall be selected by the Selling Shareholders
beneficially owning a majority of the Shares to be sold for the account of all
Selling Shareholders, but in any event shall be reasonably acceptable to the
Company.
"registration statement" means a registration statement under the
Securities Act.
"Rule 144" means Rule 144 (or any successor provision) under the
Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Shareholders" means, with respect to any registration of
Registrable Stock under the Securities Act, the Shareholders who exercise their
rights under Sections 5.1(a), 5.1(b) or 5.2 of this Agreement to have
Registrable Stock included in such registration.
"Senior Management Allotment" means, subject to adjustment from time to
time pursuant to Section 7.1, (i) with respect to calendar year 1998, 215,000
shares of Common Stock; (ii) with respect to calendar year 1999, 360,000 shares
of Common Stock minus the number of shares of Common Stock transferred by Horst
W. Schroeder or Timothy S. Webster, as the case may be, in 1998; and (iii) with
respect to calendar year 2000, 490,000 shares of Common Stock minus the
aggregate number of shares of Common Stock transferred by Horst W. Schroeder or
Timothy S. Webster, as the case may be, in 1998 and 1999.
"Shareholder" means each Person (other than the Company) who shall be a
party to this Agreement, whether in connection with the execution and delivery
hereof as of the date hereof, pursuant to Section 7.4 or otherwise, so long as
such Person shall beneficially own any Shares.
"Shares" means, with respect to a Shareholder, all shares of Common
Stock held by such Shareholder, whether acquired before, on or after the date of
this Agreement. In the event of a stock dividend or distribution, or any change
in the Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, conversion, exchange of shares or the like, the term "Shares" shall
from and after the record date for such dividend, distribution, split-up,
recapitalization, combination, conversion, exchange or the like, also include
any and all such stock dividends and distributions and any and all shares into
which or for which any or all of the Shares may be changed or exchanged.
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<PAGE> 7
D R A F T
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are at the time directly
or indirectly owned by a company.
"Third Party" means a prospective purchaser of Shares in an
arm's-length transaction from a Shareholder where such purchaser is not a
Permitted Transferee (other than a Permitted Transferee as defined clause (i) of
the definition of Permitted Transferee) of such Shareholder.
"transfer" has the meaning set forth in Section 3.1(a) of this
Agreement.
"Underwritten Offering" means a firm-commitment underwritten public
offering of Registrable Stock pursuant to an effective registration statement.
ARTICLE 2
CORPORATE GOVERNANCE
2.1 Composition of the Board. (a) MSLEF II or MSCP (as shall be
determined by MSLEF II and MSCP in their sole discretion) shall be entitled to
designate one Director nominee to the Board (the current nominee is Lawrence B.
Sorrel) for as long as the MS Shareholders shall beneficially own any of the
outstanding Common Stock.
(b) The remaining Directors shall be nominated in the manner provided
for in the Bylaws; provided that at least two of such Directors shall be
independent Directors within the meaning of the rules promulgated by the
national securities exchange or national market system on which the Common Stock
is then listed or traded.
(c) Each Shareholder then entitled to vote for the election of
Directors agrees (i) to vote at any special or annual meeting of the
shareholders of the Company at which Directors are to be elected or (ii) to
execute a written consent, as the case may be, so as to ensure that the Board
consists of the Director nominees designated in accordance with this Section
2.1.
2.2 Removal. Each Shareholder agrees that, if, at any time, it is then
entitled to vote for the removal of Directors, it: (a) will not vote any of its
Shares in favor of the removal of any Director who shall have been designated or
nominated pursuant to Section 2.1 unless such removal shall be for Cause (as
defined below) or the Persons entitled to designate or nominate such Director
shall have consented to such removal in writing; and (b) will, upon the written
request of an Person entitled to designate a Director pursuant to Section 2.1
hereof, take such action by vote or consent as may be necessary to remove or
replace such Director. Removal for "Cause" shall mean removal of a Director
because of such Director's (v) willful and continued failure to substantially
perform his duties with the Company in his position as a director, (w) willful
conduct which is significantly injurious to the Company and its Subsidiaries
taken as a whole, monetarily
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<PAGE> 8
D R A F T
or otherwise, (x) conviction for, or guilty plea to, a felony or a crime
involving moral turpitude, (y) abuse of illegal drugs or other controlled
substances or habitual intoxication, or (z) willful breach of this Agreement.
Upon the written request of any Person entitled to designate a Director nominee
pursuant to Section 2.1 hereof, each Shareholder shall vote, or execute a
written consent, to remove or replace such Director.
2.3 Vacancies. (a) If, as a result of death, disability, retirement,
resignation, removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy of the Board,
(i) the Person entitled to designate the nomination of such
Director whose death, disability, retirement, resignation or removal
resulted in such vacancy may designate another individual nominee (the
"Nominee") to be appointed by the Board to fill such capacity and serve
as a Director; and
(ii) in the case of a vacancy on the Board, each Shareholder
then entitled to vote for the election of the Nominee as a Director
agrees that it will vote its shares, or execute a written consent, as
the case may be, in order to ensure that the Nominee be elected to the
Board.
(b) Any vacancy on the Board resulting from the termination of the
right of a Shareholder to designate a Director nominee, pursuant to Section 2.1
hereof, shall be filled in the manner set forth in the Bylaws.
2.4 Meeting. The Board shall hold a regularly scheduled meeting at
least once every calendar quarter.
2.5 Action by Board. (a) A quorum of the Board shall consist of a
majority of the Directors. All actions of the Board shall require the
affirmative vote of at least a majority of the Directors at a duly convened
meeting of the Board at which a quorum is present or the unanimous written
consent of the Board; provided that, in the event there is a vacancy on the
Board and an individual has been nominated to fill such vacancy, the first order
of business shall be to fill such vacancy.
2.6 Conflicting Charter or Bylaw Provisions. Each Shareholder shall
vote its Shares, and shall take all other actions necessary, to ensure that the
Company's Certificate of Incorporation and Bylaws facilitate and do not at any
time conflict with any provision of this Agreement.
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<PAGE> 9
D R A F T
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General. (a) No Management Shareholder, directly or indirectly,
shall offer, sell, assign, transfer, grant a participation in, pledge or
otherwise dispose of any Shares (or solicit any offers to buy or otherwise
acquire, or to take a pledge of any Shares) (collectively "transfer"), except as
permitted by Sections 3.3, 5.1(b)(ii) or 5.2(a), of this Agreement (subject to
Sections 3.1(b), 3.1(c) and 3.1(d)) and in compliance with the Securities Act,
applicable state and foreign securities laws and the Company's policies.
(b) No transfer by a Management Shareholder permitted under this
Article 3 may knowingly be made to any Person who, based on information supplied
to such Management Shareholder by the Company or otherwise known to such
Management Shareholder, is an Adverse Person (or an Affiliate of an Adverse
Person) or would, together with the Affiliates of such Person, beneficially own
in excess of 10% of the outstanding Common Stock immediately after giving effect
to such transfer.
(c) Notwithstanding anything herein to the contrary, the aggregate
number of shares of Common Stock transferred by each of Horst W. Schroeder or
Timothy S. Webster during any calendar year pursuant to Section 3.3 may not
exceed the Senior Management Allotment applicable to such calendar year. The
provisions of this Article 3 will terminate on January 1, 2001, unless earlier
terminated as provided in Article 7.
(d) Notwithstanding anything herein to the contrary, the aggregate
number of shares of Common Stock transferred by a Management Shareholder (other
than Horst W. Schroeder or Timothy S. Webster) during any calendar year may not
exceed the greater of (the "Management Shareholder Allotment"): (i) number of
options granted to the Management Shareholder that vest or become exercisable in
that calendar year; or (ii) 10 percent of the total of the Shares currently held
by such Management Shareholder plus currently vested or exercisable options or
other Awards granted to such Management Shareholder; provided, however, that the
Chairman and/or the Chief Executive Officer may, in their sole discretion,
prohibit transfers to a Permitted Transferee pursuant to clause (i) of the
definition of Permitted Transferee. To the extent any Management Shareholder has
not transferred his Management Shareholder Allotment in any calendar year that
could have been transferred pursuant to this Section 3.1(d), such Management
Shareholder shall be able to transfer in future calendar years such Shares plus
any additional Shares that become available for transfer pursuant to this
Section 3.1(d). Notwithstanding the above, in determining the Management
Shareholder Allotment, such amount shall be reduced by the number of Shares
transferred by such Management Shareholder to his Permitted Transferees unless
otherwise specified by the Board in the exercise of its discretion pursuant to
clause (v) of the definition of Permitted Transferee.
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D R A F T
3.2 Legend on Share Certificates. (a) In addition to any other legend
that may be required by applicable law, each certificate for Shares that is
issued to any Management Shareholder shall bear a legend in substantially the
following form:
"THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AS SET FORTH IN THE SECOND AMENDED AND RESTATED SHAREHOLDERS
AGREEMENT DATED AS OF APRIL 7, 1998, COPIES OF WHICH MAY BE
OBTAINED UPON REQUEST FROM AMERICAN ITALIAN PASTA COMPANY OR
ANY SUCCESSOR THERETO."
(b) If any shares of Common Stock cease to be subject to any
restrictions on transfer set forth in this Agreement, the Company shall, upon
the written request of the holder thereof, issue to such holder a new
certificate evidencing such shares without the legend required by Section 3.2(a)
endorsed thereon.
3.3 Permitted Transferees. Any Management Shareholder may, subject to
Sections 3.1(b), 3.1(c) and 3.1(d), at any time transfer any or all of his
Shares to any one or more of his Permitted Transferees without the consent of
the Board or any other Shareholder or group of Shareholders and, except as
provided in Section 7.4, without such Permitted Transferee being
required to have agreed in writing to be subject to the terms of this Agreement
(unless required by the Board in the exercise of its sole discretion pursuant
to clause (v) of the definition of Permitted Transferee).
Notwithstanding anything to the contrary in this Section 3.3, no
Management Shareholder may transfer pursuant to this Section 3.3 a total number
of Shares when combined with the Shares transferred by such Management
Shareholder pursuant to Section 3.1 is greater than the Senior Management
Allotment or cumulatively available Management Shareholder Allotment, as the
case may be.
3.4 Improper Transfer. Any attempt to sell, assign, transfer, grant a
participation in, pledge or otherwise dispose of any Shares not in compliance
with this Agreement shall be null and void and neither the Company nor any
transfer agent shall give any effect in the Company's stock records to such
attempted sale, assignment, transfer, grant of a participation in, pledge or
other disposition.
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D R A F T
ARTICLE 4
NOTICE OF SALE
For so long as either MSLEF II or any of the MSCP Funds or Citicorp
owns 5% or more of the outstanding Common Stock (on a Fully Diluted basis), such
Shareholder shall notify the Company if such Shareholder negotiates with a Third
Party in a private transaction a bona fide offer to purchase all of the Shares
beneficially owned by such Shareholder for cash and such Shareholder intends to
pursue a transfer of such Shares to such Third Party.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registration. (a) At any time after December 31, 1998, upon
the written request of Citicorp to the effect that the Company effect the
registration under the Securities Act of such Registrable Stock, and specifying
the intended method of disposition thereof, the Company will promptly give
written notice of such requested registration to all other Shareholders, and
thereupon will use all commercially reasonable efforts to effect, as
expeditiously as possible, the registration under the Securities Act of:
(i) the Registrable Stock which the Company has been so
requested to register by Citicorp, and
(ii) all other Registrable Stock which the Company has been
requested to register by any other Shareholder by written request
received by the Company within 10 Business Days after the giving of
such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Stock),
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Stock so to be
registered; provided that
(x) the Company shall not be obligated to file a registration
statement relating to a registration request under this Section 5.1(a):
(A) six months after the effective date of any other registration
statement filed pursuant to Section 5.1(a) or Section 5.1(b) or in
connection with an acquisition by the Company of another company (or
the financing thereof) and (B) unless the aggregate fair market value
of the Registrable Stock which the Company has been so requested to
register by the Selling Shareholders constitutes, as of the date of the
Company's receipt of the last of such timely requests, at least $15
million (based on the closing price of the Common Stock on such date);
(y) with respect to any registration statement filed, or to be
filed, pursuant to this Section 5.1(a), if the Company shall furnish to
the Selling Shareholders a certified
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D R A F T
resolution of the Board stating that in the Board's good faith judgment
it would (because of the existence of, or in anticipation of, any
acquisition or financing activity, or the unavailability for reasons
beyond the Company's control of any required financial statements, or
any other event or condition of similar significance to the Company) be
significantly disadvantageous (a "Disadvantageous Condition") to the
Company or its shareholders for such a registration statement to be
maintained effective, or to be filed and become effective, and setting
forth the general reasons for such judgment, the Company shall be
entitled to cause the Selling Shareholders to discontinue the use of
such registration statement or, in the event no registration statement
has yet been filed, shall be entitled not to file any such registration
statement, until such Disadvantageous Condition no longer exists
(notice of which the Company shall promptly deliver to the Selling
Shareholders) and upon receipt of any such notice of a Disadvantageous
Condition such Selling Shareholders will forthwith discontinue use of
the prospectus contained in such registration statement and, if so
directed by the Company, each such Selling Shareholder will deliver to
the Company all copies, other than permanent file copies then in such
Selling Shareholder's possession, of the prospectus then covering such
Registrable Stock current at the time of receipt of such notice, and,
in the event no registration statement has yet been filed, all drafts
of the prospectus covering such Registrable Stock; provided, however,
that the Company shall not be entitled to invoke a Disadvantageous
Condition pursuant to this Section 5.1(a) more than twice during any
calendar year; the duration of any single Disadvantageous Condition
shall not exceed 90 days; the aggregate duration of all such
Disadvantageous Conditions shall not exceed 180 days during any
calendar year; and at least 90 days shall elapse between the
termination of a Disadvantageous Condition and the invocation of a
subsequent Disadvantageous Condition by the Company; and
(z) subject to Section 5.1(g) hereof, the Company shall not be
obligated to effect more than one registration pursuant to this Section
5.1(a).
Promptly after the expiration of the 10-Business Day period referred to in
Section 5.1(a)(ii) hereof, the Company will notify all the Selling Shareholders
to be included in the registration of the other Selling Shareholders and the
number of shares of Registrable Stock requested to be included therein. Citicorp
may, at any time (A) prior to the filing the registration statement relating to
such registration, or (B) after filing but prior to the effective date of such
registration statement, revoke such request, without liability to the Company or
any of the other Selling Shareholders, by providing a written notice to the
Company revoking such request, provided that the Company shall be deemed to have
satisfied its obligations in respect of one registration for purposes of clause
(z) above. In the event that the Company shall give any notice of the withdrawal
of a registration statement contemplated by clause (y) above, the Company shall
at such time as it in good faith deems appropriate file a new registration
statement covering the Registrable Stock that was covered by such withdrawn
registration statement, and such registration statement shall be maintained
effective for such time as may be necessary so that the period of effectiveness
of such new registration statement, when aggregated with the period during which
such initial registration
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<PAGE> 13
D R A F T
statement was effective, shall be such time as may be otherwise required by
Section 5.1(d) or 5.5 of this Agreement. Notwithstanding anything contained in
this Agreement to the contrary, nothing herein shall be construed as requiring
the Company to register any of its securities other than Common Stock.
(b) Upon the written request of MS Shareholders owning not less than
60% of the Registrable Stock then owned by the MS Shareholders to the effect
that the Company effect the registration under the Securities Act of such
Registrable Stock, and specifying the intended method of disposition thereof,
the Company will promptly give written notice of such requested registration to
all other Shareholders, and thereupon will use all commercially reasonable
efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) the Registrable Stock which the Company has been so
requested to register by the MS Selling Shareholders; and
(ii) all other Registrable Stock which the Company has been
requested to register by any other Shareholder by written request
received by the Company within 10 Business Days after the giving of
such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Stock),
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Stock so to be
registered; provided that
(x) the Company shall not be obligated to file a registration
statement relating to a registration request under this Section 5.1(b):
(A) within a period of six months after the effective date of any other
registration statement filed pursuant to Section 5.1(a) or (b) hereof
and (B) unless the Registrable Stock which the Company has been so
requested to register by the MS Selling Shareholders constitutes at
such time at least 15 percent (on a Fully Diluted basis) of the
Registrable Stock owned by the MS Shareholders.
(y) with respect to any registration statement filed, or to be
filed, pursuant to this Section 5.1(b), if the Company shall furnish to
the MS Selling Shareholders a certified resolution of the Board stating
that in the Board's good faith judgment it would result in a
Disadvantageous Condition to the Company or its shareholders for such a
registration statement to be maintained effective, or to be filed and
become effective, and setting forth the general reasons for such
judgment, the Company shall be entitled to cause the Selling
Shareholders to discontinue the use of such registration statement, or,
in the event no registration statement has yet been filed, shall be
entitled not to file any such registration statement, until such
Disadvantageous Condition no longer exists (notice of which the Company
shall promptly deliver to the Selling Shareholders) and upon receipt of
any such notice of a Disadvantageous Condition such Selling
Shareholders will forthwith discontinue
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<PAGE> 14
D R A F T
use of the prospectus contained in such registration statement and, if
so directed by the Company, each such Selling Shareholder will deliver
to the Company all copies, other than permanent file copies then in
such Selling Shareholder's possession, of the prospectus then covering
such Registrable Stock current at the time of receipt of such notice,
and, in the event no registration statement has yet been filed, all
drafts of the prospectus covering such Registrable Stock; provided,
however, that the Company shall not be entitled to invoke declare a
Disadvantageous Condition pursuant to this Section 5.1(b) more than
twice during any calendar year; the duration of any single
Disadvantageous Condition shall not exceed 90 days; the aggregate
duration of all such Disadvantageous Conditions shall not exceed 180
days during any calendar year; and at least 90 days shall elapse
between the termination of a Disadvantageous Condition and the
invocation of a subsequent Disadvantageous Condition by the Company;
and
(z) subject to Section 5.1(h) hereof, the Company shall not be
obligated to effect more than one registration pursuant to this
Section 5.1(b).
Promptly after the expiration of the 10-Business Day period referred to in
Section 5.1(b)(ii) hereof, the Company will notify all the Selling Shareholders
to be included in the registration of the other Selling Shareholders and the
number of shares of Registrable Stock requested to be included therein. The MS
Selling Shareholders owning a majority of the Registrable Stock requested to be
registered by all MS Selling Shareholders pursuant to this Section 5.1(b) may,
at any time prior to the filing of, or after the filing but prior to the
effective date of, the registration statement relating to such registration,
revoke such request, without liability to the Company or any of the other
Selling Shareholders, by providing a written notice to the Company revoking such
request, but the Company shall be deemed to have satisfied its obligations in
respect of one registration for purposes of clause (z) above. In the event that
the Company shall give any notice of the withdrawal of a registration statement
contemplated by clause (y) above, the Company shall at such time as it in good
faith deems appropriate file a new registration statement covering the
Registrable Stock that was covered by such withdrawn registration statement, and
such registration statement shall be maintained effective for such time as may
be necessary so that the period of effectiveness of such new registration
statement, when aggregated with the period during which such initial
registration statement was effective, shall be such time as may be otherwise
required by Section 5.1(d) or 5.5 of this Agreement. Notwithstanding anything
contained in this Agreement to the contrary, nothing herein shall be construed
as requiring the Company to register any of its securities other than Common
Stock.
(c) The Company will pay all Registration Expenses in connection with
any registration which is requested pursuant to this Section 5.1.
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<PAGE> 15
D R A F T
(d) A registration requested pursuant to this Section 5.1 shall not be
deemed to have been effected unless the registration statement relating thereto
(i) has become effective under the Securities Act and (ii) has remained
effective for a period of at least 120 days or such shorter period in which all
Registrable Stock of the Selling Shareholders and their respective Permitted
Transferees included in such registration have actually been sold thereunder;
provided that if any effective registration statement requested pursuant to this
Section 5.1 is discontinued in connection with a Disadvantageous Condition, such
registration statement shall not be counted as a registration requested for
purposes of Section 5.1 hereof; and provided, further, that if after any
registration statement requested pursuant to this Section 5.1 becomes effective
both (i) such registration statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court solely due to the actions or omissions to act of the Company and (ii)
less than 75% of the Registrable Stock included in such registration has been
sold thereunder, such shall not be counted as a registration requested pursuant
to Section 5.1 hereof.
(e) If any requested registration pursuant to this Section 5.1 is in
the form of an Underwritten Offering, the Selling Shareholders owning a majority
of the Registrable Stock included in such registration shall have the right to
select the managing underwriter or underwriters of such Underwritten Offering;
provided that (i) any such managing underwriter may be an Affiliate of a
Shareholder and (ii) such managing underwriter or underwriters shall be
reasonably acceptable to the Company. The Company may require the offering
pursuant to any registration requested pursuant to Section 5.1 to be in the form
of an Underwritten Offering. In that event, all Registrable Stock to be
registered in such registration shall be registered for sale only in such
Underwritten Offering.
(f) If the managing underwriter of an Underwritten Offering requested
pursuant to Section 5.1(a) or (b) shall advise the Company that, in its view,
the number of shares of Common Stock requested to be included in such
registration (including shares requested to be included pursuant to clause (i)
or (ii) of Section 5.1(a) or (b) and shares which the Company requests to be
included which are not Registrable Stock) exceeds the largest number of shares
of Common Stock which can be sold without having an adverse effect on such
Underwritten Offering, including the price at which such shares can be sold (the
"Maximum Offering Size"), the Company will include in such registration, in the
priority listed below, up to the Maximum Offering Size:
(i) first, all Registrable Stock requested to be included in
such registration pursuant to Section 5.1, pro rata among the Selling
Shareholders requesting such inclusion on the basis of the relative
number of Shares owned by them, and
(ii) second, any Common Stock proposed to be registered by the
Company for its own account, and
(iii) third, any other Common Stock.
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D R A F T
(g) If Registrable Stock representing at least 75% of the number of
Shares requested to be registered by Citicorp is not included in any
registration requested pursuant to Section 5.1(a) (other than by reason of a
cancellation of such request), then Citicorp may request that the Company effect
an additional registration under the Securities Act of all or part of the
Citicorp's Registrable Stock in accordance with the provisions of this Section
5.1 and the Company shall pay the Registration Expenses in connection with such
additional registration.
(h) If Registrable Stock representing at least 50% of the number of
Shares requested to be registered by the MS Selling Shareholders is not included
in any registration requested pursuant to Section 5.1(b) (other than by reason
of a cancellation of such request), then the MS Selling Shareholders may request
that the Company effect an additional registration under the Securities Act of
all or part of the MS Selling Shareholders' Registrable Stock in accordance with
the provisions of this Section 5.1 and the Company shall pay the Registration
Expenses in connection with such additional registration.
5.2 Incidental Registration. (a) If the Company proposes to register
any of its Common Stock under the Securities Act (other than a registration (A)
on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common
Stock issuable upon exercise of employee or director stock options or in
connection with any employee or director benefit or similar plan of the Company,
(C) in connection with a direct or indirect acquisition by the Company of
another company or the financing of such acquisition, or (D) pursuant to Section
5.1 hereof), whether or not for sale for its own account, in a manner which
would permit registration of Registrable Stock for sale to the public under the
Securities Act it will each such time, subject to the provisions of Section
5.2(b) hereof, give prompt written notice to the Shareholders of its intention
to do so and of such Shareholders' rights under this Section 5.2, at least 20
days prior to the anticipated filing date of the registration statement relating
to such registration. Any such notice shall offer each Shareholder the
opportunity to include in such registration statement such number of shares of
Registrable Stock as each such Shareholder may request (an "Incidental
Registration"). Upon the written request of any such Shareholder made within ten
days after the receipt of notice from the Company (which request shall specify
the number of shares of Registrable Stock intended to be disposed of by such
Shareholder), the Company will use all commercially reasonable efforts to effect
the registration under the Securities Act of all Registrable Stock which the
Company has been so requested to register by the Shareholders, to the extent
requisite to permit the disposition of the Registrable Stock so to be
registered; provided that (i) if such registration involves an Underwritten
Offering, all Shareholders requesting to be included in the Company's
registration must sell their Registrable Stock to the underwriters selected by
the Company on the same terms and conditions as apply to the Company and (ii)
if, at any time after giving written notice of its intention to register any
stock pursuant to this Section 5.2(a) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such stock, the Company shall
give written notice to all Shareholders and, thereupon, shall be relieved of its
obligation to register any Registrable Stock in connection with such
registration (without prejudice, however, to rights of Shareholders under
Section 5.1
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D R A F T
hereof). No registration effected under this Section 5.2 shall relieve the
Company of its obligations to effect a registration upon request to the extent
required by Section 5.1 hereof. The Company will pay all Registration Expenses
in connection with each registration of Registrable Stock requested pursuant to
this Section 5.2.
(b) If a registration pursuant to this Section 5.2 involves an
Underwritten Offering and the managing underwriter advises the Company that, in
its view, the number of shares of Common Stock which the Company, the
Shareholders and any other Persons intend to include in such registration
exceeds the Maximum Offering Size, the Company will include in such
registration, in the following priority, up to the Maximum Offering Size:
(i) first, if the registration was initiated by the Company
for the sale of Common Stock for its own account, any such Common
Stock,
(ii) second, all (x) Registrable Stock requested to be
included in such registration by any Shareholders that have rights
pursuant to Section 5.2 hereof and (y) all Common Stock requested to be
included in such registration by any other shareholders that hold
demand registration rights, pro rata among such Shareholders and other
shareholders on the basis of the relative number of shares of
Registrable Stock or Common Stock, respectively, owned by them,
(iii) third, all Common Stock held by other shareholders of
the Company who exercise "piggyback" registration rights in connection
with such registration, pro rata among such shareholders on the basis
of the relative number of shares of Common Stock owned by them, and
(iv) fourth, any other Common Stock.
5.3 Holdback Agreements. (a) Upon the request of the underwriters of
any Underwritten Offering, each Shareholder agrees not to effect any public
sale or distribution, including any sale pursuant to Rule 144, or any successor
provision, under the Securities Act, of any Registrable Stock, and not to effect
any such public sale or distribution of any other Common Stock of the Company or
of any security convertible into or exchangeable or exercisable for any Common
Stock of the Company (in each case, other than as part of such Underwritten
Offering) during the seven-day period prior to, and during the 180-day period
which begins on, the effective date of such registration statement (except as
part of such registration), provided that this Section 5.3 shall not be
applicable to any Shareholder until two Business Days after such Shareholder has
received written notice of the anticipated or actual beginning of the seven-day
period referred to above.
(b) The Company agrees, if so requested by the managing underwriters of
an Underwritten Offering of Registrable Stock pursuant to Section 5.1, not to
effect any public sale or distribution of any Common
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D R A F T
Stock or securities convertible into or exchangeable or exercisable for Common
Stock during the seven-day period prior to and the 180-day period after the
effective date of any registration statement with respect to such Underwritten
Offering, except as part of such Underwritten Offering or except in connection
with any dividend reinvestment, stock option, stock purchase or other benefit
plan, or an acquisition, merger or exchange offer (or the financing thereof).
5.4 Registration Procedures--General. Whenever Shareholders request
that any Registrable Stock be registered pursuant to Section 5.1 or 5.2 hereof,
the Company will do each of the following:
(a) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
Selling Shareholder and each underwriter, if any, of the Registrable Stock
covered by such registration statement copies of such registration statement as
proposed to be filed, and thereafter the Company will furnish to such Selling
Shareholder and underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference in this Agreement), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such Selling Shareholder or underwriter
may reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such Selling Shareholder.
(b) The Company will promptly notify each Selling Shareholder of any
stop order issued or threatened by the SEC and take all reasonable actions
required to prevent the entry of such stop order or to remove it if entered.
(c) The Company will use all commercially reasonable efforts to (i)
register or qualify the Registrable Stock under such other securities or blue
sky laws of such jurisdictions in the United States as any Selling Shareholder
reasonably (in light of such Selling Shareholder's intended plan of
distribution) requests and (ii) cause such Registrable Stock to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable such Selling Shareholder to consummate the disposition of the Registrable
Stock owned by such Selling Shareholder; provided that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (c), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(d) The Company will immediately notify each Selling Shareholder, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Stock, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be
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<PAGE> 19
D R A F T
stated therein or necessary to make the statements therein not misleading
and promptly prepare and make available to each Selling Shareholder any such
supplement or amendment.
(e) Upon the execution of confidentiality agreements in form and
substance satisfactory to the Company, the Company will make available for
inspection by any Selling Shareholder, any managing underwriter participating in
any Underwritten Offering and any attorney, accountant or other professional
retained by any such Selling Shareholder or managing underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, Directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction. Each
Selling Shareholder agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public. Each
Selling Shareholder further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(f) The Company will otherwise use all commercially reasonable efforts
to comply with all applicable rules and regulations of the SEC, and make
available to its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(g) The Company will use its best efforts to list such shares of
Registrable Stock on each securities exchange on which the Common Stock is then
listed, if such shares of Registrable Stock are not already so listed and if
such listing is then permitted under the rules of such exchange, and will
provide a transfer agent and registrar for such Registrable Securities not later
than the effective date of such registration statement.
(h) The Company will, in connection with any Underwritten Offering,
furnish to each Selling Shareholder and to each underwriter, if any, a signed
counterpart, addressed to such underwriter, of (i) an opinion or opinions of
counsel to the Company and (ii) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the Selling Shareholders owning a majority of the
Registrable Stock to be included in such registration or the managing
underwriter therefor reasonably requests.
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D R A F T
(i) The Company will prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Stock
covered by such registration statement until the end of the period specified in
Section 5.1(d) or 5.5 hereof, as applicable.
The Company may require each Selling Shareholder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Stock as the Company may from time to time reasonably request and
such other information as may be required by law or rule or regulation of the
SEC in connection with such registration.
Each Selling Shareholder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
5.4(d) hereof, such Selling Shareholder will forthwith discontinue disposition
of Registrable Stock pursuant to the registration statement covering such
Registrable Stock until such Selling Shareholder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5.4(d) hereof, and,
if so directed by the Company, such Selling Shareholder will deliver to the
Company all copies, other than any permanent file copies then in such Selling
Shareholder's possession, of the most recent prospectus covering such
Registrable Stock at the time of receipt of such notice. In the event that the
Company shall give such notice, the Company shall extend the period during which
such registration statement shall be maintained effective by the number of days
during the period from and including the date of the giving of notice pursuant
to Section 5.4(d) hereof to the date when the Company shall make available to
the Selling Shareholders a prospectus supplemented or amended to conform with
the requirements of Section 5.4(d) hereof.
5.5 Registration Procedures--Demand. Whenever Shareholders request that
any Registrable Stock be registered pursuant to Section 5.1 hereof, the Company
will, subject to the provisions of such Section, use all commercially reasonable
efforts to effect the registration of such Registrable Stock in accordance with
the intended method of disposition thereof as quickly as practicable, and in
connection with any such request, as expeditiously as possible, prepare and file
with the SEC a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which form
shall be available for the sale of the Registrable Stock to be registered
thereunder in accordance with the intended method of distribution thereof, and
use all commercially reasonable efforts to cause such filed registration
statement to become and remain effective for a period of not less than 120 days.
5.6 Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Selling Shareholder, each officer, director, limited or
general partner (together with each officer, director or partner thereof), agent
or investment adviser of such Selling Shareholder, and each Person, if any, who
controls such Selling Shareholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
Losses caused
-19-
<PAGE> 21
D R A F T
by any untrue statement or alleged untrue statement of a material fact contained
in any registration statement or prospectus relating to the Registrable Stock
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, 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 are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished in writing
to the Company by such Selling Shareholder or on such Selling Shareholder's
behalf expressly for use therein; provided that with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such Loss results from the fact that a current copy of the prospectus (if
amended or supplemented, as so amended or supplemented) was not sent or given to
the Person asserting any such Loss at or prior to the written confirmation of
the sale of the Registrable Stock to such Person if it is determined that the
Company has provided such prospectus to such Selling Shareholder and it was the
responsibility of such Selling Shareholder to provide such Person with a current
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
Loss. The Company also agrees to indemnify each underwriter of the Registrable
Stock, its officers, directors and partners and each Person who controls such
underwriter on substantially the same basis as that of the indemnification of
the Selling Shareholders provided in this Section 5.6.
5.7 Indemnification by Selling Shareholders. Each Selling Shareholder
owning Registrable Stock included in any registration statement agrees,
severally but not jointly, to indemnify and hold harmless the Company, its
officers, Directors and agents 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 to the same extent as the foregoing indemnity from the Company
to such Shareholder, but only (i) with respect to information furnished in
writing by such Shareholder or on such Shareholder's behalf expressly for use in
any registration statement or prospectus relating to the Registrable Stock, or
any amendment or supplement thereto, or any preliminary prospectus or (ii) to
the extent that any Loss described in Section 5.6 results from the fact that a
current copy of the prospectus (if amended or supplemented, as so amended or
supplemented) was not sent or given to the Person asserting any such Loss at or
prior to the written confirmation of the sale of the Registrable Stock concerned
to such Person if it is determined that it was the responsibility of such
Shareholder to provide such Person with a current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) and such current
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) would have cured the defect giving rise to such Loss. Each such Selling
Shareholder also agrees to indemnify and hold harmless each underwriter of the
Registrable Stock, each of their respective officers, directors and partners and
each Person who controls any such underwriter on substantially the same basis as
that of the indemnification of the Company provided in this Section
-20-
<PAGE> 22
D R A F T
5.7. As a condition to including Registrable Stock in any registration statement
filed in accordance with Article 5 hereof, the Company may require that it shall
have received an undertaking reasonably satisfactory to it from any underwriter
to indemnify and hold it harmless to the extent customarily provided by
underwriters with respect to similar securities.
5.8 Conduct of Indemnification Proceedings. In case any action or
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 5.6 or 5.7, such Person (an "Indemnified Party") shall promptly notify
the Person against whom such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses; provided that the
failure of any Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of its obligations hereunder except to the extent
that the Indemnifying Party is materially prejudiced by such failure to notify.
In any such action or 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) in the reasonable judgment of such Indemnified Party 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 connection with any action or proceeding or related actions or
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any action 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 shall indemnify and hold harmless such
Indemnified Parties from and against any Loss (to the extent stated above) by
reason of such settlement or judgment. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened action or 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 arising out
of such action or proceeding.
5.9 Contribution. If the indemnification provided for in this Article 5
is unavailable to the Indemnified Parties in respect of any Losses referred to
in this Agreement, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, (i) as between the Company and the
Selling Shareholders owning Registrable Stock covered by a registration
statement on the one hand and the underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by the Company and
such Shareholders on the one hand and the
-21-
<PAGE> 23
D R A F T
underwriters on the other, from the offering of the Registrable Stock,
or if such allocation is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such Shareholders on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such Losses, as well as any other relevant equitable considerations
and (ii) as between the Company on the one hand and each such Shareholder on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of each such Shareholder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and such Shareholders on the one hand and the
underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and such Shareholders
bear to the total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Company and each such Selling
Shareholders, on the one hand, and of the underwriters, on the other, 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 Company and such Selling
Shareholder or by the underwriters. The relative fault of the Company on the one
hand and of each such Shareholder on the other 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 such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 5.9 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 which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the Losses
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 any such action or claim. Notwithstanding the provisions of this
Section 5.9, no underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Stock
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Shareholder shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Stock of such Shareholder were offered to the public exceeds the amount of any
damages which such Shareholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from
-22-
<PAGE> 24
D R A F T
any Person who was not guilty of such fraudulent misrepresentation. Each
Shareholder's obligation to contribute pursuant to this Section 5.9, if any, is
several in the proportion that the proceeds of the offering received by such
Shareholder bears to the total proceeds of the offering received by all the
Shareholders and not joint.
5.10 Participation in Underwritten Offering. No Person may participate
in any Underwritten Offering hereunder unless such Person (a) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and this Agreement.
5.11 No Inconsistent Agreements. From and after the date of this
Agreement, the Company will not enter into, or cause or permit any of its
Subsidiaries to enter into, any agreement which is inconsistent with the rights
granted to the Shareholders in this Agreement or otherwise conflicts with the
provisions hereof.
ARTICLE 6
CONFIDENTIALITY
The confidentiality provisions set forth in Article 6 of the Amended
Original Agreement continue to be applicable.
ARTICLE 7
MISCELLANEOUS
7.1 Adjustments. In the event that any shares of Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another company by reason of merger,
consolidation, other reorganization, recapitalization or reclassification, or in
the event of any combination of shares, stock split or stock dividend, then the
number and kind of shares of Common Stock subject to any provision of this
Agreement shall be adjusted appropriately so that the Company and Shareholders
will retain substantially the same rights and obligations as existed prior to
such change.
7.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
7.3 Binding Effect; Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and
-23-
<PAGE> 25
D R A F T
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the parties hereto, and their respective
heirs, successors, legal representatives and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
7.4 Assignability. (a) This Agreement may not be assigned by a party
hereto to any Person; provided that: (i) any Person who is required by
the terms of this Agreement to become a party by Article II hereof, and
any Permitted Transferee of a Management Shareholder described in clause (i)(c)
and clause (ii) of the definition of "Permitted Transferee" shall
execute and deliver to the Company an agreement to be bound hereby in form and
substance reasonably satisfactory to the Company and shall thenceforth be a
Shareholder, and (ii) any MS Shareholder may assign its rights hereunder to a
MS Permitted Transferee of such MS Shareholder in connection with the
acquisition of shares by such MS Permitted Transferee. The transferring
MS Shareholder shall promptly notify the Company after any such assignment of
the Person to whom this Agreement was assigned in whole or in part.
7.5 Amendment; Waiver. (a) No provision of this Agreement may be waived
except by an instrument in writing executed by the party against whom the waiver
is to be effective. No provision of Article 5 may be amended or otherwise
modified except by an instrument in writing executed by the Company with the
approval of the Board and Shareholders who own at least 80% of the Registrable
Stock then outstanding and in compliance with Section 7.5(b) or (c), if
applicable. No other provision of this Agreement may be amended or otherwise
modified except by an instrument in writing executed by the Company with the
approval of (i) the Board (in the case of an amendment the sole effect of which
is to add one or more Persons as parties to this Agreement) or (ii) the Board
and Shareholders who own at least two-thirds of the Shares then outstanding (in
the case of any other amendment or modification) and in compliance with Section
7.5(b) or (c), if applicable.
(b) In addition, no provision of this Agreement that is specifically
applicable to any MS Shareholder may be amended or otherwise modified or
terminated except with the consent of such MS Shareholder.
-24-
<PAGE> 26
D R A F T
(c) None of the following provisions of this Agreement may be amended
or modified in any manner which adversely affects the Shareholders indicated
below without the consent of such Shareholder:
(i) Citicorp: the definition of "Citicorp";
(ii) Horst W. Schroeder: the definition of "Senior Management
Allotment;" Section 3.1(c); or the definition of "Permitted Transferee"
as such term applies to such Person;
(iii) Timothy S. Webster: the definition of "Senior Management
Allotment;" Section 3.1(c); or the definition of "Permitted
Transferree" as such term applies to such Person; and
(vi) Management Shareholders (other than Horst W. Schroeder
and Timothy S. Webster): the definition of "Management Shareholders
Allotment;" Section 3.1(d); or the definition of "Permitted
Transferree" as such term applies to such Person.
7.6 Notices. All notices and other communications given or made
pursuant hereto or pursuant to any other agreement among the parties, unless
otherwise specified, shall be in writing and shall be deemed to have been duly
given or made if (i) sent by fax, (ii) delivered personally, (iii) sent by
registered or certified mail (postage prepaid, return receipt requested) or (iv)
sent by nationally-recognized courier service guaranteeing overnight delivery to
the parties at the fax number or address set forth on Exhibit A hereto or at
such other addresses as shall be furnished by the parties by like notice, and
such notice or communication shall be deemed to have been given or made upon
receipt. Any Person who becomes a Shareholder shall provide its address and fax
number to the Company, which shall promptly provide such information to each
other Shareholder.
7.7 Headings. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.9 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAW RULES OF SUCH STATE.
7.10 Specific Enforcement. Each of the Company and the Shareholders
agrees that money damages would not be a sufficient remedy for any breach of
this Agreement by the
-25-
<PAGE> 27
D R A F T
Company or such Shareholder, as applicable, and that, in addition to all other
remedies which may be available, the Shareholders (in the event of a breach by
the Company) or the Company (in the event of a breach by a Shareholder) shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy for any such breach.
7.11 No Waiver. No failure or delay by the Company or any Shareholder
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
7.12 Consent to Jurisdiction. Each party hereto irrevocably submits to
the non-exclusive jurisdiction of any State or Federal court sitting in Delaware
over any suit, action or proceeding arising out of or relating to this Agreement
and waives, to the fullest extent permitted by law, any objection it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in such a court has been brought in any inconvenient forum.
7.13 Effective Date. This Agreement shall become immediately following
the Offering Closing. Until such time, the Amended Original Agreement shall
continue in full force and effect until the Offering Closing; provided,
however, the confidentiality provisions of Article 6 of the Amended Original
Agreement shall continue in force as provided herein.
7.14 Release of Certain Shareholders. The following Persons are no
longer subject to this Agreement except for obligations arising prior to the
effective date of this Agreement or subsequent to such date as a result of such
Persons receiving shares of Common Stock from a Shareholder with the condition
of becoming a party to this Agreement again:
William T. Webster, as Custodian for William T. Webster, Jr. Under the
Missouri Uniform Transfers to Minors Law;
William T. Webster, as Custodian for Aubrey A. Webster, Jr. Under the
Missouri Uniform Transfers to Minors Law;
William T. Webster, as Custodian for Samuel Timothy Webster Under the
Missouri Uniform Transfers to Minors Law;
William T. Webster;
Julie D. Webster;
Anna Catherine Webster;
Ernest Jack Webster, Jr.;
-26-
<PAGE> 28
D R A F T
Phillip A. Dibble;
Phyllis Kruse Dibble; and
Daniel Keller.
Such Persons hereby acknowledge they no longer subject to the terms and
conditions and no longer have the rights and privileges of the Amended Original
Agreement.
7.15 Termination. This Agreement or the provisions hereof shall
terminate as follows, except as otherwise agreed.
(a) As to any Management Shareholder, upon his death, Disability or
termination of employment.
(b) As to Article 3, upon a Change of Control of the Company. For
purposes of this paragraph (b), "Change of Control" shall mean: (a) the
consummation of a reorganization, merger or consolidation or sale or other
disposition of substantially all of the assets of the Company; or (b) the
acquisition by any Person or group (within the meaning of Section 13(d)-5 of the
Exchange Act) of Control of the Company. "Control" shall mean beneficial
ownership of: (i) more than twenty percent of the combined voting power of the
Company's then outstanding voting securities entitled to vote generally in the
election of directors or managers; or (ii) a level of voting power sufficient to
give such acquiring Person the ability to: (A) materially influence, through
corporate governance or similar exercise of authority, rights of ownership or
contract rights, the management or policies of the Company; or (B) elect a
majority of the Directors of the Company.
(c) Any Shareholder who ceases to own, directly or indirectly,
beneficially or of record, any Shares shall cease to be bound by the terms of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in their individual capacity or caused it to be duly executed by their
respective authorized signatories thereunto duly authorized as of the day and
year first above written.
[SIGNATURE PAGES]
[EXHIBIT A - ADDRESS FOR NOTICE
(NO CHANGE OTHER THAN KELLER AND EVANS)]
-27-
<PAGE> 29
D R A F T
AMERICAN ITALIAN PASTA COMPANY
By:
----------------------------------
Timothy S. Webster
President and Chief Executive Officer
THE MORGAN STANLEY LEVERAGED EQUITY FUND
II, L.P.
BY: MORGAN STANLEY LEVERAGED EQUITY
FUND II, INC., AS GENERAL PARTNER
By:
----------------------------------
Its:
---------------------------------
MORGAN STANLEY CAPITAL PARTNERS III, L.P.
BY: MSCP III, L.P., AS GENERAL PARTNER
BY: MORGAN STANLEY CAPITAL PARTNERS III,
INC., AS GENERAL PARTNER
By:
----------------------------------
Its:
--------------------------------
MSCP III 892 INVESTORS, L.P.
BY: MSCP III, L.P., AS GENERAL PARTNER
BY: MORGAN STANLEY CAPITAL PARTNERS III,
INC. AS GENERAL PARTNER
By:
----------------------------------
Its:
----------------------------------
-28-
<PAGE> 30
D R A F T
MORGAN STANLEY CAPITAL INVESTORS, L.P.
By: MSCP III, L.P., as General Partner
By: Morgan Stanley Capital Partners III, Inc.,
as General Partner
By:
---------------------------------------------
Its:
--------------------------------------------
GEORGE K. BAUM GROUP, INC.
By:
---------------------------------------------
Its:
--------------------------------------------
AMERICAN ITALIAN PASTA COMPANY
RETIREMENT SAVINGS PLAN
By: George K. Baum Trust Company, as Trustee
By:
---------------------------------------------
Its:
--------------------------------------------
GEORGE K. BAUM CAPITAL PARTNERS, L.P.
By:
---------------------------------------------
Ben D. Trevathan, Managing Director
GEORGE K. BAUM EMPLOYEE EQUITY FUND, L.P.
By:
---------------------------------------------
Ben D. Trevathan, Managing Director
-29-
<PAGE> 31
D R A F T
CITICORP VENTURE CAPITAL, LTD.
By:
---------------------------------------------
Its:
--------------------------------------------
CCT III PARTNERS, L.P.
By: CCT III CORPORATION,
as General Partner
By:
---------------------------------------------
Its:
--------------------------------------------
-------------------------------------------------
Horst W. Schroeder
HORST W. SCHROEDER, TRUSTEE OF THE LIVING
TRUST OF HORST W. SCHROEDER, DATED MAY 24,
1985, OR SUCCESSOR TRUSTEE
By:
---------------------------------------------
Horst W. Schroeder, Trustee
------------------------------------------------
Isabel A. Lange
------------------------------------------------
Bernd H. Schroeder
------------------------------------------------
Gisela I. Schroeder, Trustee of the Living Trust
of Gisela I. Schroeder U/T/I Dated May 24, 1985
-30-
<PAGE> 32
D R A F T
WILLIAM T. WEBSTER, AS CUSTODIAN FOR
WILLIAM T. WEBSTER, JR. UNDER THE MISSOURI
UNIFORM TRANSFERS TO MINORS LAW
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
WILLIAM T. WEBSTER, AS CUSTODIAN FOR
AUBREY A. WEBSTER, JR. UNDER THE MISSOURI
UNIFORM TRANSFERS TO MINORS LAW
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
WILLIAM T. WEBSTER, AS CUSTODIAN FOR
SAMUEL TIMOTHY WEBSTER UNDER THE
MISSOURI UNIFORM TRANSFERS TO MINORS LAW
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
KRISTEN D. WEBSTER AND JAMES A. HEETER, CO-
TRUSTEES UNDER THE TIMOTHY S. WEBSTER
FAMILY GIFT TRUST OF 1996, DATED
SEPTEMBER 27, 1996
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
WILLIAM T. WEBSTER
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
-31-
<PAGE> 33
D R A F T
JULIE D. WEBSTER
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
ANNA CATHERINE WEBSTER
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
ERNEST JACK WEBSTER, JR.
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
PHILLIP A. DIBBLE
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
PHYLLIS KRUSE DIBBLE
By:
----------------------------------------
Timothy S. Webster, Attorney-in-Fact
-------------------------------------------
Timothy S. Webster
-32-
<PAGE> 34
D R A F T
THOMPSON HOLDINGS, L.P.
By: THOMPSON HOLDINGS, INC.,
as General Partner
By:
----------------------------------------
Richard C. Thompson, President
-------------------------------------------
Richard C. Thompson
-------------------------------------------
Jerry Dear
-------------------------------------------
Daniel Keller
-------------------------------------------
Mike Willhoite
-------------------------------------------
David E. Watson
-------------------------------------------
Darrel Bailey
-------------------------------------------
Norman F. Abreo
-------------------------------------------
David B. Potter
-------------------------------------------
Robert Evans
-33-
<PAGE> 35
D R A F T
JSS MANAGEMENT COMPANY LTD.
By:
-------------------------------------------
Its:
---------------------------------------
-------------------------------------------
James A. Schlindwein
-------------------------------------------
Suzanne S. Schlindwein
-34-
<PAGE> 36
D R A F T
EXHIBIT A
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Attention: Timothy S. Webster
Fax: (816) 637-8358
with a copy to:
Sonnenschein Nath & Rosenthal
4520 Main Street, Suite 1100
Kansas City, Missouri 64111
Attention: James A. Heeter, Esq.
Fax: (816) 932-4452
The Morgan Stanley Leveraged Equity Fund II, L.P.
Morgan Stanley Capital Partners III, L.P.
MSCP III 892 Investors, L.P.
Morgan Stanley Capital Investors, L.P.
c/o Morgan Stanley Capital Partners
Attention: Lawrence B. Sorrel
1221 Avenue of the Americas
New York, New York 10020
Facsimile No. (212) 762-7951
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Carole Schiffman, Esq.
Fax: (212) 450-4800
A-1
<PAGE> 37
D R A F T
Thompson Holdings, L.P.
c/o Richard C. Thompson
2200 S. Ocean Lane, Apt. 1410
Ft. Lauderdale, Florida 33316
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
Citicorp Venture Capital, Ltd.
CCT III Partners, L.P.
399 Park Avenue - 14th Floor
New York, New York 10043
Attention: David Y. Howe
Fax: (212) 888-2940
Horst W. Schroeder, Trustee of the Living Trust of Horst W. Schroeder,
U/T/A 5/24/85
Bernd H. Schroeder
Isabel A. Lange
c/o Horst W. Schroeder
31 Battery Road
Hilton Head, South Carolina 29928
Facsimile No. (803) 671-4832
A-2
<PAGE> 38
D R A F T
Timothy S. Webster
William T. Webster, as Custodian for William T. Webster, Jr.
William T. Webster, as Custodian for Aubrey A. Webster, Jr.
Kristen D. Webster and James A. Heeter, Co-Trustees Under the Timothy S. Webster
Family Gift Trust of 1996, Dated September 27, 1996
William T. Webster
Julie D. Webster
Anna Catherine Webster
Ernest Jack Webster, Jr.
Phillip A. Dibble
Phyllis Kruse Dibble
c/o Timothy S. Webster
American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Facsimile No. (816) 502-6090
with a copy to:
James M. Ash, Esq.
Blackwell Sanders Weary Matheny & Lombardi L.C.
Suite 1100
Two Pershing Square, 2300 Main Street
Kansas City, Missouri 64108
Facsimile No. (816) 983-8080
Daniel Keller
14 Dodge Place
Grosse Pointe, Michigan 48230
Norman F. Abreo
Darrel Bailey
Jerry Dear
David B. Potter
David E. Watson
Mike Willhoite
Robert Evans
c/o American Italian Pasta Company
1000 Italian Way
Excelsior Springs, Missouri 64024
Facsimile No. (816) 502-6090
James A. Schlindwein
9165 Briar Forest
Houston, Texas 77024
A-3
<PAGE> 39
D R A F T
Facsimile No. (713) 789-1557
Suzanne S. Schlindwein
JSS Management Company, Ltd.
c/o James A. Schlindwein
9165 Briar Forest
Houston, Texas 77024-7222
Facsimile No. (713) 789-1557
George K. Baum Group, Inc.
George K. Baum Capital Partners, L.P.
George K. Baum Employee Equity Fund, L.P.
Excelsior Investors, L.L.C.
c/o Mr. Jonathan Baum
George K. Baum Merchant Banc, LLC
120 West 12th Street
Suite 800
Kansas City, Missouri 64105
The American Italian Pasta Company Retirement Savings Plan
c/o George K. Baum Trust Company
Attn: David Black
120 West 12th Street
Suite 800
Kansas City, Missouri 64105
A-4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Financial and Other Data" and to the use of our report dated October
27, 1997 except Note 13, as to which the date is April 6, 1998, in the
Registration Statement (Form S-1 No. 333-00000) and related Prospectus of
American Italian Pasta Company for the registration of 1,000,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
April 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AT SEPTEMBER 30, 1996 AND 1997; STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1995, THE FISCAL NINE-MONTHS ENDED SEPTEMBER 30, 1996, AND
THE YEAR ENDED SEPTEMBER 30, 1997; STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
YEAR ENDED DECEMBER 31, 1995, THE FISCAL NINE-MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED SEPTEMBER 30, 1997; THE STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1995, THE FISCAL NINE-MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> OCT-03-1997
<CASH> 2,724
<SECURITIES> 0
<RECEIVABLES> 9,376
<ALLOWANCES> 196
<INVENTORY> 13,675
<CURRENT-ASSETS> 27,242
<PP&E> 130,845
<DEPRECIATION> 29,332
<TOTAL-ASSETS> 158,175
<CURRENT-LIABILITIES> 15,054
<BONDS> 100,137
0
0
<COMMON> 11
<OTHER-SE> 42,973
<TOTAL-LIABILITY-AND-EQUITY> 158,175
<SALES> 129,143
<TOTAL-REVENUES> 129,143
<CGS> 93,467
<TOTAL-COSTS> 113,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,119
<INCOME-PRETAX> 8,127
<INCOME-TAX> 3,070
<INCOME-CONTINUING> 5,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,057
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.42
</TABLE>
