SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
AMERICAN ITALIAN PASTA COMPANY
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(Name of Registrant as Specified In Its Charter)
not applicable
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(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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<PAGE>
1000 Italian Way
Excelsior Springs, Missouri 64024
AMERICAN ITALIAN PASTA COMPANY
NOTICE AND PROXY STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
FEBRUARY 4, 1999
YOUR VOTE IS IMPORTANT!
Please mark, date and sign the enclosed proxy card and promptly
return it to the Company in the enclosed envelope.
Mailing of this Notice and Proxy Statement, the accompanying Proxy, and the
accompanying 1998 Annual Report, commenced on or about December 28, 1998.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
1000 ITALIAN WAY
EXCELSIOR SPRINGS, MISSOURI 64024
___________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
___________________
The Annual Meeting of the Stockholders of American Italian Pasta
Company, a Delaware corporation ("AIPC"), will be held at The Elms, 401
Regent Street, Excelsior Springs, Missouri, at 1:15 p.m. on February 4,
1999, to consider and vote upon the following:
1. Election of three Directors;
2. Ratification of the Board of Directors' selection of Ernst &
Young LLP to serve as AIPC's independent auditors for fiscal year
1999;
3. Approval of American Italian Pasta Company Employee Stock
Purchase Plan;
4. Approval of American Italian Pasta Company 1992 Stock Option
Plan;
5. Approval of American Italian Pasta Company 1993 Nonqualified
Stock Option Plan;
6. Approval of American Italian Pasta Company 1997 Equity Incentive
Plan; and
7. Such other matters as may properly be brought before the Annual
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on December 16, 1998,
are entitled to notice of and to vote at this meeting or any adjournment
thereof.
By Order of the Board of Directors,
/s/ David E. Watson
Executive Vice President - Operations Support
and Technology and Secretary
The date of this Notice is December 28, 1998.
Please date, sign and promptly return the enclosed proxy card, regardless
of the number of shares you may own and whether or not you plan to attend
the meeting in person. You may revoke your proxy and vote your shares in
person if revoked in accordance with the procedures described in the
attached proxy statement. Please also indicate on your proxy card whether
you plan to attend the Annual Meeting.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
1000 Italian Way
Excelsior Springs, Missouri 64024
PROXY STATEMENT
TABLE OF CONTENTS
-----------------
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Proposal 1 - Election of Three Directors . . . . . . . . . . . . . . . . 5
The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 6
Stock Owned Beneficially by Directors,
Nominees and Certain Executive Officers . . . . . . . . . . . . . . 7
Stock Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management Compensation . . . . . . . . . . . . . . . . . . . . . . . 10-15
Certain Relationships and Related Transactions . . . . . . . . . . . . 15
Proposal 2 - Ratification of the Board of
Directors' Selection of Independent Auditors . . . . . . . . . . . 16
Proposal 3 - Approval of the American Italian Pasta
Company Employee Stock Purchase Plan . . . . . . . . . . . . . . 16-17
Background for Proposals 4, 5 and 6 . . . . . . . . . . . . . . . . . 18
Proposal 4 - Approval of the American Italian Pasta
Company 1992 Stock Option Plan . . . . . . . . . . . . . . . . . 18-19
Proposal 5 - Approval of the American Italian Pasta
Company 1993 Nonqualified Stock Option Plan . . . . . . . . . . 20-21
Proposal 6 - Approval of the American Italian Pasta
Company 1997 Equity Incentive Plan . . . . . . . . . . . . . . . 21-23
Voting and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 26
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . 27
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
<PAGE>
GENERAL INFORMATION
This Proxy Statement is being mailed on or about December 28, 1998 to
the holders of record at the close of business on December 16, 1998 (the
"Record Date") of American Italian Pasta Company's, a Delaware corporation
("AIPC" or the "Company"), Class A Convertible Common Stock, par value
$0.001 per share (the "Common Stock"), in connection with the solicitation
of proxies by AIPC's Board of Directors for use at the Annual Meeting of
Stockholders to be held at The Elms, 401 Regent Street, Excelsior Springs,
Missouri, on February 4, 1999, at 1:15 p.m. and any adjournment thereof
(the "Annual Meeting"). The Notice of Annual Meeting of Stockholders,
AIPC's 1998 Annual Report to Stockholders (the "Annual Report"), and the
proxy card accompany this Proxy Statement.
Attendance at the Annual Meeting of Stockholders is limited to
stockholders of record or their proxies, beneficial owners of AIPC's stock
having evidence of such ownership and guests of AIPC. Any stockholder or
stockholder's representative who, because of a disability, may need special
assistance or accommodation to allow him or her to participate in the
Annual Meeting may request reasonable assistance or accommodation from AIPC
by contacting AIPC's Vice President of Investor Relations at 1000 Italian
Way, Excelsior Springs, Missouri 64024, at 816-502-6000. To provide AIPC
sufficient time to arrange for reasonable assistance please submit all
requests by January 15, 1999.
AIPC changed its fiscal year end from December 31 to the last Friday
of September or the first Friday of October effective beginning with the
nine-month fiscal period ended September 27, 1996 and for all subsequent
periods. This change resulted in a nine-month fiscal year for 1996, 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 or the first Friday of the following month of each quarter.
For purposes of this Proxy Statement, the 1998 and 1997 fiscal years are
described as having ended September 30.
<PAGE>
PROPOSAL 1 - ELECTION OF THREE DIRECTORS
The Board of Directors of AIPC is divided into three classes. The
members of each class serve staggered three year terms of office, which
results in one class standing for election at each annual meeting of
stockholders. The term of office for the directors elected at the Annual
Meeting will expire in 2002 or when their successors are elected and
qualified.
Three persons have been nominated by management for election as
directors. All three individuals are presently directors of AIPC, all of
the nominees have indicated that they are willing and able to serve as
directors if elected, and all have consented to being named as nominees in
this Proxy Statement. If any nominee should become unable or unwilling to
serve, the Proxy Committee intends to vote for one or more substitute
nominees chosen by them in their sole discretion. AIPC's Certificate of
Incorporation and Bylaws do not have any eligibility requirements for
directors.
As explained further under "Certain Relationships and Related
Transactions," the Morgan Stanley Leveraged Equity Fund, L.P. (the
"MSLEF"), Morgan Stanley Capital Partners III, L.P. ("MSCP" and
collectively with MSLEF "Morgan Stanley") have the right to designate one
nominee for director depending on their level of ownership of AIPC's Common
Stock. Morgan Stanley has not designated any nominee for this year's
election of directors.
As explained further under "Voting and Proxies," Directors are elected
by the affirmative vote of the plurality of the shares of Common Stock
present at the Annual Meeting that are entitled to vote on the election of
directors, assuming a quorum.
Nominees for Director to Serve Until the Annual Meeting of Stockholders in
2002.
JONATHAN E. BAUM, age 38, has served as a Director of the Company
since 1994. Mr. Baum is also a director of George K. Baum Merchant Banc,
L.L.C. 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.
ROBERT H. NIEHAUS, age 43, has served as a Director of the Company
since 1992. He has been a Managing Director of Morgan Stanley & Co.
Incorporated since 1990. He is Managing Director and a Director of Morgan
Stanley Leveraged Equity Fund II, Inc. and Morgan Stanley Capital Partners
III, Inc. He is also a director of Silgan Holdings Inc. and Pagemart
Wireless, Inc.
RICHARD C. THOMPSON, age 47, has served as a Director of the Company
since 1986. Since 1993, he has been President and Chief Executive Officer
of Thompson's Nutritional Technology, Inc., a pet food producer. He is a
co-founder of the Company and served as its President from May 1986 to June
1991.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
THE ELECTION OF MANAGEMENT'S NOMINEES
<PAGE>
THE BOARD OF DIRECTORS
The Board of Directors met nine times in fiscal year 1998. The Board
meets regularly to review significant developments affecting AIPC and to
act on matters requiring Board approval. All directors attended at least
seventy-five percent of the meetings of the Board in fiscal year 1998 other
than Mr. Thompson who attended six of the nine meetings.
DIRECTORS SERVING UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2000.
HORST W. SCHROEDER, age 57, 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.
MARK C. DEMETREE, age 42, has served as a Director of the Company
since 1998. Since 1997, he has been Chairman of the Board, President and
Chief Executive Officer of US Salt Corporation, which is an investment and
management firm, specializing in the natural resource, basic chemicals and
specialty chemicals industries. Previously he had been President of North
American Salt Company from 1993 to 1997. Mr. Demetree is also a director of
Advanced Radio Telecom Corp.
TIMOTHY S. WEBSTER, age 37, has served as President of the Company
since June 1991, as President and Chief Executive Officer of the Company
since May 1992, and as a Director since June 1989. Mr. Webster joined the
Company in April 1989, and served as Chief Financial Officer from May 1989
to December 1990 and as Chief Operating Officer from December 1990 to June
1991.
DIRECTORS SERVING UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2001.
DAVID Y. HOWE, age 34, 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., and Imsilco Holding Co.
JOHN P. O'BRIEN, age 57, 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 March 1993. Prior to joining Inglewood Associates,
Inc., he was the Southeast Regional Managing Partner for Price Waterhouse
(now PriceWaterhouseCoopers) and a member of the firm's Policy Board and
Management Committee from July 1984 to April 1990.
WILLIAM R. PATTERSON, age 57, is a founder and manager of Stonecreek
Management, LLC, a private investment firm since August 1998. Prior to
that, he served as 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 October 1996 to August
1998. From January to October 1996, Mr. Patterson was a principal of
Patterson Consulting, LLC and as a consultant was acting chief financial
officer for PSF, Inc. From 1976 through 1995, Mr. Patterson was a partner
in Arthur Andersen LLP. He is also a director of Paul Mueller Company and
Collins Industries, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Under AIPC's Bylaws, the Board of Directors may establish, change and
terminate one or more committees made up of members of the Board of
Directors to perform certain functions. The Board of Directors has
established an Audit Committee and a Compensation Committee, but has not
established a nominating committee. Each such committee has two or more
members who serve at the pleasure of the Board of Directors. There were two
meetings of the Audit Committee, and one meeting of the Compensation
Committee during fiscal year 1998. Mr. Thompson did not attend one of the
Audit Committee meetings. All of the other directors attended the meetings
of the committees on which they served during fiscal 1998.
THE AUDIT 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 auditors, and for
making recommendations with respect to those matters to the Board of
Directors.
The current members of the Audit Committee are: Messrs. Baum,
Patterson and Thompson.
THE COMPENSATION COMMITTEE
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 AIPC,
including the terms and conditions of their employment, and administers all
stock option and other benefit plans affecting key employees' and officers'
direct and indirect remuneration.
The current members of the Compensation Committee are: Messrs.
Demetree, O'Brien and Schroeder.
The Committee's report on executive compensation is set forth in the
section under "Management Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All compensation decisions during the fiscal year ended September 30,
1998 for each of the Named Executive Officers were made by the Compensation
Committee of the Board of Directors. Mr. Schroeder as Chairman of the
Board, is an officer of AIPC.
COMPENSATION OF DIRECTORS
Messrs. Howe, Schroeder, Webster and Niehaus currently are the only
directors who do not receive fees for serving as directors of the Company.
Effective January 1, 1998, all directors who are not employees of AIPC or
employees of significant stockholders ("Outside Directors") are paid an
annual retainer of $15,000, which is payable in 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 are paid
$500 in cash for each committee meeting attended. An Outside Director who
is a chairman of such a committee is paid an annual cash retainer of
$2,500. All directors are reimbursed for out-of-pocket expenses incurred
in connection with attendance at meetings of the Board of Directors and
meetings of Board committees.
<PAGE>
STOCK OWNED BENEFICIALLY BY DIRECTORS, NOMINEES
AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock as of the Record Date by: (i) each
director or nominee for director of AIPC; (ii) certain executive officers;
and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
NAME BENEFICIALLY OWNED
BENEFICIAL OWNER NUMBER PERCENT <FN1>
---------------- ------ ------------------
<S> <C> <C>
Horst W. Schroeder <FN2><FN3> 592,079 3.19%
Jonathan E. Baum <FN4> 22,173 *
David Y. Howe ----- ---
Robert H. Niehaus ----- ---
Mark C. Demetree 10,000 *
John P. O'Brien 1,544 *
William R. Patterson 4,544 *
Timothy S. Webster <FN3><FN5> 370,730 2.01%
David E. Watson <FN3> 125,714 *
Norman F. Abreo <FN3> 58,498 *
David B. Potter <FN3> 36,510 *
Richard C. Thompson 230,798 1.28%
All directors and executive 1,452,590 7.63%
officers as a group
(18 persons) <FN3>
-----------------------------
* Less than 1% of the outstanding Common Stock.
<FN>
<FN1> Beneficial ownership is determined in accordance with the rules
of the United States Securities and Exchange Commission (the
"Commission"), but generally refers to either the sole or shared
power to vote or dispose of the shares. 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 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.
<FN2> 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. Mr. Schroeder has voting power, but not investment
power, with respect to all of these shares.
<FN3> 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 Record Date are deemed beneficially owned by that
person. Options that are currently exercisable or will become
exercisable within 60 days of the Record Date to purchase shares
of Common Stock as follows: Mr. Schroeder (463,608 shares), Mr.
Webster (336,367 shares) Mr. Watson (75,092 shares), Mr. Abreo
(51,281 shares), and Mr. Potter (21,462 shares) and all executive
officers and directors as a group (947,810 shares).
<FN4> Includes 12,213 shares held by Group Partners, L.P., 3,552
shares held by GKB Private Investment Partners, LLC, 223 shares
held by GKB Equity, Inc. and 1,776 shares held by Grandchild,
L.P. As an officer and/or equity owner of the entities holding
such shares, Mr. Baum may share voting power with respect to such
shares. Mr. Baum also may be deemed to own beneficially 800
shares held by his wife, Sarah Baum, as custodian for their minor
children. Mr. Baum disclaims beneficial ownership of such
shares, except for the shares held by GKB Equity, Inc.
<FN5> Includes 17,040 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.
</FN>
</TABLE>
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows the changes in value over the year ending
September 30, 1998 of an assumed investment of $100 in: (i) AIPC's Common
Stock; (ii) a group of peer companies(1); and (iii) the stocks that
comprise the Russell 2000 Index(2). The table following the graph shows
the value of those investments as of September 30, 1998. The value for the
assumed investments depicted on the graph and in the table has been
calculated assuming that any cash dividends are reinvested at the end of
each quarter during the fiscal year paid.
AMERICAN ITALIAN PASTA COMPANY
RELATIVE MARKET PERFORMANCE
TOTAL RETURN FISCAL 1998
[Stock Graph Inserted Here]
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER
30,
QUARTER ENDED 1997(3) 1997 1998 1998 1998
<S> <C> <C> <C> <C> <C>
AIPC Total
Return $100 $138.89 $200.69 $206.94 $145.83
Peer Group $100 $102.60 $113.92 $107.85 $ 90.80
Russell 2000 $100 $ 96.65 $106.36 $103.38 $ 82.55
Index
Total Return
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</TABLE>
1. The index is comprised of the following companies: Aurora Foods Inc;
Dole Food Inc; Earthgrains Co; Flowers Inds Inc; International Home
Foods Inc; Keebler Foods Co; Mccormick & Co Inc; and Riviana Foods,
Inc.
2. The Russell 2000 is an index prepared by Frank Russell Company, an
independent company. The Russell 2000 reflects the change in weighted
average market value for 2000 companies whose shares are traded on the
New York Stock Exchange, American Stock Exchange and in the over-the-
counter market. Information concerning Frank Russell Company and the
Russell 2000 Index is available on the Internet at www.russell.com.
3. AIPC Common Stock began trading publicly on October 8, 1997.
<PAGE>
MANAGEMENT COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The Board of Directors' compensation policy is to reward exceptional
performance by the Company's employees while providing reasonably
competitive base compensation. The Compensation Committee is responsible
for implementing this policy for the executive officers of the Company.
The Committee evaluates the compensation packages of these executives
at least annually. The Committee regularly discusses with independent
compensation consultants both the composition and level of the compensation
packages, and the Committee regularly informs the Board of the Committee's
activities.
In designing the compensation packages for the Company's executives,
the Committee uses surveys, prepared by the compensation consultants, of
the compensation practices for different job levels of other industrial
companies with revenues of $1 billion or less. The Committee believes that
those are the companies with which the Company most actively competes for
executives. The job level for a position at AIPC and in the surveys is
determined based upon the compensation consultant's analysis of the
position's level of knowledge, accountability and problem solving (as
contrasted to determining the job level based upon title). The use of job
level analysis allows the Committee to compare more accurately the
Company's compensation package for a particular executive with the market
practices within the comparison market. The compensation consultants do
not consider the financial performance of companies participating in the
survey when comparing the Company's compensation packages to the market.
The Committee's current compensation program has three primary
components: base salary, annual incentives and long-term equity based
incentives. The Committee's process of determining each of these
components for the executives in general and Mr. Webster in particular is
discussed below.
Base Salary. The Committee initially sets an executive's base salary
at the median of the range of base salaries indicated in the surveys, but
may adjust the salary, in the Committee's discretion, upwards or downwards
within a limited range around that point. The Committee considers the
recommendations of the Chairman of the Board and the Chief Executive
Officer when making any such adjustment. The Committee chooses the median
of the base salary range so the Company's base salaries are competitive
with the base salaries of other industrial companies. The Committee does
not consider the financial performance of the Company in setting base
salaries.
Annual Incentives. The Committee uses annual incentives to focus
executives on accomplishing specific objectives, both corporate and
personal, that the Committee and Board believe are necessary to enhance the
shorter-term performance of the Company. All executives participate in the
annual cash incentive program administered by the Committee. Each of the
various objectives, goals, targets and proportions related to determining
the annual incentive is established by the Committee or agreed to with the
executive prior to the period in which the performance is to be measured.
The annual incentives are currently paid in cash.
An executive's annual incentive received is the result of a target
annual incentive adjusted for the executive's personal performance and the
financial performance of the Company. The Committee sets an executive's
target annual incentive so that if earned, the executive's total cash
compensation (base salary plus annual incentive) would be at the
seventy-fifth percentile level of the range of total cash compensation
indicated in the compensation survey for the job level. This level is
consistent with the Company's compensation policy of focusing on
performance-based compensation.
The personal performance component of the annual incentive is based
upon the Committee's assessment of the executive's actual performance
against specific corporate objectives for the executive and the executive's
agreed upon personal goals. These corporate objectives vary between
executives, but generally relate to corporate performance measures in the
executive's area of responsibility. The executives' personal goals also
vary among executives, but generally focus on the key accountabilities
defined in the job description. Each of these factors is given special
weight in determining the executive's performance rating. The Committee
may also, in its discretion, take into account other factors in determining
an executive's overall personal performance rating. This performance
rating is used to adjust the target annual incentive downward to nothing or
upwards to 150 percent of the target annual incentive to arrive at the
executive's potential annual incentive.
Of the total potential annual incentive, 100 percent is based upon the
executives's personal performance but may be adjusted upward or downward
based upon the actual financial performance of the Company. There is no
further adjustment to the portion attributable to personal performance.
The financial performance rating of the Company is based upon the
comparison of the Company's actual earnings to a pre-established earnings
target and range of earnings of the Company for the measurement period. No
adjustment is made to the financial performance portion if the Company's
earnings match the target, and none of the potential annual incentive
relating to the financial performance of the Company is paid if the
Company's earnings fall below the bottom of the range. If the Company's
earnings fall below the earnings target within the range, the financial
performance portion is adjusted to 75 percent of its initial level. If the
Company's earnings exceed the earning target, the financial performance
portion is adjusted up to 125 percent of its initial level depending on how
far in excess of the target actual earnings are.
Long-Term Equity Incentives. Equity incentives are a very important
component of the Company's executive compensation program. Equity
incentives are the most effective means known to the Committee of aligning
an executive's interests with those of the stockholders and focusing the
executive on creating long-term value for the Company's stockholders.
Generally, all executives participate in the Committee's equity incentives
program. The Committee may, however, determine in its discretion to not
award any equity incentives to certain executives. In making such a
determination, the Committee will generally consider the executive's past
performance and recommendations of the Chairman of the Board and Chief
Executive Officer. No particular weighting is given to any of these
factors.
The Committee uses options to acquire the Company's Common Stock with
an exercise price equal to the value of the stock on the date of the option
award as the Company's equity incentive because options do not reward the
executive until all stockholders realize an increase in the value of their
investment in the Company. The Committee sets the number of shares to be
covered by any option awarded by equating the present value of the options
(using an assumed appreciation and the cost of funds rates) to a target
equity incentive level for the executive.
The target equity incentive level is determined by setting target
total direct compensation (base salary plus target annual and equity
incentives) for a particular executive at the seventy-fifth percentile
level of the range of values of the total direct compensation indicated in
the compensation surveys for the job level. As with the annual incentives,
this level is consistent with the Company's compensation policy of focusing
on pay for performance.
The Committee may then, in its discretion, adjust the target equity
incentive level upwards or downwards within a limited range around the
target level. The Committee does not generally consider any specific
factors when making any adjustment to the target incentive level other than
previously awarded equity incentives, the Committee's perception of the
executive's contribution to the Company and the recommendations of the
Chairman of the Board and the Chief Executive Officer. No particular
weighting is given to these factors. The stock options awarded the
Company's executives are intended to cover a five-year period. The
options, therefore, become exercisable at a rate of twenty percent per
year.
For fiscal year 1998, the Committee recommended the adjusted equity
incentive level to the Board of Directors, which had reserved to itself the
right to grant equity incentives to the executive officers of the Company.
The Board, in its discretion, may adjust the Committee's recommended award.
The Board does not consider any specific factors in making any adjustment.
Beginning mid-year the board delegated the responsibility for awarding
equity incentives to the Committee.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee determines Mr. Webster's compensation package using the
same methods as is it uses for the other executives of the Company. For
fiscal year 1998, the Committee set Mr. Webster's base salary at
approximately the midpoint of the range of comparable salaries indicated on
the survey's utilized. Mr. Webster's 1998 annual incentive performance
objectives were based on the earnings of the Company and meeting all of his
personal annual performance objectives. In establishing Mr. Webster's
annual incentive compensation, the Committee sought to reward his
outstanding performance in connection with the long-term production
agreement with Bestfoods, the long-term supply agreement with Amber
Milling, initiation of the construction of the Kenosha production facility
and the Company's transition from private to public ownership. Mr.
Webster was also awarded options in connection with the Company's initial
public offering. The number of shares was at the target incentive level
(determined as specified above).
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code generally limits
deductions by publicly held corporations for federal income tax purposes to
$1 million of compensation paid to each of the executive officers listed in
the corporation's summary compensation table unless such excess
compensation is "performance based" as defined in Section 162(m). In order
for compensation to qualify as "performance based," among other
requirements, the performance goals must be set (and in the case of
options, the options must be granted) by a compensation committee
consisting solely of two or more outside directors (as defined in Section
162(m)). The Committee member who does not qualify as an "outside
director" abstains from the vote on performance-based compensation and on
the granting of options or other equity-based compensation. Based on a
private letter ruling issued by the Internal Revenue Service in December
1997, the Committee believes that, with the non-outside director
abstaining, the Committee qualifies as a compensation committee consisting
solely of two or more outside directors (as defined in Section 162(m)), and
that, accordingly, compensation arising from the exercise of non-qualified
options granted by the Committee under the 1992 Plan, the 1993 Plan, and
the 1997 Plan, as well as stock appreciation rights granted under the 1997
Plan will be tax-deductible by the Company. However, there can be no
assurance of that result. While a private letter ruling is not binding on
the IRS except with respect to the party to whom it is issued, it is
instructive as to the thinking of the IRS at the time the letter was
issued. Restricted Shares and Bonus Shares granted under the 1997 Plan
will be subject to the limitations of Section 162(m).
The Committee will review from time to time in the future the
potential impact of Section 162(m) on the deductibility of executive
compensation. However, the Committee intends to maintain the flexibility
to take actions that we consider to be in the best interests of the Company
and our stockholders and which may be based on considerations in addition
to tax deductibility.
THE COMPENSATION COMMITTEE.
John P. O'Brien
Horst W. Schroeder
Mark C. Demetree
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
The Summary Compensation Table below shows certain information concerning the compensation paid
by AIPC to the CEO and the Named Executive Officers during fiscal 1998 (based upon the total salary
and bonus paid during fiscal 1998).
FISCAL LONG-TERM
PERIOD COMPENSATION
COMPENSATION AWARDS
------------ ------
SECURITIES ALL
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION PERIOD<FN1> SALARY($) BONUS($) OPTIONS(#) COMPENSATION
--------------------------- ----------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Timothy S. Webster 1998 $359,676 $250,000 398,583 $ 4,875<FN2>
President and 1997 282,596 250,000 84,622 7,151<FN2>
Chief Executive Officer 1996 185,615 125,000 --- 4,967<FN2>
Horst W. Schroeder 1998 272,000 125,000 275,942 ---
Chairman of the Board 1997 183,700 180,000 84,622 ---
1996 98,047 40,000 --- 330,000<FN3>
David E. Watson 1998 198,307 80,000 61,320 5,481<FN4>
Executive Vice President 1997 159,931 90,000 --- 5,244<FN4>
- Operations Support 1996 119,510 37,500 --- 4,484<FN4>
and Technology
Norman F. Abreo 1998 175,600 70,000 61,320 4,552<FN4>
Executive Vice 1997 137,423 80,000 --- 3,223<FN4>
President - Operations 1996 99,856 37,500 --- 1,226<FN4>
David B. Potter 1998 139,774 50,000 66,726 4,333<FN4>
Executive Vice President 1997 105,954 45,000 15,330 4,871<FN4>
and General Manager - 1996 78,000 29,000 --- 2,777<FN4>
Industrial Markets
<FN>
<FN1> For purposes of the foregoing table, the Company's 1998 and 1997 fiscal years extended
from October 1, 1997 and 1996 to September 30, 1998 and 1997 and the Company's 1996 fiscal
year extended from January 1, 1996 until September 30, 1996.
<FN2> Includes contributions on Mr. Webster's behalf to the American Italian Pasta Company
Retirement Savings Plan and premiums in the amount of $690 paid by the Company on a
split-dollar life insurance policy.
<FN3> Represents a bonus which Mr. Schroeder is required to repay to the extent that he provides
less than 30 days of service during any calendar year ending on or prior to December 31,
1998. Mr. Schroeder's service during the 1998, 1997 and 1996 fiscal years resulted in
$110,000, $110,000 and $82,000, respectively, of such bonus being no longer subject to
such contingent repayment obligation.
<FN4> Represents payments under the American Italian Pasta Company Retirement Savings Plan.
</FN>
</TABLE>
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
The following table sets forth information with respect to the options granted by AIPC during
fiscal 1998 to AIPC's Executive Officers named in the Summary Compensation Table above.
INDIVIDUAL
GRANTS
-----------------------------------
POTENTIAL
REALIZABLE VALUE
% OF TOTAL AT ASSUMED
OPTIONS ANNUAL RATES
SHARES GRANTED TO OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN FISCAL PRICE PER EXPIRATION OPTION
NAME GRANTED 1998 SHARE<FN1> DATE TERM<FN2>
---- ------- --------- ---------- ---------- ---------------------
--------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy S. Webster 398,583 36.8% $18.00 10/9/07 $4,512,000 $11,434,295
Horst W. Schroeder 275,942 25.5% 18.00 10/9/07 3,123,691 7,916,059
David E. Watson 61,320 5.7% 18.00 10/9/07 694,149 1,759,111
Norman F. Abreo 61,320 5.7% 18.00 10/9/07 694,149 1,759,111
David B. Potter 33,726 3.1% 18.00 10/9/07 381,782 967,511
33,000 3.0% 29.38 8/5/08 373,563 946,684
<FN>
<FN1> The exercise price is based on the Fair Market Value at the date of the grant of the
option. Twenty percent of the options become exercisable each year beginning on the first
anniversary of the grant date until fully exercisable, and the options terminate ten years
thereafter, subject to earlier termination in certain conditions. The exercisability of
the options is accelerated in the event of a change of control (as defined in the option
agreements).
<FN2> The amounts shown as potential realizable values are based on assumed annualized rates of
appreciation in the price of 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.
</FN>
</TABLE>
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
The following table sets forth information with respect to the aggregate option exercises
during fiscal 1998 by the named Executive Officers and the number and value of options held by such
officers as of September 30, 1998.
AT SEPTEMBER 30, 1998
---------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS<FN1>
-------------------------- -----------------------------
SHARES
ACQUIRED
UPON VALUE
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy S. 107,904 $2,936,463 228,444 462,357 $4,307,149 $4,213,796
Webster
Horst W. 107,905 2,940,994 228,445 339,716 4,307,168 3,232,668
Schroeder
David E. --- --- 62,828 88,142 1,129,427 925,974
Watson
Norman F. 23,812 597,205 39,017 88,141 627,491 925,953
Abreo
David B. --- --- 14,717 82,669 247,478 438,683
Potter
<FN>
<FN1> Based on the price of the Company s common stock at the close of business
on Friday, October 2, 1998 and the exercise price of the options.
</FN>
</TABLE>
<PAGE>
Employment Agreements, Severance of Employment Agreements and Change of
Control Arrangements with Named Executive Officers
------------------------------------------
EMPLOYMENT AGREEMENTS
MR. WEBSTER. Mr. Webster entered into an employment agreement with
the Company effective October 8, 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"). On the effective
date of his employment agreement, Mr. Webster was granted options to
purchase shares of Common Stock equal to 3 percent of the shares of Common
Stock outstanding immediately prior to AIPC's initial public offering of
the Common Stock on October 8, 1997 (the "Offering"), on a fully diluted
basis, at an exercise price of $18.00 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 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).
MR. SCHROEDER. Mr. Schroeder entered into an employment agreement
with the Company effective October 8, 1997 and terminating October 8, 2000.
Under the agreement, Mr. Schroeder will serve as Chairman of the Board and
is entitled to receive base compensation of $4,000 per day of service to
the Company, subject to a minimum payment of $120,000 per year. Pursuant to
a prior agreement, the Company paid to Mr. Schroeder a signing bonus of
$330,000 on January 1, 1996. In the event Mr. Schroeder does not render
services to the Company through December 31, 1998 because he voluntarily
terminates, refuses to provide services under his current agreement, or is
terminated for cause, Mr. Schroeder is required to repay the portion of the
signing bonus which relates to the period of the original term for which he
does not render services. Mr. Schroeder is also eligible to participate in
the Company's Bonus Plan. If Mr. Schroeder terminates his agreement for
good reason, including a "change of control" as defined in the Shareholders
Agreement, dated October 30, 1992 by and among the Company and its
stockholders, he is entitled to receive payment of all unpaid amounts due
for service rendered, as well as an additional amount equal to the unpaid
balance due for the remainder of the term of the agreement and an
additional payment equal to $2,000 multiplied by the number of days of
service remaining under the term, which in no event shall be more than 30
days during any calendar year. In addition, upon termination of employment
for good reason, the unvested portion of Mr. Schroeder's options under the
Company's stock option plans will become immediately vested. Effective
October 8, 1997, Mr. Schroeder was granted options to purchase shares of
the Company's Common Stock equal to at least 2 percent of the Company's
outstanding Common Stock, on a fully diluted basis, at $18.00 per share.
Mr. Schroeder has agreed not to compete with the Company for a period of
two years after termination of his employment.
MESSRS. WATSON, ABREO AND POTTER. Messrs. Watson, Abreo and Potter
have entered into employment agreements with the Company effective October
8, 1997 and terminating October 8, 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 nonrenewal. The
agreements entitle Messrs. Watson, Abreo and Potter to annual base salaries
of $180,000, $160,000 and $125,000, respectively (subject to annual merit
increase reviews by the Board of Directors), and annual bonuses at the
discretion of the Board of Directors in accordance with the terms of the
Bonus Plan. Effective October 8, 1997, Messrs. Watson, Abreo and Potter
received options to purchase 61,320, 61,320 and 33,726 shares,
respectively, of Common Stock at $18.00 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 of control, Messrs. Watson, Abreo and
Potter are each entitled to the greater of (i) one-year's annual base
salary and bonus or (ii) annual base salary and bonus for the remainder of
the initial employment term under their respective employment agreements.
The employment agreements also contain one-year covenants not to compete
after any termination of employment. All stock options awarded to each of
Messrs. Watson and Abreo will vest immediately upon (i) resignation for
good reason or (ii) a change of control of the Company. All stock options
awarded to Mr. Potter will vest immediately upon (i) resignation for good
reason or (ii) termination without cause within six months following a
change of control of the Company.
OTHER CHANGE OF CONTROL ARRANGEMENTS
In addition to the change of control arrangements set forth in the
named executive officers' employment agreements, the Company has certain
other such arrangements with these officers.
1992 STOCK OPTION PLAN. In the event of a "Change of Control," all of
the outstanding options automatically and immediately become 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 United States Securities and Exchange Commission or when
(i) certain persons acquire beneficial ownership of 25 percent 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 percent 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.
1997 EQUITY INCENTIVE PLAN. In the event of a "Change of Control,"
all of the outstanding options automatically and immediately become
exercisable in full. A "Change of Control" for this purpose has the same
definition as the term in the respective named executive officers'
employment agreement.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
Effective April 7, 1998, the Company, the "Morgan Stanley
Stockholders" (which are the MSLEF, MSCP and certain funds affiliated with
MSCP), Citicorp, affiliated entities of George K. Baum & Company ("GKB"),
and Messrs. Schroeder, Thompson, Webster, Watson, Abreo and Potter and
certain other 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 provides that until December 31, 2000, the
Management Stockholders (as defined in the agreement) may sell or pledge
only a limited number of shares of Common Stock.
The amended Stockholders Agreement also grants Citicorp certain demand
registration rights. In addition, the Existing Stockholders are entitled,
subject to certain limitations, to register shares of Common Stock in
connection with certain registration statements filed by the Company for
its own account or the account of its stockholders. The amended
Stockholders Agreement 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, MSLEF or MSCP has the right to
designate one director nominee so long as the Morgan Stanley Stockholders
own any of the outstanding Common Stock. The Existing Stockholders agreed
to vote all of their shares of Common Stock in favor of the director
nominees designated pursuant to the Stockholders Agreement. At least two
members of the Board of Directors will be independent directors.
FINANCIAL ADVISORY SERVICES
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
AIPC 401(k) Plan. Jonathan E. Baum, a Director of the Company, owns all
voting shares of George K. Baum Holdings, Inc., which owns 100 percent of
George K. Baum & Company.
MANAGEMENT INDEBTEDNESS
The Company loaned funds to certain of its officers including Messrs.
Webster and Watson to purchase shares of Common Stock at prices ranging
between $4.92 and $7.02 per share. Each loan was evidenced by a promissory
note bearing interest at the then applicable federal rate and payable in
equal installments over three years. 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
September 30, 1998 for those officers whose loan balances exceeded $60,000
during fiscal year 1998.
<TABLE>
<CAPTION>
HIGHEST LOAN
BALANCE BALANCE AT
NUMBER OF DURING 1998 SEPTEMBER 30,
EXECUTIVE OFFICER SHARES FISCAL YEAR 1998
----------------- --------- ------------- -------------
<S> <C> <C> <C>
Timothy S. Webster 21,339 138,559 ---
David E. Watson 14,269 84,735 60,602
</TABLE>
PRODUCT SALES
The Company sells milling by-products to Thompson's Nutritional
Technology, Inc., of which Richard C. Thompson, a director of the Company,
is the President and Chief Executive Officer and a substantial stockholder.
Such sales were $211,000 for the fiscal year ended September 30, 1998. Such
sales were on substantially the same terms as the Company sells such
products to unaffiliated third parties.
<PAGE>
PROPOSAL 2 - RATIFICATION OF THE BOARD OF DIRECTORS'
SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board of Directors has
selected, the firm of Ernst & Young LLP as AIPC's independent auditors to
examine the consolidated financial statements of AIPC for fiscal year 1999.
Ernst & Young served as AIPC's independent auditors for fiscal year 1998.
No relationship exists between AIPC and Ernst & Young LLP other than that
of independent auditors and client.
AIPC is seeking its stockholders' ratification of the Board of
Directors' selection of AIPC's independent auditors even though AIPC is not
legally required to do so. If AIPC's stockholders ratify the Board of
Directors' selection, the Board of Directors nonetheless may, in their
discretion, retain another independent auditing firm at any time during the
year if the Board of Directors feels that such change would be in the best
interest of AIPC. Alternatively, in the event that this proposal is not
approved by stockholders, the Audit Committee and the Board will
re-evaluate their decision.
One or more representatives of Ernst & Young LLP will be present at
the Annual Meeting and will have the opportunity to make a statement, if
desired, and to respond to appropriate questions by stockholders.
As explained further under "Voting," approval of this proposal
requires the affirmative vote of a majority of the shares of Common Stock
present at the Annual Meeting that are entitled to vote on the proposal,
assuming a quorum.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
RATIFICATION OF THE BOARD OF DIRECTORS'
SELECTION OF ERNST & YOUNG LLP
PROPOSAL 3
APPROVAL OF AMERICAN ITALIAN PASTA COMPANY
EMPLOYEE STOCK PURCHASE PLAN
GENERAL. On June 22, 1998, the Board of Directors adopted the
American Italian Pasta Company Employee Stock Purchase Plan (the "ESPP"),
subject to approval by the shareholders.
The ESPP provides the American Italian Pasta Company's ("AIPC")
employees the opportunity to acquire a proprietary interest in AIPC. The
purposes of the ESPP are to attract and retain individuals with a high
degree of training, experience, expertise and ability, to provide an
opportunity for such individuals to acquire a proprietary interest in the
success of AIPC, and to more closely align their interests with those of
AIPC's shareholders.
As explained further under "Information About the Annual Meeting,"
approval of this Proposal requires the affirmative vote of a majority of
the shares of voting stock present at the Annual Meeting that are entitled
to vote on the proposal, assuming a quorum.
SUMMARY OF ESPP
The following summary of the material features of the ESPP does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the ESPP, which is attached as Exhibit A.
ADMINISTRATION. The ESPP will be administered by the Compensation
Committee of the Board of Directors. All costs and expenses of
administering the ESPP shall be paid by AIPC. No brokerage commissions
will be charged on a participant's purchase of Company common stock.
ELIGIBILITY. Employees who have completed 3 months of employment,
whose customary employment is more than 20 hours per week and more than
five months per calendar year, and who are not five percent or greater
shareholders of AIPC's voting stock are eligible to participate in the
ESPP. As of October 1, 1998, AIPC had approximately 440 full-time
employees, and estimates that 366 would have been eligible to participate
in the ESPP.
PARTICIPATION. Participation in the ESPP is voluntary.
Eligible employees of AIPC may elect to have AIPC deduct up to $6,250
per calendar quarter from their compensation. On the last day of each
calendar quarter, the funds accumulated will automatically be used to
purchase shares of Company common stock at a purchase price equal to the
lesser of (i) 95% of the fair market value of a share of Company common
stock on that day, or (ii) 95% of the fair market value of a share of
Company common stock as of the first day of that calendar quarter, but not
more than 200 shares. A participant's right to purchase stock is limited
to $25,000 of the fair market value of Company common stock, determined at
the time the option is granted, for any calendar year in which an option is
outstanding at any time during the year.
During a calendar quarter, a participant may reduce or cease, but not
increase, payroll deductions for the remainder of a calendar quarter, in
which case any funds accumulated up to that point will be used to purchase
shares at the end of the calendar quarter for the participant's benefit. A
participant may withdraw from the ESPP in full during a calendar quarter
and have the participant's contributions returned, if notice of withdrawal
is given within the time period set by the Committee.
Upon termination of employment as a result of death, disability or
retirement during a calendar quarter, no further contributions will be made
to a participant's account. In such an event, the accumulated payroll
deductions in the participant's account will be refunded without interest
as soon as administratively feasible to the participant or beneficiary.
AMENDMENT. The Board of Directors may at any time amend the ESPP in
any respect, including termination of the ESPP, without notice to
participants. If the ESPP is terminated, the Board may allow the options
outstanding at the time of termination to be exercised in accordance with
their terms or the Board may make such outstanding options null and void
and refund the balance in each participant's contribution account to that
participant. Without the approval of AIPC's shareholders, however, the
ESPP may not be amended to increase the number of shares reserved under the
ESPP (except pursuant to certain changes in the capital structure of AIPC).
The ESPP will automatically terminate on June 30, 2003, unless the Board
terminates it prior to that date.
OFFERING OF COMMON STOCK. Fifty thousand (50,000) shares of AIPC's
Common Stock have been reserved under the ESPP, subject to shareholder
approval. The number and purchase price of shares will be adjusted by the
Committee in an equitable manner to reflect changes in the capitalization
of AIPC, including, but not limited to, such changes as result from merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, acquisition of property or shares, asset spin-
off, stock rights offering, combination of shares, and change in corporate
or capital structure. If a dissolution or liquidation of AIPC occurs during
a calendar quarter, any rights to acquire Company Common Stock under the
ESPP will be terminated, but eligible employees will have the right to
acquire Company Common Stock before the dissolution or liquidation.
RIGHTS AS A SHAREHOLDER. At the time funds are used to purchase
Company Common Stock under the ESPP, a participant shall have all the
rights and privileges of a shareholder of AIPC with respect to shares
purchased under the ESPP, whether or not certificates representing such
shares have been issued. Company Common Stock purchased under the ESPP is
freely transferable, although the holder will have different (usually
adverse) tax consequences if shares are disposed of within two years from
the first trading day of the calendar quarter for which the purchase
election for that calendar quarter is in effect or one year from the date
the shares were purchased.
FEDERAL INCOME TAX CONSEQUENCES
The ESPP is intended to qualify for favorable tax treatment under
Section 423 of the Internal Revenue Code. Pursuant to the Code,
participants generally would not immediately recognize income for federal
tax purposes when shares of Company Common Stock are purchased. If the
recipient of Company common stock under the ESPP disposes of the shares
before the end of the holding period (two years after the date the option
was granted and one year after purchase), he or she generally will
recognize ordinary income in the year of disposition in an amount equal to
the difference between his or her purchase price and the market value of
AIPC common stock on the date of purchase. The excess (if any) of the
amount received upon disposition over the sum of the market value on the
date of purchase plus the amount treated as ordinary income will be taxed
as capital gain. If a disposition does not occur until after the holding
period expiration, the recipient generally will recognize ordinary income
in the year of disposition equal to the lesser of (i) the excess of the
fair market value of the shares of Company Common Stock on the date the
option was granted over the price paid by the recipient on the date of
purchase or (ii) the excess of the fair market value of such shares on the
date of disposition over the price paid by the recipient on the date of
purchase. The excess (if any) of the amount received upon disposition over
the tax basis (i.e. purchase price plus amount taxed as ordinary income)
will be taxed as capital gain. AIPC generally will not be entitled to a
tax deduction for compensation expense of the original sales to
participants, but may be entitled to a deduction if a participant disposes
of common stock received under the ESPP prior to the expiration of the
applicable holding periods.
NEW PLAN BENEFITS
It is not possible to determine how many eligible employees will
participate in the ESPP in the future. Therefore, it is not possible to
determine with certainty the dollar value or number of shares of Company
common stock that will be distributed under the ESPP.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
EMPLOYEE STOCK PURCHASE PLAN
BACKGROUND FOR PROPOSALS 4, 5 AND 6
REASONS FOR SEEKING STOCKHOLDER APPROVAL
AIPC has three equity incentive plans - the 1992 Stock Option Plan
(the "1992 Plan"), the 1993 Nonqualified Stock Option Plan (the "1993
Plan") and the 1997 Equity Incentive Plan (the "1997 Plan"). The 1992,
1993 and 1997 Plans are referred to in this Proxy Statement collectively as
the "AIPC Equity Incentive Plans."
The Board of Directors is seeking stockholder approval of the AIPC
Equity Incentive Plans so that AIPC may deduct as compensation expense for
federal income tax purposes certain income recognized by the award
recipients in connection with stock options and other awards granted under
the AIPC Equity Incentive Plans. Under Section 162(m) of the Internal
Revenue Code ("Section 162(m)"), AIPC is not able to deduct for federal
income tax purposes compensation in excess of $1,000,000 in any year paid
to its chief executive officer or certain other of its most highly-
compensated executive officers, unless the compensation qualifies as
"performance based" compensation as that term is defined in Section 162(m).
The "option spread" (the excess of the fair market value of the AIPC common
stock at the time of exercise over the option exercise price) in connection
with the exercise of an option (other than an incentive stock option) or a
stock appreciation right is eligible to be considered as performance-based
compensation for purposes of Section 162(m). Section 162(m) requires,
among other things, that for such compensation to be "performance based,"
the material terms of the plan must be approved by stockholders.
The Board is also submitting the proposals concerning the 1992 Plan
and the 1997 Plan for stockholder approval in order to comply with Section
422 of the Internal Revenue Code. Stock options are eligible to be treated
as incentive stock options ("ISOs") for federal income tax purposes if, in
part, they are issued pursuant to a stockholder-approved plan.
VOTING ON PROPOSALS 4, 5 AND 6
As explained further under "Information About the Annual Meeting,"
approval of each of the 1992, 1993 and 1997 Plans requires the affirmative
vote of a majority of the shares of voting stock present at the Annual
Meeting that are entitled to vote on the proposal, assuming a quorum.
PROPOSAL 4 - APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1992 STOCK OPTION PLAN
The Board of Directors of American Italian Pasta Company (the
"Company") adopted the American Italian Pasta Company 1992 Stock Option
Plan (the "1992 Plan") in order to have an equity incentive plan for its
employees, directors and consultants. The 1992 Plan was approved by the
Board of Directors and stockholders of AIPC on October 29, 1992.
Capitalized terms not defined in this proposal have the meaning given
them in the 1992 Plan, which is attached as Exhibit B.
SUMMARY OF THE 1992 PLAN
The principal provisions of the 1992 Plan are summarized below. This
summary is not a complete description of all of such Plan's provisions.
PURPOSE. The 1992 Plan is intended to advance the interests of AIPC
and its shareholders by encouraging and enabling selected officers and
other key employees of AIPC and consultants upon whose judgment, initiative
and effort AIPC is largely dependent for the successful conduct of its
business, to acquire and retain a proprietary interest in AIPC by ownership
of its Common Shares. The Options are granted in consideration of the
recipient's service to the Company.
ADMINISTRATION. The 1992 Plan is administered by the Board of
Directors of AIPC (the "Board") or by a committee appointed by the Board
(the "Committee"). (References below to the "Plan Committee" are
references to the Board, or Plan Committee, as applicable.) The Plan
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. The
Plan Committee is also authorized to construe and interpret the 1992 Plan,
to establish, amend and rescind any rules relating to the 1992 Plan and to
make all other determinations which may be necessary or advisable for the
administration of the 1992 Plan. No member of the Plan Committee is liable
for any action or determination made in connection with the 1992 Plan or
any Option thereunder.
ELIGIBILITY. All directors and employees of and consultants to AIPC
and its subsidiaries (approximately 450 persons including 9 directors) are
eligible to receive Option grants under the 1992 Plan.
AMENDMENT OF THE 1992 PLAN. The Board may amend or terminate the 1992
Plan at any time without the approval of the stockholders of AIPC, except
that the Board may not change the duration of the 1992 Plan or increase the
maximum number of Common Shares that may be issued under the 1992 Plan
without stockholder approval.
NUMBER OF SHARES. Subject to adjustment as described below, the
aggregate number of Common Shares authorized for issuance under the 1992
Plan is 1,201,880; provided, that the maximum number of Shares that may be
granted in the form of Options in any one calendar year to any Grantee is
500,000. The current market value per share is $22.38 (as of December 16,
1998). Common Shares that are not issued under an Option, or Common Shares
(however acquired) that are used to pay the exercise price of an Option or
are withheld in connection with tax obligations in connection with an
Option, again become available for an Option or increase the number of
Common Shares available for Options under the 1992 Plan.
TYPES OF AWARDS. The 1992 Plan permits the grant of stock options,
including incentive stock options ("ISOs") and options other than ISOs
("Non-Qualified Options"). The exercise price per share of Common Shares
purchasable under any Option will be determined by the Plan Committee, but
generally cannot be less than 100% of the Fair Market Value of a Common
Share on the date the Option is granted.
The Plan Committee shall determine the term of each Option (subject to
a maximum of 10 years), and the time or times when it may be exercised.
The grant and the terms of ISOs shall be restricted to the extent required
for qualification as ISOs by the Internal Revenue Code. Options may be
exercised following notice to AIPC by payment of the exercise price in cash
or such other form of payment as may be approved at the discretion of the
Plan Committee.
ADJUSTMENTS. In the event of any stock dividend, stock split, merger,
recapitalization, consolidation, split-up, spin-off, repurchase,
distribution or similar transaction affecting the Common Shares, the Plan
Committee may take such action that it deems appropriate to prevent
dilution or enlargement of the benefits intended to be provided under the
1992 Plan and any Option grant. The Plan Committee also may authorize the
issuance or assumption of Options or similar rights in connection with any
such transaction whether or not AIPC is a surviving or continuing
corporation, and upon such terms and conditions as it may deem appropriate.
CHANGE OF CONTROL. The effect of a Change of Control of AIPC on any
Option will be set forth in the relevant Option Agreement. The Plan
Committee may provide for different treatment of an Option before or after
a Change of Control.
ELECTIVE SHARE WITHHOLDING. A Grantee may, subject to certain
conditions, elect to have AIPC withhold a portion of the Common Shares that
would otherwise be issued to the Grantee under an Option to satisfy the
Grantee's income tax liabilities related to an Option.
OTHER. The 1992 Plan will terminate when all Common Shares subject to
the Plan have been acquired, unless earlier terminated by the Board.
Except as otherwise provided in an Option Agreement, Options may not be
transferred other than by will or intestate succession. The extent to
which the Grantee shall receive the benefits of an Option following
termination of employment with AIPC will be determined in accordance with
the provisions of the 1992 Plan and the relevant Option Agreement, which
rights may extend beyond the date of termination of employment with AIPC.
The Plan Committee may permit or require a Grantee to defer receipt of
payment or delivery of Common Shares upon the exercise or vesting of an
Option.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1992 PLAN
The federal income tax consequences of the 1992 Plan to its
participants and AIPC are discussed below under "Federal Income Tax
Consequences of AIPC Equity Incentive Plans."
1992 PLAN BENEFITS
As of the date of this Proxy Statement, Options to purchase 826,817
Common Shares at exercise prices ranging from $4.92 to $12.23 per share
(with a weighted average exercise price of $8.02 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 December 2007. In
addition, the following Options are held by the following individuals
and/or groups: Timothy S. Webster, President and Chief Executive Officer,
292,219; Horst W. Schroeder, Chairman of the Board, 292,218; David E.
Watson, Executive Vice President - Operations Support and Technology,
89,650; Norman F. Abreo, Executive Vice President - Operations, 65,838;
David B. Potter, Executive Vice President and General Manager - Industrial
Markets, 30,660; Current Executive Officers as a Group, 781,010; Current
Non-Employee Directors as a Group, 0; and All Current Optionees Other Than
Executive Officers and Non-Employee Directors as a Group, 45,807.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1992 STOCK OPTION PLAN
PROPOSAL 5 - APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1993 NONQUALIFIED STOCK OPTION PLAN
The Board adopted the American Italian Pasta Company 1993 Nonqualified
Stock Option Plan (the "1993 Plan") to compensate and provide equity
incentives for persons who have been employed by AIPC for a period of more
than one (1) year. The 1993 Plan was approved by the Board and
stockholders of AIPC on August 29, 1993.
Capitalized terms not defined in this proposal have the meaning given
them in the 1993 Plan, which is attached as Exhibit C.
SUMMARY OF THE 1993 PLAN
The principal provisions of the 1993 Plan are summarized below. This
summary is not a complete description of all of such Plan's provisions.
PURPOSE. The 1993 Plan is intended to advance the interests of AIPC
and its shareholders by encouraging and enabling selected officers and
other key employees of AIPC and consultants upon whose judgment, initiative
and effort AIPC is largely dependent for the successful conduct of its
business, to acquire and retain a proprietary interest in AIPC by ownership
of its Common Shares. The Options are granted in consideration of the
recipient's service to the Company.
ADMINISTRATION. The 1993 Plan is administered by the Plan Committee.
The Plan 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
1993 Plan. The Plan Committee is also authorized to construe and interpret
the 1993 Plan, to establish, amend and rescind any rules relating to the
1993 Plan and to make all other determinations which may be necessary or
advisable for the administration of the 1993 Plan. No member of the Plan
Committee is liable for any action or determination made in connection with
the 1993 Plan or any Option thereunder.
ELIGIBILITY. Any person that has been employed by AIPC for a period
of one (1) year or more (approximately 125 persons) is eligible to receive
Option grants under the 1993 Plan.
AMENDMENT OF 1993 PLAN. The Board may amend or terminate the 1993
Plan at any time without the approval of the stockholders of AIPC, except
that the Board may not change the duration of the 1993 Plan, increase the
maximum number of Common Shares that may be issued under the 1993 Plan or
change the class of persons eligible to receive Option grants under the
1993 Plan.
NUMBER OF SHARES. Subject to adjustment as described below, the
aggregate number of Common Shares authorized for issuance under the 1993
Plan is 82,783; provided, that the maximum number of Shares that may be
granted in the form of Options in any one calendar year to any Grantee is
200,000. The current market value per share is $22.38 (as of December 16,
1998). Common Shares that are not issued under an Option, or Common Shares
(however acquired) that are used to pay the exercise price of an Option or
are withheld in connection with tax obligations in connection with an
Option, again become available for an Option or increase the number of
Common Shares available for Option grants.
TYPES OF AWARDS. The 1993 Plan permits the grant of Non-Qualified
Options. The exercise price per share of Common Shares purchasable under
any Option will be determined by the Plan Committee, but generally cannot
be less than 100% of the Fair Market Value of a Common Share on the date
the Option is granted.
The Plan Committee shall determine the term of each Option (subject to
a maximum of 10 years), and the time or times when it may be exercised.
Options may be exercised following notice to AIPC by payment of the
exercise price in cash or such other form of payment as may be approved at
the discretion of the Plan Committee.
ADJUSTMENTS. In the event of any stock dividend, stock split, merger,
recapitalization, consolidation, split-up, spin-off, repurchase,
distribution or similar transaction affecting the Common Shares, the Plan
Committee may take such action that it deems appropriate to prevent
dilution or enlargement of the benefits intended to be provided under the
1993 Plan and any Option grant. The Plan Committee also may authorize the
issuance or assumption of Options or similar rights in connection with any
such transaction whether or not AIPC is a surviving or continuing
corporation, and upon such terms and conditions as it may deem appropriate.
CHANGE OF CONTROL. A Change of Control is deemed to occur under the
1993 Plan in the event that any person or group (other than the Morgan
Stanley Leveraged Equity Fund II, L.P. or any of its Permitted Transferees
("MSLEF")) acquires beneficial ownership in excess of 50% of the
outstanding Voting Stock, or any person or group (other than MSLEF)
acquires all or substantially all of the assets of AIPC. In the event of a
Change of Control of AIPC, Options will automatically become fully vested
and exercisable.
ELECTIVE SHARE WITHHOLDING. A Grantee may, subject to certain
conditions, elect to have AIPC withhold a portion of the Common Shares that
would otherwise be issued to the Grantee under an Option to satisfy the
Grantee's income tax liabilities related to an Option.
OTHER. The 1993 Plan will terminate when all Common Shares subject to
the Plan have been acquired, unless earlier terminated by the Board.
Except as otherwise provided in an Option Agreement, Options may not be
transferred other than by will or intestate succession. The extent to
which the Grantee shall receive the benefits of an Option following
termination of employment with AIPC will be determined in accordance with
the provisions of the 1993 Plan and the relevant Option Agreement, which
rights may extend beyond the date of termination of employment with AIPC.
The Plan Committee may permit or require a Grantee to defer receipt of
payment or delivery of Common Shares upon the exercise or vesting of an
Option.
FEDERAL INCOME TAX CONSEQUENCES OF 1993 PLAN
The federal income tax consequences of the 1993 Plan to its
participants and AIPC are discussed below under "Federal Income Tax
Consequences of AIPC Equity Incentive Plans."
1993 PLAN BENEFITS
As of the date of this Proxy Statement, Options to purchase 34,521
Common Shares at exercise prices ranging from $4.92 to $12.23 per share
(with a weighted average exercise price of $11.01 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. In
addition, the following Options are held by the following individuals
and/or groups: No options are held by Timothy S. Webster, President and
Chief Executive Officer; Horst W. Schroeder, Chairman of the Board; David
E. Watson, Executive Vice President - Operations Support and Technology;
Norman F. Abreo, Executive Vice President - Operations; David B. Potter,
Executive Vice President and General Manager - Industrial Markets; and the
following options are held by the following group under the 1993 Plan:
Current Executive Officers as a Group, 3,372; Current Non-Employee
Directors as a Group, 0; and All Current Optionees Other Than Executive
Officers and Non-Employee Directors as a Group, 31,149.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1993 STOCK OPTION PLAN
PROPOSAL 6 - APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1997 EQUITY INCENTIVE PLAN
The Board adopted the 1997 Equity Incentive Plan (the "1997 Plan") to
establish and maintain an equity incentive plan for officers and other key
employees of AIPC and for consultants to AIPC. The 1997 Plan was approved
by the Board on October 9, 1997 and by the stockholders of AIPC on October
7, 1997.
Capitalized terms not defined in this proposal have the meaning given
them in the 1997 Plan, which is attached as Exhibit D.
SUMMARY OF THE 1997 PLAN
The principal provisions of the 1997 Plan are summarized below. This
summary is not a complete description of all of such Plan's provisions.
PURPOSE. The 1997 Plan is intended to allow employees, directors and
consultants of AIPC to acquire or increase their ownership of Common Stock,
thereby strengthening their commitment to the success of AIPC and
stimulating their efforts on behalf of AIPC, and to assist AIPC in
attracting new employees, directors and consultants and retaining existing
ones. The 1997 Plan is also intended to optimize the profitability and
growth of AIPC; to provide an incentive for excellence in individual
performance; and to promote teamwork. The Awards are granted in
consideration of the recipient's service to the Company.
ADMINISTRATION. The 1997 Plan is administered by the Plan Committee.
The Plan Committee has the authority to select employees to whom Awards are
granted, to determine the types of Awards and the number of Shares covered
and to set the terms, conditions and provisions of such Awards and to
cancel or suspend Awards. The Plan Committee may appoint a committee (the
"Management Committee") consisting of two or more members of the Board to
select employees of the Company below the rank of Vice President to whom
Awards are granted, to determine the types of Awards and the number of
Shares covered and to set the terms, conditions and provisions of such
Awards and to cancel or suspend Awards. The maximum aggregate number of
shares that may be delivered pursuant to Awards granted by the Management
Committee shall be 10,000 or such larger number as the Plan Committee may
designate from time to time. The Plan Committee is authorized to interpret
the 1997 Plan, to establish, amend, and rescind any rules and regulations
relating to the 1997 Plan, to determine and amend the terms of agreements
entered into with employees under the 1997 Plan, and to make all other
determinations which may be necessary or advisable for the administration
of the 1997 Plan.
ELIGIBILITY. All employees and consultants of AIPC, as well as all
directors of AIPC (approximately 450 persons including 9 directors), are
eligible to be participants in the 1997 Plan.
AMENDMENT OF 1997 PLAN. The Board is able to amend or terminate the
1997 Plan at any time without the approval of the stockholders of AIPC,
except (i) as such stockholder approval may be required by stock exchange
listing requirements, and (ii) that no amendment shall be made without
stockholder approval which shall increase the total number of shares
available for issuance pursuant to the 1997 Plan.
NUMBER OF SHARES. The number of Shares of Common Stock available
under the 1997 Plan for grants of Awards is 2,000,000; provided, that the
maximum number of Shares that may be granted in the form of Options, SARs,
Restricted Shares in any one calendar year to any Grantee is 500,000 per
type of Award, and provided, further, that the maximum aggregate payout
with respect to Awards of performance shares or performance units granted
in any one calendar year to any Grantee is equal to the value of 250,000
shares. The maximum number of Shares that may be granted as Bonus Shares
under the Plan is 500,000. The current market value per share is $22.38 (as
of December 16, 1998).
Shares of Common Stock not issued under an Option, or Shares of Common
Stock (however acquired) that are used to pay the exercise price of an
Option or are withheld in connection with tax obligations in connection
with an Option, again become available for an Option or increase the number
of Common Stock available under the 1997 Plan for Awards.
TYPES OF AWARDS. The 1997 Plan permits the grant of any or all of the
following types of awards ("Awards") to employees, directors and
consultants of AIPC and its subsidiaries: (1) stock options, including
ISOs, Non-Qualified Options and reload options; (2) stock appreciation
rights ("SARs") (either in tandem with stock options or free-standing); (3)
limited stock appreciation rights ("LSARs"); (4) restricted shares; (5)
performance units and performance shares conditioned upon meeting certain
performance criteria; and (6) bonus shares.
STOCK OPTIONS. The exercise price per Share purchasable under any
Option is determined by the Plan Committee, but generally cannot be less
than 100% of the fair market value of a Share on the date such Option is
granted. The Plan Committee shall determine the term of each Option
(subject to a maximum of 10 years), and the time or times when it may be
exercised. The grant and the terms of ISOs shall be restricted to the
extent required for qualification as ISOs by the Internal Revenue Code.
Options may be exercised by payment of the exercise price made (i) in cash,
(ii) in shares with a fair market value equal to the exercise price of
either Common Stock, or at the discretion of the Plan Committee, restricted
stock, (iii) pursuant to a "cashless exercise" through a broker-dealer
under an arrangement approved by AIPC, or (iv) at the discretion of the
Plan Committee, in an interest-bearing promissory note.
The Plan Committee may, in its discretion, provide for the automatic
grant of a so-called "reload" option to a grantee who delivers previously-
owned Shares to pay the option exercise price or satisfy tax withholding
requirements in connection with the option exercise. Any reload option
will (i) cover a number of shares equal to the number of shares surrendered
in connection with the exercise of the original option, (ii) have an
exercise price equal to 100% of the fair market value of Shares on the date
it is granted and (iii) expire on the expiration date of grant of the
original Option. A reload option will not have a similar reload feature.
STOCK APPRECIATION RIGHTS. An SAR may be granted free-standing or in
tandem with the grant of new options or outstanding non-qualified options.
Upon exercise of an SAR, the holder thereof is entitled to receive the
excess of the fair market value of the shares for which the right is
exercised over the grant price of the SAR. The grant price (which shall
not be less than 100% of the fair market value of the shares on the date of
grant) and other provisions of the SAR shall be determined by the Plan
Committee (except that the term may not exceed 10 years). Payment by AIPC
upon such exercise will be in cash unless the Plan Committee determines
that it is to be paid wholly or partly in Shares.
RESTRICTED SHARES. Restricted Shares may not be disposed of by the
recipient until certain restrictions established by the Plan Committee
lapse. Recipients of Restricted Shares are not required to provide
consideration other than the rendering of services or the payment of any
minimum amount required by law. The participant shall have, with respect
to Restricted Shares, all of the rights of a stockholder, including the
right to vote the Shares and the right to receive any cash dividends,
unless the Plan Committee shall otherwise determine. Upon termination of
employment during the restriction period, all Restricted Shares shall be
forfeited, subject to such exceptions, if any, made by the Plan Committee.
PERFORMANCE UNITS/SHARES. From time to time, the Plan Committee may
select a period during which one or more performance criteria designated by
the Plan Committee are measured for the purpose of determining the extent
to which a performance award has been earned. Performance goals may be
determined by the Plan Committee in its discretion. The performance
measure(s) to be used for purposes of any awards intended to satisfy the
"performance based" exception to the limitations of Internal Revenue Code
Section 162(m) will be chosen from among the following: (1) earnings
(either in the aggregate or on a per-share basis); (2) net income (before
or after taxes); (3) operating income; (4) cash flow; (5) return measures
(including return on assets, equity, or sales); (6) earnings before or
after taxes, and before or after depreciation and amortization; (7) gross
revenues; (8) share price (including growth measures and total stockholder
return or attainment by the Shares of a specified value for a specified
period of time); (9) reductions in expense levels in each case where
applicable determined either on a Company-wide basis or in respect of any
one or more business units; (10) net economic value; or (11) market share.
The Committee has the discretion to adjust the determinations of the degree
of attainment of the preestablished performance goals; provided, however,
that awards which are designed to qualify for the performance-based
exception to the limitations of Section 162(m) may not be adjusted upward
(the Committee retains the discretion to adjust such awards downward).
Performance awards may be in the form of Performance Shares (valued by
reference to shares of stock), or Performance Units (valued by reference to
cash or property other than stock). Performance awards may be paid in
cash, stock, other property or a combination thereof. Recipients of
performance awards are not required to provide consideration other than the
rendering of services and any minimum exercise price required by applicable
law.
BONUS SHARES. Bonus Shares can be awarded to a grantee without cost
and without restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of AIPC or
otherwise) or as an incentive to become an employee of AIPC or a
subsidiary.
ADJUSTMENTS. In the event of any change affecting the Shares by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spinoff, combination or exchange of shares or other
corporate change, or any distribution to stockholders other than cash
dividends, the Plan Committee shall make such substitution or adjustment in
the aggregate number or class of shares which may be distributed under the
1997 Plan and in the number, class and option price or other price of
shares subject to the outstanding Awards granted under the 1997 Plan as it
deems to be appropriate in order to maintain the purpose of the original
grant.
CHANGE OF CONTROL. The effect of a Change of Control of AIPC on any
Award will be set forth in the relevant Award Agreement. The Plan
Committee may provide for different treatment of an Award before or after a
Change of Control.
ELECTIVE SHARE WITHHOLDING. A Grantee may, subject to certain
conditions, elect to have AIPC withhold a portion of the Common Stock that
would otherwise be issued to the Grantee under an Option to satisfy the
Grantee's income tax liabilities related to an Option.
OTHER. The 1997 Plan will terminate when all Shares subject to the
Plan have been awarded, unless earlier terminated by the Board. Awards,
and any rights under an Award, may not be transferred other than by will or
intestate succession or, with the consent of the Plan Committee, to members
of a grantee's immediate family and related trusts, partnerships and other
entities with respect to which the Grantee or any such family members are
owners or beneficiaries. The extent to which the Grantee shall receive the
benefits of an Award following the Termination of Affiliation will be
determined in accordance with the provisions of the 1997 Plan and the
relevant Award Agreement, which benefits may extend beyond the date of
Termination of Affiliation. The Plan Committee may permit or require a
Grantee to defer receipt of payment or delivery of Shares upon the exercise
or vesting of an Award.
FEDERAL INCOME TAX CONSEQUENCES OF 1997 PLAN
The federal income tax consequences of the 1997 Plan to its
participants and AIPC are discussed below under "Federal Income Tax
Consequences of AIPC Equity Incentive Plans."
NEW 1997 PLAN BENEFITS
As of the date of this Proxy Statement, Options to purchase 1,060,967
Shares at exercise prices ranging from $18.00 to $30.00 per Share (with a
weighted average exercise price of $19.01 per share) were issued and
outstanding under the 1997 Plan. In addition, the following Options are
held by the following individuals and/or groups: Timothy S. Webster,
President and Chief Executive Officer, 398,583; Horst W. Schroeder,
Chairman of the Board, 275,942; David E. Watson, Executive Vice President -
Operations Support and Technology, 61,320; Norman F. Abreo, Executive Vice
President - Operations, 61,320; David B. Potter, Executive Vice President
and General Manager - Industrial Markets, 66,726; Current Executive
Officers as a Group, 953,469; Current Non-Employee Directors as a Group, 0;
and All Current Optionees Other Than Executive Officers and Non-Employee
Directors as a Group, 107,498.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE AMERICAN ITALIAN PASTA COMPANY
1997 EQUITY INCENTIVE PLAN
FEDERAL INCOME TAX CONSEQUENCES OF AIPC EQUITY INCENTIVE PLANS
The following discussion relates to Proposals 4, 5 and 6 to the extent
each of the awards described below may be issued under the pertinent plan.
AIPC understands that the federal income tax consequences generally
applicable to Awards under the AIPC Equity Incentive Plans are as described
below. The following discussion is based on the federal income tax laws in
effect as of the date of this Proxy Statement and could be affected by
future changes in the tax laws. The summary is not intended to constitute
tax advice and does not address, among other things, possible state, local
or foreign tax consequences.
A Grantee who is granted a Non-Qualified Option generally will not
recognize taxable income at the time the Option is granted. Upon exercise
of the Option, the Grantee generally will be taxed at ordinary income tax
rates on an amount equal to the difference between the fair market value of
AIPC Common Stock on the date of exercise and the Option exercise price.
AIPC will receive a deduction with respect to the exercise of the Non-
Qualified Option in the taxable year within which the Grantee recognizes
the corresponding taxable income, subject to AIPC's compliance with tax
reporting requirements, and the reasonableness of the total compensation
paid to the Grantee in such taxable year, and possible limitation under
Section 162(m) of the Code. Upon subsequent disposition of the Option
shares, the Grantee will realize long-term or short-term capital gain or
loss depending on the applicable holding period, provided the Grantee holds
the shares as a capital asset. A capital gain or loss is long-term if the
Grantee holds the stock for more than one year (more than 18 months to
obtain the current lowest capital gains rate) and short-term if the Grantee
holds the stock for one year or less.
If a Grantee exercises a Non-Qualified Option with cash, the Grantee's
basis in the Option shares received upon exercise will equal the Option
price plus the amount of ordinary income recognized by the Grantee on such
exercise. If a Grantee exercises a Non-Qualified Option with shares of
Company Common Stock, the Grantee (under current rulings by the Internal
Revenue Service (the "IRS")) will not recognize gain or loss with respect
to the disposition of the shares transferred in payment of the Option
price. The Grantee will have a carryover basis in such number of shares
received upon exercise as is equal to the number of shares surrendered; the
Grantee's basis in any additional shares received will be equal to the
amount of income the Grantee recognizes upon exercise of the Option.
A Grantee who is granted an ISO under a Plan will not recognize
taxable income at the time the Option is granted or at the time the Option
is exercised. The Grantee's basis in the shares acquired for cash upon
exercise of an ISO will be equal to the Option price. However, the excess
of the fair market value of the shares obtained on exercise over the
exercise price of an ISO will be an adjustment item for purposes of the
alternative minimum tax.
If a Grantee disposes of shares acquired pursuant to the exercise of
an ISO prior to meeting the required holding period (two years from the
date of grant or one year from the date the shares were transferred to the
Grantee), the difference between the fair market value of the shares at the
time of exercise (or the amount realized on disposition, if lower) and the
Option price will be taxable to the Grantee as ordinary income, and will be
deductible by AIPC, subject to the general conditions noted above. The
balance of any gain, or any loss on such disposition, will be treated as
capital gain or loss, provided the Grantee holds the option shares as a
capital asset. If a Grantee disposes of the Option shares in an arm's-
length transaction after the required ISO holding period, the Grantee would
realize capital gain or loss (provided the Grantee holds the shares as a
capital asset) on the difference between the exercise price and amount
received on disposition, and AIPC would not be entitled to any income tax
deduction. A capital gain or loss is long-term if the Grantee holds the
stock for more than one year (more than 18 months to obtain the current
lowest capital gains rate) and short-term if the Grantee holds the stock
for one year or less.
Under current rulings by the IRS, if a Grantee exercises an ISO with
stock, the Grantee will not recognize gain or loss with respect to the
shares of stock surrendered in payment of the option price (unless the
surrendered shares were received under an incentive or other statutory
stock option and surrendered before expiration of the statutory holding
period, in which event a disqualifying disposition will have occurred).
The Grantee will have a carryover basis in such number of shares received
upon exercise as is equal to the number of shares surrendered. The
Grantee's basis in any additional shares of stock received will be zero.
The grant of an SAR will create no tax consequences for a Grantee or
AIPC. Upon exercising an SAR, the Grantee must recognize ordinary income
equal to the difference between the strike price and the fair market value
of shares of Company Common Stock on the date of the exercise; AIPC will be
entitled to a deduction for the same amount, subject to possible limitation
under Section 162(m).
With respect to other Awards granted that are settled either in cash
or in stock or other property that is either transferable or not subject to
substantial risk of forfeiture, the participant must recognize ordinary
income equal to the cash or the fair market value of shares or other
property received, and AIPC will be entitled to a deduction for the same
amount. With respect to Awards that are settled in stock or other property
that is restricted as to transferability and subject to substantial risk of
forfeiture, the participant must recognize ordinary income equal to the
fair market value of the shares or other property received at the first
time the shares or other property become transferable or not subject to
substantial risk of forfeiture, whichever occurs earlier (or, if earlier,
upon the Grantee making an election under Section 83(b) of the Internal
Revenue Code) and AIPC will be entitled to a deduction for the same amount,
subject to possible limitation under Section 162(m).
VOTING AND PROXIES
Stockholders at the Annual Meeting will consider and vote upon: (1)
the election of three directors; (2) ratification of the Board of
Directors' selection of Ernst & Young LLP to serve as AIPC's independent
accountants for fiscal year 1999; (3) approval of the Company's Employee
Stock Purchase Plan; (4) approval of the Company's 1992 Stock Option Plan;
(5) approval of the Company's 1993 Nonqualified Stock Option Plan; (6)
approval of the Company's 1997 Equity Incentive Plan; and (7) such other
matters as may properly come before the Annual Meeting or any adjournment
thereof. Stockholders do not have dissenters' rights of appraisal in
connection with any of these matters. Each of these matters has been
proposed by the Board of Directors and none of them is related to or
contingent on the other.
Only the holders of AIPC's Common Stock of record at the close of
business on the Record Date are entitled to notice of and to vote at the
Annual Meeting. On that date, AIPC had outstanding 18,086,684 shares of
Common Stock eligible to be voted at the Annual Meeting.
The Common Stock constitutes AIPC's only class of voting securities
outstanding and will vote as a single class on all matters to be considered
at the Annual Meeting. Each holder of Common Stock is entitled to cast one
vote for each share of Common Stock held on the Record Date on all matters.
Stockholders do not have the right to vote cumulatively in the election of
directors.
In order for any of the proposals to be approved at the Annual Meeting
(other than the election of directors) by the stockholders, a quorum,
consisting of the holders of a majority of the shares of Common Stock
entitled to vote, must be present and a majority of such quorum must be
affirmatively voted for approval. The shares of Common Stock of each
stockholder entitled to vote at the Annual Meeting who is present, either
in person or through a proxy, are counted for purposes of determining
whether there is a quorum, regardless of whether the stockholder votes such
shares. The directors are elected by an affirmative vote of the plurality
of a quorum of shares of Common Stock present at the Annual Meeting that
are entitled to vote.
Voting ceases when the chairman of the Annual Meeting closes the
polls. The votes are counted and certified by inspectors appointed by the
Board of Directors of AIPC in advance of the Annual Meeting. In
determining the percentage of shares that have been affirmatively voted for
a particular proposal (other than the election of directors), the
affirmative votes are measured against the votes for and against the
proposal plus the abstentions from voting on the proposal. A stockholder
may abstain from voting on any proposal other than the election of
directors, and shares for which the holders abstain from voting are not
considered to be votes affirmatively cast. Abstaining will, thus, have the
effect of a vote against a proposal. With regard to the election of
directors, a stockholder may cast votes in favor of a candidate or withhold
his or her votes; votes that are withheld will be excluded entirely from
the vote and will have no effect.
Under the rules of the New York Stock Exchange, Inc. (the "NYSE"),
member stockbrokers who hold shares of Common Stock in the broker's name
for customers are required to solicit directions from those customers on
how to vote such shares. In the absence of any such instructions, the
stockbrokers may vote shares of Common Stock on certain proposals. The
Staff of the NYSE, prior to the Annual Meeting, informs the brokers of
those proposals upon which the brokers are entitled to vote the undirected
shares.
When a stockbroker does not vote, it is referred to as a "broker
non-vote" (customer-directed abstentions are not broker non-votes). Broker
non-votes generally do not affect the determination of whether a quorum is
present at the Annual Meeting because in most cases some of the shares held
in the broker's name have been voted on at least some proposals, and
therefore, all of such shares are considered present at the Annual Meeting.
Under applicable law, a broker non-vote will have the same effect as a vote
against any proposal other than the election of directors and will have no
effect on the outcome of the election of directors.
Stockholders who return a properly executed proxy are appointing the
Proxy Committee to vote their shares of Common Stock covered by the Proxy.
That Committee has three members whose names are listed on the accompanying
proxy card, each of whom is a director or executive officer of AIPC. A
stockholder wishing to name as his or her proxy someone other than the
Proxy Committee designated on the proxy card may do so by crossing out the
names of the designated proxies and inserting the name of such other
person. In that case, it will be necessary for the stockholder to sign the
proxy card and deliver it directly to the person so named and for that
person to be present in person and vote at the Annual Meeting. Proxy cards
so marked should NOT be mailed to AIPC.
The Proxy Committee will vote the shares of Common Stock covered by a
proxy in accordance with the instructions given by the stockholders
executing such proxies. If a properly executed and unrevoked proxy
solicited hereunder does not specify how the shares represented thereby are
to be voted, the Proxy Committee intends to vote such shares FOR the
election as directors of the persons nominated by management, FOR
ratification of the Board of Directors' selection of Ernst & Young LLP to
serve as AIPC's independent auditors for fiscal year 1999, FOR approval of
the Company's Employee Stock Purchase Plan, FOR the Company's 1992 Stock
Option Plan, FOR the Company's 1993 Nonqualified Stock Option Plan and FOR
the 1997 Equity Incentive Plan, and in accordance with their discretion
upon such other matters as may properly come before the Annual Meeting.
A stockholder may revoke a valid proxy with a later-dated, properly
executed proxy or other writing delivered to the Corporate Secretary of
AIPC at any time before the polls for the Annual Meeting are closed.
Attendance at the Annual Meeting will not have the effect of revoking a
valid proxy unless the stockholder delivers a written revocation to the
Corporate Secretary before the proxy is voted. Stockholders whose shares
are held by a broker will have to contact the broker to determine how to
revoke a proxy solicited through the broker.
401(K) PLAN PARTICIPANTS
Participants in the American Italian Pasta Company Retirement Savings
Plan (the "401(k) Plan") are provided a separate voting instruction card
(accompanying this Proxy Statement) to instruct the trustee of the 401(k)
Plan how to vote the shares of Common Stock held on behalf of such
participant. The 401(k) Plan trustee is required under the trust agreement
to vote the shares in accordance with the instructions indicated on the
voting instruction card. If the voting instruction card is not returned,
the trustee is required under the applicable trust agreement to vote such
shares, as well as any unallocated shares, in the manner directed by a
committee designated under the plan. The voting instruction card should be
returned directly to the trustee in the envelope provided AND SHOULD NOT BE
RETURNED TO AIPC. The mailing address of the trustee is George K. Baum
Trust Company, Twelve Wyandotte Plaza, 120 West 12th Street, Suite 850,
Kansas City, Missouri 64105. 401(k) Plan participants who wish to revoke a
voting instruction card will need to contact the trustee and follow its
procedures.
Confidentiality of Voting of 401(k) Plan Participants. Under the terms
of the 401(k) Plan trust agreement, the trustee is required to establish
procedures to ensure that the instructions received from participants are
held in confidence and not divulged, released or otherwise utilized in a
manner that might influence the participants' free exercise of their voting
rights.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Common Stock as of the Record Date by each
person who is known by the Company to own beneficially more than 5 percent
of the outstanding shares of Common Stock. Beneficial ownership is
generally either the sole or shared power to vote or dispose of the shares.
The percentage ownership is based on the number of shares outstanding as of
the Record Date. Except as otherwise noted, the holders have sole voting
and dispositive power.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
SHARES BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER NUMBER PERCENT<FN1>
------------------------ ------ ------------
<S> <C> <C>
FMR Corp., Edward C. Johnson 3d, 2,134,000<FN2> 11.80
and Abigail P. Johnson
82 Devonshire Street
Boston, MA
Citicorp Venture 1,047,298<FN3> 5.79
Capital, Ltd. <FN2>
399 Park Avenue
New York, NY 10043
----------------------
<FN>
<FN1> Beneficial ownership is determined in accordance with the rules
of the Commission. In computing the number and percentage 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
Record Date are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage
ownership of any other person.
<FN2> Based upon Schedule 13G, dated June 10, 1998, filed jointly by
FMR Corp., a Massachusetts corporation ("FMR"), Edward C. Johnson
3d and Abigail P. Johnson. According to such Schedule 13G, FMR
and Mr. Johnson share dispositive power; FMR, Mr. Johnson and
Mrs. Johnson share voting power. Mr. Johnson and members of the
Johnson family form a controlling group with respect to FMR. Mr.
Johnson is Chairman of FMR and Ms. Johnson is a director of FMR.
<FN3> Based on a Schedule 13G dated February 13, 1998. The shares
beneficially owned by Citicorp Venture Capital, Ltd. include
157,103 shares held by an affiliate of Citicorp.
</FN>
</TABLE>
STOCKHOLDER PROPOSALS
To be properly brought before the Annual Meeting, a proposal must be
either (i) specified in the notice of the meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting
by a stockholder.
If a holder of AIPC Common Stock wishes to present a proposal, other
than the election of a director, in AIPC's Proxy Statement for next year's
annual meeting of stockholders, such proposal must be received by AIPC on
or before August 31, 1999. Such proposal must be made in accordance with
the applicable laws and rules of the Securities and Exchange Commission and
the interpretations thereof. Any such proposal should be sent to the
Corporate Secretary of AIPC at 1000 Italian Way, Excelsior Springs,
Missouri 64024.
In order for a stockholder proposal that is not included in AIPC's
Proxy Statement for next year's annual meeting of stockholders to be
properly brought before such meeting, such proposal must be delivered to
the Corporate Secretary and received at AIPC's executive offices no earlier
than November 5, 1999 and no later than December 6, 1999 (assuming a
meeting date of February 3, 2000) and such proposal must also comply with
the procedures outlined below, which are set forth in AIPC's By-laws. The
determination that any such proposal has been properly brought before such
meeting is made by the officer presiding over such meeting.
DIRECTOR NOMINATIONS
With respect to stockholder nominations of candidates for AIPC's Board
of Directors, AIPC's Bylaws provide that not less than 60 days nor more
than 90 days prior to the anniversary date immediately preceding the Annual
Meeting of Stockholders (provided, however, that in the event that the
annual meeting is called for a date that is not within 30 days before or
after such anniversary date, the Nomination Notice (as defined below) by
the stockholder in order to be timely must be so received not later than
the close of business on the tenth day following the day on which such
notice of the date of the annual meeting is mailed or such public
disclosure of the date of the annual meeting is made, whichever first
occurs), any stockholder who intends to make a nomination at the Election
Meeting shall deliver a notice in writing (the "Nomination Notice") to the
Secretary of AIPC at its principal executive offices setting forth (a) as
to each nominee whom the stockholder proposes to nominate for election as a
director, (i) the name, date of birth, business address and residence
address of such individual, (ii) the business experience during the past
five years of such nominee, including his or her principal occupations and
employment during such period, the name and principal business of any
corporation or other organization in which such occupations and employment
were carried on, and such other information as to the nature of his or her
responsibilities and level of professional competence as may be sufficient
to permit assessment of his or her prior business experience, (iii) whether
the nominee is or ever has been at any time a director, officer or owner of
5 percent or more of any class of capital stock, partnership interests or
other equity interest of any corporation, partnership or other entity, (iv)
any directorships held by such nominee in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended,
(v) whether, in the last five years, such nominee has been convicted in a
criminal proceeding or has been subject to a judgment, order, finding,
decree or proceeding which may be material to an evaluation of the ability
or integrity of the nominee, and (vi) any other information relating to the
person that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange Act, and the
rules and regulations promulgated thereunder; and (b) as to the Person
submitting the Nomination Notice and any Person acting in concert with such
Person, (i) the name and business address of such Person, (ii) the name and
addresses of such Person as they appear on the Corporation's books, (iii)
the class and number of shares of the Corporation that are beneficially
owned by such Person, (iv) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholder and (v) any other
information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant
to Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. A written consent to being named in a proxy statement as a
nominee, and to serve as a director if elected, signed by the nominee,
shall be filed with the Nomination Notice.
MATTERS OTHER THAN DIRECTOR NOMINATIONS
AIPC's Bylaws provide that, in addition to any other applicable
requirements, for a proposal to be properly brought before the meeting by a
stockholder, (a) the stockholder must have been a stockholder of record on
the date of the giving of the notice of the Stockholder Proposal (as
defined below) and on the record date for the determination of stockholders
entitled to vote at such meeting; and (b) such stockholder has filed a
written notice (a "Proposal Notice") setting forth with particularity (i)
the names and business addresses of the proponent and all persons or
entities (collectively, the "persons" and, singularly, a "person") acting
in concert with the proponent; (ii) the name and address of the proponent
and the persons identified in clause (i), as they appear on the
Corporation's books (if they so appear); (iii) the class and number of
shares of AIPC beneficially owned by the proponent and the persons
identified in clause (i); (iv) a description of the Stockholder Proposal
containing all material information relating thereto; and (v) such other
information as the Board of Directors reasonably determines is necessary or
appropriate to enable the Board of Directors and stockholders of AIPC to
consider the Stockholder Proposal; and (c) the Proposal Notices must be
delivered to the Secretary and received at the principal executive offices
of AIPC (1) in the case of an annual meeting, not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the
event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, the Proposal Notice by the
stockholder in order to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice
of the date of the annual meeting is mailed or such public disclosure of
the date of the annual meeting is made, whichever first occurs, or (2) in
the case of a special meeting of stockholders called for the purpose of
electing directors, not later than the close of business on the 10th day
following the day on which notice of the date of the special meeting is
mailed or public disclosure of the date of the special meeting is made,
whichever first occurs.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires AIPC's directors and executive officers, and other persons, legal
or natural, who own more than 10 percent of AIPC's Common Stock
(collectively, "Reporting Persons"), to file reports of their ownership of
such stock, and the changes therein, with the Securities and Exchange
Commission, the New York Stock Exchange and AIPC (the "Section 16
Reports"). All such reports due were filed during fiscal year 1998.
OTHER MATTERS
AIPC will bear the cost of the Annual Meeting, including the cost of
mailing the proxy materials and any supplemental materials. Directors,
officers and employees not specifically engaged or compensated for that
purpose may also solicit proxies by telephone, telegraph or in person. AIPC
has retained Corporate Investor Communications, Inc. to assist in the
solicitation of proxies, and anticipates the cost of such assistance will
be approximately $1,000. In addition, AIPC may reimburse brokerage firms
and other persons representing beneficial owners of AIPC's shares for their
expenses in forwarding this Proxy Statement, the Annual Report and other
soliciting materials to such beneficial owners.
Brokers, dealers, banks, voting trustees, other custodians, and their
nominees are asked to forward soliciting materials to the beneficial owners
of shares held of record by them and upon request will be reimbursed for
their reasonable expenses in completing the mailing of soliciting materials
to such beneficial owners.
The Board of Directors knows of no other matters that are expected to
be presented for consideration at the Annual Meeting. As of the date of
this Proxy Statement, no notice of any matters has been received in
accordance with AIPC's Bylaws, as discussed above. However, if other
matters properly come before the meeting, it is intended that persons named
in the accompanying proxy will vote on them in accordance with their best
judgment.
Notwithstanding anything to the contrary set forth in any of AIPC's
previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the Compensation Committee Report on
Executive Compensation (included herein) shall not be incorporated by
reference into any such filings.
By Order of the Board of Directors
/s/ David E. Watson
-----------------------------------
Executive Vice President
- Operations Support and
Technology and Secretary
Excelsior Springs, Missouri
December 28, 1998
AIPC will furnish a copy of its Annual Report on Form 10-K for the
year ended October 2, 1998 (without exhibits) as filed with the Securities
and Exchange Commission (the "SEC") upon request. The Annual Report on
Form 10-K includes a list of all exhibits thereto. AIPC will furnish copies
of such exhibits upon written request therefor and payment of AIPC's
reasonable expenses in furnishing such exhibits. Each such request must set
forth a good faith representation that, as of the Record Date, the person
making such request was a beneficial owner of Common Stock entitled to vote
at the Annual Meeting. Such written request should be directed to the
Corporate Secretary of AIPC, 1000 Italian Way, Excelsior Springs, Missouri
64024. The Annual Report on Form 10-K for the year ended October 2, 1998
with exhibits, as well as other filings by AIPC with the SEC, are also
available through the SEC's Internet site on the World Wide Web at
www.sec.gov.
<PAGE>
EXHIBIT A
AMERICAN ITALIAN PASTA COMPANY
EMPLOYEE STOCK PURCHASE PLAN
I. Purpose and Effective Date
1.1 The purpose of the American Italian Pasta Company Employee Stock
Purchase Plan (the "Plan") is to provide an opportunity for eligible
employees to acquire a proprietary interest in the American Italian
Pasta Company (the "Company") through the purchase of shares of common
stock of the Company. It is the intent of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code. The provisions of the Plan shall be
construed to extend and limit participation in a manner consistent
with the requirements of Section 423 of the Internal Revenue Code.
1.2 The Plan shall be effective on the Effective Date stated below,
subject to the approval of the Company's stockholders within one year
before or one year after the date the Plan is approved by the board of
directors of the Company (the "Board"). No option shall be granted
under the Plan after the earlier of (a) the day before the fifth (5th)
anniversary of the Effective Date, or (b) the date on which the Plan
is terminated by the Board in accordance with Section 12.7 of the
Plan.
II. Definitions
The following words and phrases, when used in this Plan, unless their
context clearly indicates otherwise, shall have the following respective
meanings:
2.1 "Account" means a recordkeeping account maintained for a Participant
to which payroll deductions are credited in accordance with Article
VIII of the Plan.
2.2 "Article" means an Article of this Plan.
2.3 "Accumulation Period" means, as to the Company or a Participating
Subsidiary, a period of three months commencing with the first regular
payroll check issued on or after each successive January 1, April 1,
July 1, and October 1 occurring after the Effective Date. The
Committee may modify or suspend Accumulation Periods at any time and
from time to time.
2.4 "Base Earnings" means base salary and wages received by a Participant
from the Company or a Participating Subsidiary, excluding bonuses,
incentives, and overtime pay.
2.5 "Board" means the board of directors of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means the committee of the Board described in Section 3.1
of the Plan.
2.8 "Common Stock" means the Company's common stock, $.01 par value.
2.9 "Company" means American Italian Pasta Company, a Delaware
corporation.
2.10 "Cut-Off Date" means the date established by the Committee from time
to time by which enrollment forms must be received prior to an
Enrollment Date.
2.11 "Effective Date" means July 1, 1998.
2.12 "Eligible Employee" means an Employee eligible to participate in the
Plan in accordance with Article V.
2.13 "Employee" means an individual who performs services for the Company
or a Participating Subsidiary pursuant to an employment relationship
determined by the Company to be described in Treasury Regulations
Section 31.3401(c)-1 or any successor provision.
2.14 "Enrollment Date" means the first trading day of an Accumulation
Period.
2.15 "Exchange Act" means the Securities Exchange Act of 1934.
2.16 "Fair Market Value" means, as of any applicable date:
(a) if the security is listed for trading on the New York Stock
Exchange, the closing price of the security as reported on the New
York Stock Exchange Composite Tape, or if no such reported sale of the
security shall have occurred on such date, on the latest preceding
date on which there was such a reported sale, or
(b) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Inc.'s NASDAQ National
Market ("NASDAQ/NMS"), the closing price, regular way, of the security
on such exchange or NASDAQ/NMS, as the case may be, or if no such
reported sale of the security shall have occurred on such date, on the
latest preceding date on which there was such a reported sale, or
(c) if the security is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the
average of the closing bid and asked prices as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or, if no such prices shall have been so reported for such
date, on the latest preceding date for which such prices were so
reported, or
(d) if the security is not listed for trading on a national
securities exchange or is not authorized for quotation on NASDAQ/NMS
or NASDAQ, the fair market value of the security as determined in good
faith by the Board.
2.17 "Participant" means an Eligible Employee who has enrolled in the Plan
pursuant to Article VI and whose participation has not terminated.
2.18 "Participating Subsidiary" means a Subsidiary which has been
designated by the Committee in accordance with Section 3.3 of the Plan
as covered by the Plan.
2.19 "Plan" means the American Italian Pasta Company Employee Stock
Purchase Plan as set forth herein and as from time to time amended.
2.20 "Purchase Date" means the specific trading day with respect to an
Accumulation Period on which shares of Common Stock are purchased
under the Plan in accordance with Article IX. For each Accumulation
Period, the Purchase Date shall be the last day of such Accumulation
Period, or, if such day is not a trading date, the next day which is a
trading day.
2.21 "Rule 16b-3" means Rule 16b-3 under the Exchange Act.
2.22 "Section" means a section of this Plan, unless indicated otherwise.
2.23 "Securities Act" means the Securities Act of 1933, as amended.
2.24 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, as of the applicable
Enrollment Date, each of the corporations other than the last
corporation in the chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the
other corporations in the chain.
III. Administration
3.1 The Plan shall be administered by the Compensation Committee of the
Board. Membership on the Compensation Committee shall be subject to
such limitations as the Board deems appropriate.
3.2 The Committee may select one of its members as chairman and may
appoint a secretary. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem
advisable; provided, however, that all determinations of the Committee
shall be made by a majority of its members.
3.3 The Committee shall have the power, subject to and within the limits
of the express provisions of the Plan, to construe and interpret the
Plan and options granted under it; to establish, amend and revoke
rules and regulations for administration of the Plan; to determine all
questions of fact and of policy and expediency that may arise in the
administration of the Plan; and, generally, to exercise such powers
and perform such acts as the Committee deems necessary or expedient to
promote the best interests of the Company, including, but not limited
to, designating from time to time which Subsidiaries of the Company
shall be Participating Subsidiaries. The Committee's determinations
as to the interpretation and operation of this Plan shall be final and
conclusive. The Committee may employ agents and delegate ministerial
duties to them.
In exercising the powers described in the foregoing paragraph, the
Committee may adopt special or different rules for the operation of
the Plan including, but not limited to, rules which allow employees of
any foreign Subsidiary to participate in, and enjoy the tax benefits
offered by, the Plan; provided that such rules shall not result in any
grantees of options having different rights and/or privileges under
the Plan nor otherwise cause the Plan to fail to satisfy the
requirements of Section 423 of the Internal Revenue Code and the
regulations thereunder.
3.4 This Article III relating to the administration of the Plan may be
amended by the Board from time to time as may be desirable to satisfy
any requirements of or under the federal securities and/or other
applicable laws of the United States, or to obtain any exemption under
such laws.
IV. Number of Shares
4.1 Fifty thousand (50,000) shares of the Company's Common Stock are
reserved for sales and authorized for issuance pursuant to the Plan.
Shares sold under the Plan may be newly-issued shares, outstanding
shares reacquired in private transactions or open market purchases, or
both. If any option granted under the Plan shall for any reason
terminate without having been exercised, the shares not purchased
under such option shall again become available for the Plan.
4.2 In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, merger,
consolidation, acquisition of property or shares, separation, asset
spin-off, stock rights offering, liquidation or other similar change
in the capital structure of the Company, the Committee shall make such
adjustment, if any, as it deems appropriate in the number, kind and
purchase price of the shares available for purchase under the Plan.
In the event that, at a time when options are outstanding hereunder,
there occurs a dissolution or liquidation of the Company, except
pursuant to a transaction to which Section 424(a) of the Code applies,
each option to purchase Common Stock of the Company shall terminate,
but the Participant holding such option shall have the right to
exercise his option prior to such dissolution or liquidation.
V. Eligibility Requirements
5.1 Except as provided in Section 5.2, each individual who is an Employee
of the Company or a Participating Subsidiary shall become eligible to
participate in the Plan in accordance with Article VI on the first
Enrollment Date following the individual's completion of three (3)
months of employment by the Company or a Subsidiary, provided that the
individual is an Employee on such Enrollment Date. Participation in
the Plan is entirely voluntary.
5.2 The following Employees are not Eligible Employees:
(a) Employees who, immediately upon enrollment in the Plan,
would own directly or indirectly, or hold options or rights to
acquire, an aggregate of 5% or more of the total combined voting power
or value of all outstanding shares of all classes of stock of the
Company or any Subsidiary (and for purposes of this paragraph, the
rules of Code Section 424(d) shall apply, and stock which the Employee
may purchase under outstanding options shall be treated as stock owned
by the Employee);
(b) Employees who are customarily employed by the Company or a
Participating Subsidiary for not more than five months in any calendar
year;
(c) Employees who are customarily employed by the Company or a
Participating Subsidiary for 20 hours or less per week;
(d) Employees who are prohibited by the laws of the nation of
their residence or employment from participating in the Plan; and
(e) Employees who are members of a collective bargaining unit
covered by a collective bargaining agreement; provided that
participation in the Plan has been specifically considered (after
review of the terms of the Plan) and rejected by the collective
bargaining representative representing such employees.
5.3 Notwithstanding anything to the contrary in Section 5.1, Employees who
are directors or "officers" of the Company (as defined in Rule 16a-
1(f) under the Exchange Act, as such rule may be amended from time to
time) may participate in the plan only in accordance with the
requirements of Rule 16b-3 under the Exchange Act. The Plan is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and
rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and
the options shall be granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and the options granted
hereunder shall be deemed amended to the extent necessary to conform
to such laws, rules and regulations.
VI. Enrollment
6.1 Any Eligible Employee may enroll in the Plan for an Accumulation
Period by completing and signing an enrollment form (which authorizes
payroll deductions during such Accumulation Period in accordance with
Section 8.1) and submitting such enrollment form to the Company on or
before the Cut-Off Date immediately preceding the commencement of the
Accumulation Period. Such enrollment form (and the authorization
therein) shall be effective as of the Enrollment Date occurring within
the Accumulation Period to which the enrollment form relates, and
shall continue in effect until the earliest of:
(a) the end of the last payroll period ending in the
Accumulation Period, unless the Committee adopts a rule pursuant to
which such enrollment and authorization shall automatically be deemed
renewed for successive Accumulation Periods;
(b) the date during the Accumulation Period that the Employee
elects to change his enrollment in accordance with Section 8.3;
(c) the date during an Accumulation Period that the Employee
ceases to be an Eligible Employee; and
(d) the date during the Accumulation Period that the Employee
withdraws from the Plan or has a termination of employment in
accordance with Article X.
VII. Grant of Options on Enrollment
7.1 Enrollment by an Eligible Employee in the Plan as of an Enrollment
Date will constitute the grant by the Company to such Participant on
such Enrollment Date of an option to purchase shares of Common Stock
from the Company pursuant to the Plan. If enrollment is deemed by the
Committee to continue for successive Accumulation Periods, a new
option shall be granted as of each Enrollment Date the enrollment
continues in effect.
7.2 An option granted to a Participant pursuant to this Plan shall expire,
if not terminated for any reason first, on the earliest to occur of
(a) the end of the Purchase Date with respect to the Accumulation
Period in which such option was granted; (b) the completion of the
purchase of Common Stock under the option under Article IX; or (c) the
date on which participation of such Participant in the Plan terminates
for any reason.
7.3 An option granted to a Participant under the Plan shall give the
Participant a right to purchase on a Purchase Date any number of whole
and fractional shares of Common Stock which is not more than the
lesser of 200 or the amount described in (a) below; provided that if
the Committee permits the maximum described in either (a) or (b) to
apply, the option shall be for the lesser of 200 shares of Common
Stock or whichever of the amounts described in (a) or (b) is
applicable:
(a) the sum of any amount carried forward to such
Accumulation Period pursuant to Section 9.3 plus the dollar
amount designated in the Participant's enrollment form in
accordance with Section 8.1, such sum divided by 95% of the Fair
Market Value of a share of Common Stock (i) as of the Enrollment
Date on which the option is granted or (ii) as of the Purchase
Date for the Accumulation Period, whichever is lower; provided
that, if the Committee specifies the purchase price under Section
9.4(b) applies with respect to the Accumulation Period, then such
sum shall be divided by 95% of the Fair Market Value of a share
of Common Stock as of the Purchase Date for the Accumulation
Period; or
(b) the sum of any amount carried forward to such
Accumulation Period pursuant to Section 9.3 plus the product of
the percentage of Base Earnings designated in the Participant's
enrollment form in accordance with Section 8.1 and 25% of the
Participant's annualized Base Earnings at the rate in effect on
the applicable Enrollment Date, such sum divided by 95% of the
Fair Market Value of a share of Common Stock as of (i) as of the
Enrollment Date on which the option is granted or (ii) as of the
Purchase Date for the Accumulation Period, whichever is lower;
provided that, if the Committee specifies the purchase price
under Section 9.4(b) applies with respect to the Accumulation
Period, then such sum shall be divided by 95% of the Fair Market
Value of a share of Common Stock as of the Purchase Date for the
Accumulation Period.
Notwithstanding any other provision of this Plan, no employee may be
granted an option which permits his rights to purchase shares of
Common Stock under the Plan and any other similar employee stock
purchase plan of the Company or any of its subsidiaries to accrue at a
rate which exceeds $25,000 of Fair Market Value of such Common Stock
(determined at the time such option is granted) for each calendar year
in which such option is outstanding at any time.
VIII. Payroll Deductions
8.1 An Employee who files an enrollment form pursuant to Article VI shall
elect and authorize in such form to have deductions made from his pay
on each payday during the Accumulation Period to which the enrollment
form relates, and he shall designate in such form the total amount
(or, if the Committee permits, the percentage) of Base Earnings to be
deducted during such Accumulation Period. The minimum an Employee may
elect and authorize to have deducted is $10.00 per payroll period (or
such larger or smaller amount as the Committee may designate from time
to time) and the maximum is the lesser of (a) 100% of his Base
Earnings for such Accumulation Period, or (b) $6,250, subject to the
maximum set forth in Section 7.3. In authorizing such deduction, if
the employee is permitted to (and does) designate a percentage of Base
Earnings, the percentage shall be a whole percentage of Base Earnings
up to 100% or such smaller percentage as the Committee specifies from
time to time. For these purposes, the Base Earnings of an hourly-paid
Employee shall be determined by multiplying such Employee's hourly
rate of base pay as of the beginning of the Accumulation Period by the
number of regularly scheduled hours the Employee is expected to work
during the Accumulation Period, excluding overtime hours.
8.2 Payroll deductions for a Participant shall commence as soon as
administratively practicable after the Participant's authorization of
such payroll deductions in an enrollment form becomes effective in
accordance with Article VI, and shall continue until the date on which
such authorization ceases to be effective in accordance with Article
VI. The amount of each payroll deduction made for a Participant shall
be credited to the Participant's Account as soon as administratively
feasible after the Participant's pay is withheld. All payroll
deductions received or held by the Company or a Participating
Subsidiary may be used by the Company or Participating Subsidiary for
any corporate purpose, and the Company or Participating Subsidiary
shall not be obligated to segregate such payroll deductions.
8.3 During an Accumulation Period, a Participant may elect to reduce or to
cease (but not to increase) payroll deductions made on his behalf for
the remainder of such Accumulation Period by delivering the applicable
forms to the Company in such manner and at such time as permitted by
the Committee. A Participant may elect to reduce payroll deductions
no more than once during an Accumulation Period, but may cease payroll
deductions at any time. A Participant who has ceased payroll
deductions may voluntarily withdraw from the Plan pursuant to Section
10.1.
8.4 A Participant may not make any separate or additional contributions to
his Account under the Plan, except when on leave of absence and then
only as provided in Section 10.3. Neither the Company nor any
Participating Subsidiary shall make separate or additional
contributions to any Participant's Account under the Plan.
IX. Purchase of Shares
9.1 Subject to Section 9.2, any option held by the Participant which was
granted under this Plan and which remains outstanding as of a Purchase
Date shall be deemed to have been exercised on such Purchase Date for
the purchase of the number of whole and fractional shares (carried to
four decimal places) of Common Stock which the funds accumulated in
the Participant's Account as of the Purchase Date will purchase at the
applicable purchase price (but not in excess of the number of shares
for which options have been granted to the Participant pursuant to
Section 7.3).
9.2 A Participant who holds an outstanding option as of a Purchase Date
shall not be deemed to have exercised such option if, no later than
the time prior to such Purchase Date required by the Committee, the
Participant elected not to exercise the option by withdrawing from the
Plan in accordance with Section 10.1. If the Participant withdraws as
described in the preceding sentence, then all funds accumulated in his
Account as of the Purchase Date on which his option would otherwise be
exercisable shall be distributed to him as soon as administratively
feasible after such Purchase Date.
9.3 If, after a Participant's exercise of an option under Section 9.1, an
amount remains credited to the Participant's Account as of a Purchase
Date, then the remaining amount shall be carried forward in the
Account for application to the purchase of Common Stock on the next
following Purchase Date; provided, however, that if the remaining
amount exceeds one dollar and the Participant so elects no later than
the time required by the Committee prior to the Purchase Date on which
he exercises the option, he shall receive a distribution of such
remaining amount in cash as soon as administratively feasible after
such Purchase Date.
9.4 (a) The purchase price for each share of Common Stock purchased
under an option granted on the Enrollment Date for such Accumulation
Period shall be 95% of the lower of
(i) the Fair Market Value of a share of Common
Stock on the Enrollment Date on which such option is granted; or
(ii) the Fair Market Value of a share of Common
Stock on the Purchase Date.
(b) Notwithstanding Section 9.4(a), if the Committee so
specifies prior to the commencement of an Accumulation Period, the
purchase price for each share of Common Stock purchased under any
option shall be 95% of the Fair Market Value of a share of Common
Stock on the Purchase Date.
9.5 If shares of Common Stock are purchased by a Participant pursuant to
Section 9.1, then such shares shall be held in non-certificated form
at a bank or other appropriate institution selected by the Company
until the earlier of the Participant's termination of employment or
the time a Participant requests delivery of certificates representing
such shares. Except as may be required by the laws of the
jurisdiction in which a Participant sells or otherwise disposes of the
Participant's shares acquired under the Plan or for another reason
approved by the Committee, no Participant shall be permitted to
request delivery of certificates prior to the Participant's
termination of employment. If any law or applicable regulation of the
Securities and Exchange Commission or other body having jurisdiction
shall require that the Company or the Participant take any action in
connection with the shares being purchased under the option, delivery
of the certificate or certificates for such shares shall be postponed
until the necessary action shall have been completed, which action
shall be taken by the Company at its own expense, without unreasonable
delay.
Any certificates delivered pursuant to this Section 9.5 shall be
registered in the name of the Participant or, if the Participant so
elects, in the names of the Participant and one or more such other
persons as may be designated by the Participant, as joint tenants with
rights of survivorship or as tenants by the entireties, to the extent
permitted by law.
9.6 In the case of Participants employed by a Participating Subsidiary,
the Committee may provide for Common Stock to be sold through the
Subsidiary to such Participants, to the extent consistent with Section
423 of the Code.
9.7 If the total number of shares of Common Stock for which an option is
exercised on any Purchase Date in accordance with this Article IX,
when aggregated with all shares of Common Stock previously granted
under this Plan, exceeds the maximum number of shares reserved in
Section 4.1, the Company shall make a pro rata allocation of the
shares available for delivery and distribution in as nearly a uniform
manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the
Account of each Participant under the Plan shall be returned to him as
promptly as possible.
9.8 If a Participant or former Participant sells, transfers, or otherwise
makes a disposition of Common Stock purchased pursuant to an option
granted under the Plan within two years after the date such option is
granted or within one year after the Purchase Date to which such
option relates, and if such Participant or former Participant is
subject to U.S. federal income tax, then such Participant or former
Participant shall notify the Company or Participating Subsidiary in
writing of such sale, transfer or other disposition within 10 days of
the consummation of such sale, transfer or other disposition, and
shall remit to the Company or Participating Subsidiary or authorize
the Company or Participating Subsidiary to withhold from other sources
such amount as the Company may determine to be necessary to satisfy
any federal, state or local tax withholding obligations of the Company
or Participating Subsidiary.
The Committee may from time to time establish rules and procedures
(including but not limited to postponing delivery of shares until the
earlier of the expiration of the two-year or one-year period or the
disposition of such shares by the Participant) to cause the
withholding requirements to be satisfied.
X. Termination of Participation
10.1 Withdrawal from the Plan. A Participant may withdraw from the Plan in
full (but not in part) during any Accumulation Period by delivering a
notice of withdrawal to the Company (in a manner prescribed by the
Committee) at any time up to but not including the number of days
prior to the Purchase Date occurring in such Accumulation Period as
the Committee shall require. If notice of withdrawal is timely
received, the funds then accumulated in the Participant's Account
shall not be used to purchase Common Stock, but shall instead be
distributed to the Participant as soon as administratively feasible
after the end of the Accumulation Period. An Employee who has
withdrawn during an Accumulation Period may not return funds to the
Company or a Participating Subsidiary during the same Accumulation
Period and require the Company or Participating Subsidiary to apply
those funds to the purchase of Common Stock. Any Eligible Employee
who has withdrawn from the Plan may, however, re-enroll in the Plan on
the next subsequent Enrollment Date following such withdrawal in
accordance with the provisions of Article VI.
10.2 Termination of Employment. Participation in the Plan terminates
immediately when a Participant ceases to be employed by the Company or
a Participating Subsidiary for any reason other than death or
otherwise ceases to be an Eligible Employee, and such terminated
Participant's outstanding options shall thereupon terminate. As soon
as administratively feasible after termination of participation, the
Company or Participating Subsidiary shall pay to the Participant all
amounts accumulated in the Participant's Account at the time of
termination of participation.
10.3 Leave of Absence. If a Participant takes a leave of absence without
terminating employment, such Participant shall have the right, at the
commencement of the leave of absence and in accordance with procedures
prescribed by the Committee, to elect: (a) to withdraw from the Plan
in accordance with Section 10.1; (b) to discontinue contributions to
the Plan but remain a Participant in the Plan through the balance of
the Accumulation Period in which his leave of absence begins; or
(c) to remain a Participant in the Plan during such leave of absence,
authorizing deductions to be made from payments by the Company or a
Participating Subsidiary to the Participant during such leave of
absence and undertaking to make contributions to the Plan at the end
of each payroll period to the extent that amounts payable by the
Company to such Participant are insufficient to meet such
Participant's authorized Plan deductions.
XI. Designation of Beneficiary
11.1 Each Participant may designate in writing one or more beneficiaries to
receive the amount in his Account in the event of death and may, in
his sole discretion, change such designation in writing at any time.
Any such designation shall be effective upon receipt by the Company
and shall control over any disposition by will or otherwise.
11.2 As soon as administratively feasible after the death of a Participant,
amounts accumulated in his Account shall be paid in cash to the
designated beneficiaries or, in the absence of a valid designation, to
the executor, administrator or other legal representative of the
Participant's estate. Such payment shall relieve the Company of
further liability with respect to the Plan on Account of the deceased
Participant. If more than one beneficiary is designated, each
beneficiary shall receive an equal portion of the Account unless the
Participant has given express contrary instructions.
11.3 No beneficiary shall, prior to the death of the Participant by whom he
has been designated, acquire any interest in the amounts credited to
the Participant's Account under the Plan.
XII. Miscellaneous
12.1 Restrictions on Transfer. The rights of a Participant under the Plan
shall not be assignable or transferrable by such Participant, and an
option granted under the Plan may not be exercised during a
Participant's lifetime other than by the Participant.
12.2 Administrative Assistance. If the Committee in its discretion so
elects, it may retain a brokerage firm, bank or other financial
institution to assist in the purchase of shares, delivery of reports
or other administrative aspects of the Plan. If the Committee so
elects, each Participant shall (unless prohibited by applicable law)
be deemed upon enrollment in the Plan to have authorized the
establishment of an account on his behalf at such institution. Shares
purchased by a Participant under the Plan shall be held in the account
in the Participant's name, or if the Participant so indicates in the
enrollment form, in the Participant's name together with the name of
one or more other persons, in joint tenancy with right of survivorship
or spousal community property, or in certain forms of trusts approved
by the Committee.
12.3 Costs and Expenses. All costs and expenses incurred in administering
the Plan shall be paid by the Company, including any stamp duties,
transfer taxes and any brokerage fees applicable to a Participant's
acquisition of Stock under the Plan.
12.4 Equal Rights and Privileges. All Eligible Employees shall have equal
rights and privileges with respect to the Plan so that the Plan
qualifies as an "employee stock purchase plan" within the meaning of
Section 423 or any successor provision of the Code and the related
regulations. Notwithstanding the express terms of the Plan, any
provision of the Plan which is inconsistent with Section 423 or any
successor provision of the Code shall without further act or amendment
by the Company or the Board be reformed to comply with the
requirements of Code Section 423. This Section 12.5 shall take
precedence over all other provisions in the Plan.
12.5 Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Missouri.
12.6 Amendment and Termination. The Board may amend, alter or terminate
the Plan at any time; provided, however, that no amendment which would
amend or modify the Plan in a manner requiring stockholder approval
under Code Section 423, the requirements of any securities exchange on
which the Common Stock is traded, or any rule or regulation
promulgated by the Securities Exchange Commission shall be effective
unless, within one year after it is adopted by the Board, it is
approved by the holders of a majority of the voting power of the
Company's outstanding shares. In addition, the Committee may amend
the Plan as provided in Section 3.3, subject to the conditions set
forth therein and in this Section 12.7.
If the Plan is terminated, the Board may elect to terminate all
outstanding options either prior to their expiration or upon
completion of the purchase of shares on the next Purchase Date, or may
elect to permit options to expire in accordance with their terms (and
participation to continue through such expiration dates). If the
options are terminated prior to expiration, all funds accumulated in
Participants' Accounts as of the date the options are terminated shall
be returned to the Participants as soon as administratively feasible.
12.7 No Right of Employment. Neither the grant nor the exercise of any
rights to purchase shares under this Plan nor anything in this Plan
shall impose upon the Company any obligation to employ or continue to
employ any employee. The right of the Company or any Subsidiary to
terminate any employee shall not be diminished or affected because any
rights to purchase shares have been granted to such employee.
12.8 Requirements of Law. The Company shall not be required to sell,
issue, or deliver any shares of Common Stock under this Plan if such
sale, issuance, or delivery might constitute a violation by the
Company or the Participant of any provision of law. Unless a
registration statement under the Securities Act is in effect with
respect to the shares of Common Stock proposed to be delivered under
the Plan, the Company shall not be required to issue such shares if,
in the opinion of the Company or its counsel, such issuance would
violate the Securities Act. Regardless of whether such shares of
Common Stock have been registered under the Securities Act or
registered or qualified under the securities laws of any state, the
Company may impose restrictions upon the hypothecation or further sale
or transfer of such shares (including the placement of appropriate
legends on stock certificates) if, in the judgment of the Company or
its counsel, such restrictions are necessary or desirable to achieve
compliance with the provisions of the Securities Act, the securities
laws of any state, or any other law or are otherwise in the best
interests of the Company. Any determination by the Company or its
counsel in connection with any of the foregoing shall be final and
binding on all parties.
If, in the opinion of the Company and its counsel, any legend placed
on a stock certificate representing shares of Common Stock issued
under the Plan is no longer required in order to comply with
applicable securities or other laws, the holder of such certificate
shall be entitled to exchange such certificate for a certificate
representing a like number of shares lacking such legend.
The Company may, but shall not be obligated to, register or qualify
any securities covered by the Plan. The Company shall not be
obligated to take any other affirmative action in order to cause the
grant or exercise of any right or the issuance, sale, or deliver of
shares pursuant to the exercise of any right to comply with any law.
12.9 Gender. When used herein, masculine terms shall be deemed to include
the feminine, except when the context indicates to the contrary.
Executed this 22nd day of June, 1998.
AMERICAN ITALIAN PASTA COMPANY
By: /s/ T. S. Webster
-------------------------------
Title: President & Chief
Executive Officer
A-13
<PAGE>
EXHIBIT B
AMERICAN ITALIAN PASTA COMPANY
1992 STOCK OPTION PLAN
Note - the following copy of the 1992 Plan reflects the effects of the
recapitalization of the Company in October 1997 and the amendment adopted
by the Company October 15, 1998.
AMERICAN ITALIAN PASTA COMPANY
1992 STOCK OPTION PLAN
1. Purpose. The American Italian Pasta Company Stock Option Plan
(the "Plan") is intended to advance the interests of American Italian Pasta
Company (the "Company") and its shareholders by encouraging and enabling
selected officers and other key employees and consultants upon whose
judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, to acquire and retain a proprietary
interest in the Company by ownership of its Common Shares (as defined
below). The Plan shall become effective as of October 30, 1992 (the
"Effective Date").
2. Definitions.
"Board" means the Board of Directors of the Company.
"Cause", with respect to any Optionee means, (i) cause as defined in
the employment or consulting agreement with the Company to which the
Optionee is a party or, if none, (ii) the occurrence of any of the
following events:
(a) the willful and continued failure by such Optionee to
substantially perform his duties with the Company on a full-time basis
(other than any such failure resulting from total or partial
incapacity due to physical or mental illness) after a written demand
for substantial performance is delivered to such Optionee by the
Board, which demand identifies the manner in which the Board believes
that he has not substantially performed such duties;
(b) the willful engaging by such Optionee in conduct which is
significantly injurious to the Company, monetarily or otherwise, after
a written demand for cessation of such conduct is delivered to such
individual by the Board, which demand specifically identifies the
manner the Board believes that such individual has engaged in such
conduct and the injury to the Company resulting therefrom;
(c) the commission by such Optionee of an act or acts
constituting a crime involving moral turpitude;
(d) the breach by such Optionee of one or more covenants, if
any, in any agreement to which the Optionee and the Company are
parties;
(e) such Optionee's use of illegal drugs, abuse of other
controlled substances or habitual intoxication; or
(f) the commission by such Optionee of a significant act of
dishonesty, deceit or breach of fiduciary duty in the performance of
the Optionee's duties with the Company.
For purposes of clauses (A) and (B) of this definition, no act, or failure
to act, on the part of an Optionee shall be deemed to be willful unless
knowingly done, or omitted to be done, by such Optionee not in good faith
and without a reasonable belief that such action or omission was in the
best interests of the Company.
"Closing Option" an Initial Option having the terms specified in the
Option Agreement to which the Optionee is a party. The terms of Closing
Options may differ for different Optionees.
"Code" means the Internal Revenue Code of 1986, as amended, from time
to time.
"Committee" means (i) a committee designated by the Board and
delegated the functions of the Committee under this Plan, which shall be
comprised of least two directors or (ii) if at any time such a committee
has not been designated, the Board.
"Common Shares" means the Common Stock, no par value, of the Company.
"Date of Grant" means, with respect to any Option, the date as of
which such Option is granted under the Plan.
"Disability", with respect to any Optionee, means (i) Disability as
defined in the employment or consulting agreement with the Company to which
the Optionee is a party or, if none or if not defined therein, (ii)
physical or mental incapacity resulting in such Optionee being unable to
substantially perform his duties for more than six (6) consecutive months
or an aggregate of six (6) months in any period of twelve (12) consecutive
months as determined in writing by a qualified independent physician
mutually acceptable to the Optionee and the Company.
"Effective Date" has the meaning set forth in Section 1 hereof.
"Employee" means any employee of the Company.
"Fair Market Value" (i) with respect to any Option or any portion
thereof at any time means (x) the value of one Common Share, determined as
set forth in clause (ii), minus (y) the respective exercise price (s) per
share; which amount shall be multiplied by (z) the number of Common Shares
subject to such Option or applicable portion thereof; and (ii) with respect
to any Common Shares, means (1) the "Section 4.2 Sales Price", the "Section
4.3 Sales Price" or the "Common Stock Sale Price" (each as defined in the
Shareholders Agreement) whichever has been most recently determined for
Common Shares provided such determination has been made within the past
year, and if none, (2) the Fair Market Value as determined in good faith by
the Committee.
"Follow-on Option" means an Initial Option having the terms specified
in the Option Agreement to which the Optionee is a party. The terms of
Follow-on Options may differ for different Optionees.
"Incentive Stock Option" means any Option that is intended to meet the
requirements of Section 422 of the Code and any successor provision thereto
and the regulations thereunder.
"Initial Options" has the meaning set forth in Section 4 hereof.
"Non-Qualified Stock Option" means any Option that is not an Incentive
Stock Option.
"Option" means an Initial Option or an Other Option granted under this
Plan.
"Option Agreement" means any agreement or other instrument pursuant to
which an Option is granted to an Optionee.
"Optionee" means a Person to whom an Option has been granted under the
Plan and who has rights therein under the Plan.
"Other Options" has the meaning set forth in Section 4 hereof.
"Payment Note" has the meaning set forth in Section 6(h) hereof.
"Person" means any individual, corporation, partnership, joint stock
company, trust, joint venture, association, or other entity or
organization, including a government or political subdivision or an agency
or instrumentality thereof.
"Public Offering" means any underwritten public offering of equity
securities (or securities convertible into equity securities) of the
Company pursuant to an effective registration statement under the
Securities Act of 1933 other than pursuant to a registration statement on
Form S-8 or any successor or similar form.
"Realization Event" has the meaning set forth in the Shareholders
Agreement.
"Retirement" means, unless otherwise agreed by contract, with respect
to any Optionee, such Optionee's termination of employment with the Company
(i) pursuant to any arrangement of the Company providing for early
retirement of its Employees, (ii) at an age of not less than 65 years or
(iii) otherwise determined by the Committee to be a retirement.
"Seller" has the meaning set forth in Section 6(h)(iii) hereof.
"Shareholders Agreement" means the Shareholders Agreement dated as of
October 30, 1992 among the Company, The Morgan Stanley Leveraged Equity
Fund II, L.P., a Delaware limited partnership, Richard C. Thompson, and
Citicorp Venture Capital, Ltd. and the other parties thereto, as in effect
from time to time.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect at least 50% of the members
of the board of directors or other persons performing similar functions are
directly or indirectly owned by the Company.
"Successor" means the legal representative of a deceased Optionee or
the person or persons who acquire the right to exercise an Option by
bequest or inheritance or by reason of the death or legal incapacity of any
Optionee.
"Vested Portion" has the meaning set forth in Section 6(c) hereof.
"Vesting Schedule" has the meaning set forth in Section 6(d) hereof.
"Year End" means the last day of the one year period which begins, as
to each Option, on the day on which such Option was granted or an
anniversary of such date.
3. Administration of Plan. (a) The Plan shall be supervised and
administered by the Committee which shall have full and final authority in
its discretion, subject to the provisions of the Plan and applicable law,
to determine the individuals to whom and the time or times at which Options
shall be granted and the number of Common Shares covered by each Option; to
determine the terms of any Payment Note; to construe and interpret the
Plan, any Option Agreement and any Payment Note; and to make all other
determinations and take all other actions deemed necessary or advisable for
the administration of the Plan.
(b) Determinations Under the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan
or any Option shall be within the sole discretion of the Committee,
may be made at any time and shall be final, conclusive and binding
upon all persons, including the Company, any Optionee, any Successor,
any Seller, any shareholder and any Employee.
4. Common Shares Subject to Options. Subject to adjustment as
provided in Section 7, the aggregate number of Common Shares which may be
issued upon the exercise of Options granted under the Plan shall be
147,804. Of such 147,804 Common Shares, there are reserved for issuance
under the Plan (i) an aggregate of 103,463 Common Shares in respect of
Options granted as of the Effective Date, (the "Initial Options") and (ii)
an aggregate of 44,341 Common Shares in respect of Common Options which may
be granted after the Effective Date ("Other Options"). Initial Options may
be Closing Options or Follow-on Options. The Common Shares to be issued
upon the exercise of Options may consist of authorized but unissued shares,
treasury shares or other shares issued and reacquired by the Company or
shares otherwise acquired for the purposes of the Plan. If any Option
shall, for any reason, terminate or expire or be surrendered without having
been exercised in full or otherwise without the delivery of Common Shares,
the Common Shares subject to such Option but not purchased thereunder shall
again be available for new Options to be granted under the Plan. The
maximum aggregate number of Shares that may be granted in any one calendar
year to any one Grantee shall be 500,000.
5. Grants to Participants. Options may be granted under the Plan to
any person who is or who agrees to become an officer or other key Employee
(including officers and Employees who are also directors) of, or a
consultant to, the Company or any of its present or future Subsidiaries.
Subject to the provisions of the Plan including Section 6 below, the
Committee shall have the sole and complete authority to determine the
exercise price per share for an Other Option and the terms of each Option
Agreement, which may be different for each Optionee. Other Options may be
either Non-Qualified Stock Options or Incentive Stock Options. In the case
of Incentive Stock Options, the terms and conditions of such grants shall
be subject to and comply with such rules as may be prescribed by Section
422 of the Code and any regulations promulgated thereunder.
6. Terms and Conditions of Options. Any Option granted under the
Plan shall be evidenced by an Option Agreement executed by the Company and
the Optionee and shall contain terms and conditions not inconsistent with
the following limitations and conditions:
(a) Exercise Price. Each Option shall represent the right to
purchase one or more Common Shares at a purchase price per share set
forth in the Option Agreement.
(b) Period of Option. The term of each Option shall be 10 years
from the Date of Grant of such Option subject to earlier termination
and expiration as provided in Section 6(g), in the Option Agreement or
in another agreement to which the Optionee is a party.
(c) Exercise of Options in General. All or any part of the
Vested Portion of each Option shall be exercisable at such times,
throughout a period commencing on the date such Option becomes
exercisable in accordance with its terms ending upon the expiration or
termination of such Option as determined in the sole discretion of the
Committee and set forth herein or in the applicable Option Agreement.
The Committee may impose in any Option Agreement such conditions with
respect to the exercise of each Option as it may deem necessary or
advisable. The Vested Portion of each Option shall be that portion
which shall have become exercisable and shall not have been previously
exercised, as determined in accordance with Subsection (d) below.
(d) Vesting Schedule. Unless and to the extent otherwise
provided in an Option Agreement and subject to clauses (ii) through
(v) below and Section 6(g), the following schedule (the "Vesting
Schedule") applies to all Options:
Years of Service
Since Date of Grant Vested Portion
1 20%
2 40%
3 60%
4 80%
5 100%
(ii) Notwithstanding the Vesting Schedule above
but subject to the provisions of an Option Agreement, in the
event of the Optionee's termination of employment or consulting
arrangement with the Company due to the Optionee's death or
Disability, each outstanding Option held by the Optionee shall
become exercisable in full with respect to all Common Shares
covered thereby.
(iii) Notwithstanding the Vesting Schedule above
but subject to the provisions of an Option Agreement, in the
event of the Optionee's Retirement or termination of employment
by the Company without Cause each outstanding Option held by such
Optionee shall become exercisable with respect to that number of
Common Shares which is obtained by multiplying the number of
Common Shares covered by the Option by a fraction, the numerator
of which is the number of months the Optionee has been employed
with the Company following the Date of Grant and the denominator
of which is 60. The portion of such Option not becoming vested
and exercisable in accordance with the foregoing sentence shall
be cancelled upon any termination of employment.
(iv) Notwithstanding the Vesting Schedule above
but subject to the provisions of an Option Agreement, upon
occurrence of a Realization Event, each outstanding Option shall
become exercisable in full with respect to all Common Shares
covered thereby as of a date immediately prior to the occurrence
of such Realization Event.
(v) No provision of this Section 6(d) shall
impair the Committee's authority to accelerate the exercisability
of any outstanding Option at any time, or to provide in any
Option Agreement for provisions that differ from the provisions
set forth in this Section (d) relating to vesting upon
termination of employment or a Realization Event.
(e) Shareholder Rights. Each Optionee shall, if requested by the
Company on or after the Date of Grant, execute and become a party to
the Shareholders Agreement or a similar type of agreement with such
provisions regarding shareholder matters as the Company considers
appropriate. An Optionee shall not have any of the rights of a
shareholder of the Company in respect of the Common Shares subject to
an Option until or unless certificates evidencing the Common Shares
purchased pursuant to the exercise of such Option are properly
delivered to such Optionee.
(f) Nontransferability. Except as otherwise provided in the
Option Agreement to which the Optionee is a party and notwithstanding
any other provision of this Plan or the Shareholders Agreement, no
Option shall be transferable or assignable by an Optionee, other than
by will or the laws of descent and distribution, and each such Option
shall be exercisable, during the Optionee's lifetime, only by such
Optionee.
(g) Certain Forfeitures and Repurchases of Options. (i) Unless
otherwise expressly provided in the Option Agreement or in another
agreement between the Company and the Optionee, upon the Company's
termination of an Optionee's employment for Cause, any Option (whether
or not then exercisable) held by such Optionee shall be deemed
immediately forfeited and cancelled without any payment or
consideration being due from the Company.
(ii) Unless otherwise expressly provided in the
Option Agreement or in another agreement between the Company and
the Optionee, upon termination of an Optionee's employment with
the Company other than by the Company for Cause, the unvested
portion of any Option held by such Optionee shall be deemed
immediately forfeited and cancelled and the Vested Portion of any
Option held by the Optionee shall, at the Company's election at
any time after such termination, be subject to purchase by the
Company for an amount equal to the Fair Market Value of such
Vested Portion of such Option on the repurchase date. In the
event the Fair Market Value of the Vested Portion of any such
Option shall be zero or less, the repurchase of such Option shall
be effected by the delivery by the Company to the Optionee or his
Successor, as appropriate, of a written notice stating that the
Fair Market Value is zero and that such Option is cancelled.
If the Company elects to purchase the Vested Portion of an Option
pursuant to this Section 6(g), the Company shall deliver written
notice (a "Purchase Notice") to such Optionee or such Optionee's
Successor, as appropriate, to such effect. Upon receipt of any
Purchase Notice each Option subject to being purchased shall be deemed
to be expired and cancelled automatically upon receipt of the Purchase
Notice and the purchase price. Payment of the purchase price may be
made in cash or by certified check. Payment effected through a
promissory note of the Company in accordance with the provisions of
Section 6(h)(iv) hereof shall be deemed payment in cash for purposes
of this Section 6(g).
(h) Certain Repurchases of Common Shares. (i) Notwithstanding
any other provision of this Plan or the Shareholders Agreement but
subject to the provisions of an Option Agreement, upon the termination
of an Optionee's employment prior to an initial Public Offering by the
Company, the Company may elect, at any time after such termination and
prior to such Public Offering, to require such Optionee or his
Successor to sell to the Company, and such Optionee or such Successor
shall sell, all Common Shares acquired as a result of the exercise of
an Option and owned by such Optionee and Successor in accordance with
this Section 6(h). The price at which such Surrendered Shares (as
defined in Section 6(h)(iii)) may be repurchased shall be determined
as follows: (1) in the case of a repurchase arising from a termination
under the circumstances set forth in Section 6(g)(i), an amount equal
to the product of (x) the lower of (A) the exercise price for the
Option pursuant to which the Common Shares were purchased and (B) the
Fair Market Value of a Common Share as of the date of such termination
of employment multiplied by (y) the number of Common Shares so
repurchased, and (2) in the case of a repurchase arising from a
termination under the circumstances set forth in Section 6(g)(ii), an
amount equal to the product of Fair Market Value of a Common Share as
of the termination date multiplied by the number of Common Shares
repurchased.
(ii) If the Company elects to exercise its right
to require any Optionee or any Optionee's Successor to sell
Common Shares pursuant to this Section 6(h), the Company shall
deliver written notice (a "Repurchase Notice") to such Optionee
or such Successor to such effect.
(iii) The Common Shares specified in the Repurchase
Notice as being subject to repurchase (collectively, "Surrendered
Shares") shall be surrendered for repurchase within (10) ten
business days of the date of such receipt of such notice (the
"Repurchase Date"). On the Repurchase Date, the Optionee or the
Optionee's Successor selling such Surrendered Shares (the
"Seller") shall deliver to the Company the certificate or
certificates representing the Surrendered Shares owned by such
Seller on such date against delivery by the Company of the
repurchase amount to such Seller, which may be paid at the
election of the Company, in cash or by certified check, or, in
the event the Company is prohibited from making payment with cash
as a result of a credit agreement or debt obligation binding upon
the Company, by a promissory note issued by the Company (a
"Payment Note") payable to the order of the Seller. All
certificates for Surrendered Shares shall be duly endorsed in
favor of the Company by the Seller in whose name such certificate
or certificates is registered or accompanied by a duly executed
stock or security assignment in favor of the Company with the
signature(s) thereon guaranteed by a commercial bank or trust
company or a member of a national securities exchange or the
National Association of Securities Dealers, Inc. If any Seller
shall fail to deliver such certificate or certificates (or
evidence) to the Company within the time required, the Company
shall cause its books and records to show that the Surrendered
Shares are bound by the provisions of this Section 6(h) of the
Plan and that the Surrendered Shares, until transferred to the
Company, shall not be entitled to any proxy, dividend or other
rights from the date by which such certificate or certificates
should have been delivered to the Company.
(iv) Each Payment Note shall (A) be payable to the
order of the Seller, (B) be issued and dated the Repurchase Date,
(C) be in a principal amount equal to the repurchase price of
such Surrendered Shares and (D) mature on demand or at a stated
maturity date. Each Payment Note shall bear interest in respect
of the unpaid principal amount of such Payment Note from the
Repurchase Date to the maturity date thereof at a rate per annum
equal to the then-current yield to maturity on United States
treasury securities of comparable maturity, as determined in good
faith by the Company, plus 100 basis points.
(v) The Company shall have the right to resell to
any Person any Surrendered Shares received from a Seller pursuant
to this Section 6(h), whether or not the applicable Repurchase
Price has been paid to such Seller; provided that any such sale
or other disposition by the Company of Surrendered Shares shall
not relieve the Company of its obligation to pay the applicable
repurchase price for such Surrendered Shares.
(i) Other Provisions. The grant of any Option may also be
subject to such other provisions (whether or not applicable to any
Option granted to any other Optionee) as the Committee deems
appropriate, including provisions to assist the Optionee in financing
the acquisition of Common Shares, provisions for the forfeiture of, or
restrictions on resale or other disposition of, shares acquired under
any Option in addition to those provisions set forth in Section 8
hereof or in the Shareholders Agreement, provisions giving the Company
the right to purchase Options in circumstances other than those
described in Section 6(g) and to repurchase shares acquired under any
Option in the event the Optionee elects to dispose of such shares,
provisions to comply with federal and state securities laws,
understandings or conditions as to the Optionee's employment in
addition to those specifically provided for under the Plan and
provisions accelerating the vesting of any Option upon the occurrence
of specified events or otherwise in the discretion of the Committee.
7. Adjustment Provisions. (a) If the Company shall at any time
change the number of issued Common Shares without new consideration to it
(by stock dividends, stock splits, or similar transactions), the total
number of Common Shares reserved for issuance under this Plan and the
number of such shares covered by each outstanding Option shall be adjusted
so that the aggregate consideration payable by the Optionee upon exercise,
and the benefit intended to be provided under each such Option immediately
before and immediately after such adjustment, shall be maintained.
(b) In the case of any merger, recapitalization, consolidation,
split-up, spin-off, repurchase, distribution or similar transaction
affecting the Common Shares, the Committee shall take such action as
in its sole discretion it deems appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under this Plan and the Options granted hereunder.
(c) Notwithstanding any other provision of this Plan, and
without affecting the number of Common Shares reserved or available
hereunder, the Committee may authorize the issuance or assumption of
Options or similar rights in connection with any merger,
consolidation, acquisition of property or stock, or reorganization,
whether or not the Company is a surviving or continuing corporation,
upon such terms and conditions as it may deem appropriate.
(d) Notwithstanding any other provision of this Plan, the
payment to any Optionee at any time of an amount equal to the excess,
if any, of the Fair Market Value at such time of the number of Common
Shares subject to such Option over the aggregate exercise price of
such Option, in consideration of the cancellation thereof, shall
extinguish any rights of the holder of such Option in connection
therewith.
(e) In the event of the dissolution or liquidation of the
Company, any Option granted under the Plan shall terminate as of a
date to be fixed by the Committee, provided that not less than (30)
thirty days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall have the right during such
period to exercise his Option as to all or any part of the Common
Shares covered thereby.
8. Restrictions on Common Shares Issued. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or
other withholding liabilities, or that the listing, registration, or
qualification of any Common Share otherwise deliverable upon such exercise
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, such exercise or the delivery or
purchase of Common Shares pursuant thereto, then in any such event, such
exercise shall not be effective unless such withholding, listing,
registration, qualification, consent, or approval shall have been effected
or obtained free of any conditions not acceptable to the Company.
9. No Right to Continued Service. The granting of an Option to any
person does not alter in any way the rights of the Company to terminate
such Optionee's employment or consulting arrangement at any time for any
reason nor does it confer upon such person any rights or privileges to
continue employment or otherwise except as specifically provided for in the
Plan.
10. Amendment, Suspension, and Termination of Plan. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in
such respects as the Board may deem advisable, in the best interests of the
Company and in accordance with the purposes of the Plan; provided, however,
that without approval by the holders of a majority of the securities of the
Company entitled to vote, no such amendments shall (i) except as specified
in Section 7, increase the maximum number of Common Shares with respect to
which Options may be granted under the Plan, or (ii) change the provisions
of the second sentence of this Section 10 relating to the term of this
Plan. Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate 10 years after the Effective Date of the Plan. No
Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without
an Optionee's consent, impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Withholding. The Company may establish appropriate procedures to
provide for payment of such income and other taxes as may be required by
law to be paid or withheld in connection with the exercise of Options, and
to ensure that the Company receives prompt advice concerning the occurrence
of any event that may create, or affect the timing or amount of, any
obligation to pay or withhold such taxes or that may make available to the
Company any tax deduction resulting from such occurrence. Without limiting
the generality of the foregoing, an Optionee may be given the opportunity
to elect to have Common Shares withheld to satisfy withholding obligations.
<PAGE>
EXHIBIT C
AMERICAN ITALIAN PASTA COMPANY
1993 NONQUALIFIED STOCK OPTION PLAN
Note - the following copy of the 1993 Plan reflects the effects of the
recapitalization of the Company in October 1997 and the amendment adopted
by the Company on October 15, 1998.
AMERICAN ITALIAN PASTA COMPANY
1993 NONQUALIFIED STOCK OPTION PLAN
1. Purpose. The American Italian Pasta Company 1993 Nonqualified
Stock Option Plan (the "Plan") is intended to advance the interests of
American Italian Pasta Company (the "Company") and its shareholders by
encouraging and enabling selected key employees upon whose judgment,
initiative and effort the Company is largely dependent for the successful
conduct of its business, to acquire and retain a proprietary interest in
the Company by ownership of its Common Shares (as defined below). The Plan
shall become effective as of December 8, 1993 (the "Effective Date").
2. Definitions.
"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 stockholder of the Company shall be
deemed an Affiliate of any other stockholder 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.
"Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee
benefit plan subject to ERISA or any other trust established directly or
indirectly under such plan or any other such plan having the same sponsor.
"Board" means the Board of Directors of the Company.
"Change in Control" means any event that results in (x) any person or
group (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934 as in effect on September 1, 1992) other than Morgan Stanley Leveraged
Equity Fund II, L.P. ("MSLEF") or any of its Permitted Transferees or any
group consisting solely of such persons) having beneficial ownership in
excess of 50% of the outstanding Voting Stock or (y) any person or group
(other than aforesaid) acquiring all or substantially all of the assets of
the Company.
"Code" means the Internal Revenue Code of 1986, as amended, from time
to time.
"Committee" means (i) a committee designated by the Board and
delegated the functions of the Committee under this Plan, which shall be
comprised of at least two directors or (ii) if at any time such a committee
has not been designated, the Board.
"Common Shares" means the Common Stock, no par value, of the Company.
"Common Stock" means the Common Stock, no par value, of the Company.
"Date of Grant" means, with respect to any Option, the date as of
which such Option is granted under the Plan.
"Disability", with respect to any Optionee, means physical or mental
incapacity resulting in such Optionee being unable to substantially perform
his duties for more than six (6) consecutive months or an aggregate of six
(6) months in any period of twelve (12) consecutive months as determined in
writing by a qualified independent physician mutually acceptable to the
Optionee and the Company.
"Effective Date" has the meaning set forth in Section 1 hereof.
"Employee" means any employee of the Company.
"Fair Market Value" (i) with respect to any Option or any portion
thereof at any time means (x) the value of one Common Share, determined as
set forth in clause (ii), minus (y) the respective exercise price(s) per
share; which amount shall be multiplied by (z) the number of Common Shares
subject to such Option or applicable portion thereof; and (ii) with respect
to any Common Shares, means fair market value of such Common Shares as
determined in good faith by the Committee.
"Initial Option" means the first Option granted to a particular
Employee.
"Option" means any Option granted under this Plan and includes any
Initial Option. The terms of an Option may differ for different Optionees.
"Option Agreement" means any agreement or other instrument pursuant to
which an Option is granted to an Optionee.
"Optionee" means a Person to whom an Option has been granted under the
Plan and who has rights therein under the Plan.
"Payment Note" has the meaning set forth in Section 6(i) hereof.
"Permitted Transferees" means (w) any general or limited partner of
MSLEF (a "MSLEF Partner"), and any corporation, partnership, Affiliated
Employee Benefit Trust or other entity which is an Affiliate of any MSLEF
Partner (collectively, the "MSLEF Affiliates"), (x) any managing director,
general partner, limited partner, director, officer or employee of MSLEF or
a MSLEF Affiliate (collectively, "MSLEF Associates"), (y) the heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries
of any MSLEF Associate, and (z) a trust the beneficiaries of which, or a
corporation or partnership, the stockholders or general or limited partners
of which, include only MSLEF, MSLEF Affiliates, MSLEF Associates, their
spouses or their lineal descendants.
"Person" means any individual, corporation, partnership, joint stock
company, trust, joint venture, association, or other entity or
organization, including a government or political subdivision or an agency
or instrumentality thereof.
"Public Offering" means any underwritten public offering of equity
securities (or securities convertible into equity securities) of the
Company pursuant to an effective registration statement under the
Securities Act of 1933 other than pursuant to a registration statement on
Form S-8 or any successor or similar form.
"Realization Event" means any sale of all or substantially all of the
assets of the Company, any sale of at least a majority of the Voting Stock
on a primary or secondary basis, or any recapitalization, reclassification,
merger or consolidation involving a Change of Control.
"Retirement" means, unless otherwise agreed by contract, with respect
to any Optionee, such Optionee's termination of employment with the Company
(i) pursuant to any arrangement of the Company providing for early
retirement of its Employees, (ii) at an age of not less than 65 years or
(iii) otherwise determined by the Committee to be a retirement.
"Seller" has the meaning set forth in Section 6 (i) (iii) hereof.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect at least 50% of the members
of the board of directors or other persons performing similar functions are
directly or indirectly owned by the Company.
"Successor" means the legal representative of a deceased Optionee or
the person or persons who acquire the right to exercise an Option by
bequest or inheritance or by reason of the death or legal incapacity of any
Optionee.
"Vested Option" has the meaning set forth in Section 6(c) hereof.
"Vesting Schedule" has the meaning set forth in Section 6(d) hereof.
"Voting Stock" means the Common Stock and the Class A Common Stock of
the Company.
3. Administration of Plan.
(a) The Plan shall be supervised and administered by the
Committee which shall have full and final authority in its discretion,
subject to the provisions of the Plan and applicable law, to determine the
individuals to whom and the time or times at which Options shall be granted
and the number of Common Shares covered by each Option; to determine the
terms of any Payment Note; to construe and interpret the Plan, any Option
Agreement and any Payment Note; and to make all other determinations and
take all other actions deemed necessary or advisable for the administration
of the Plan.
(b) Determinations Under the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Option shall be
within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive and binding upon all persons, including the
Company, any Optionee, any Successor, any Seller, any shareholder and any
Employee.
4. Common Shares Subject to Options. Subject to adjustment as
provided in Section 7, the aggregate number of Common Shares may be issued
upon the exercise of Options granted under the Plan shall be 82,783. The
Common Shares to be issued upon the exercise of Options may consist of
authorized but unissued shares, treasury shares or other shares issued and
reacquired by the Company or shares otherwise acquired for the purposes of
the Plan. If any Option shall, for any reason, terminate or expire or be
surrendered without having been exercised in full or otherwise without the
delivery of Common Shares, the Common Shares subject to such Option but not
purchased thereunder shall again be available for new Options to be granted
under the Plan. The maximum aggregate number of Shares that may be granted
in any one calendar year to any one Grantee shall be 200,000.
5. Grants to Participants. Options may be granted under the Plan to
any person who has been an employee of the Company or any of its present or
future Subsidiaries for a period of one (1) year or more; provided,
however, that the Committee may, in its sole discretion, grant one or more
Options under the Plan to any person who has been an Employee of the
Company or of any of its present or future Subsidiaries for a period of
less than one (1) year. Subject to the provisions of the Plan including
Section 6 below, the Committee shall have the sole and complete authority
to determine the exercise price per share for an Option and the terms of
each Option Agreement, which may be different for each Optionee.
6. Terms and Conditions of Options. Any Option granted under the
Plan shall be evidenced by an Option Agreement executed by the Company and
the Optionee and shall contain terms and conditions not inconsistent with
the following limitations and conditions:
(a) Exercise Price. Each Option shall represent the right to
purchase one or more Common Shares at a purchase price per share set
forth in the Option Agreement.
(b) Period of Option. The term of each Option shall be ten (10)
years from the Date of Grant of such Option subject to earlier
termination and expiration as provided in Section 6(h), in the Option
Agreement or in another agreement to which the Optionee is a party.
(c) Vesting of Options in General. An Option granted under the
Plan shall vest in accordance with Subsection (d) below. Any Option
which shall have become vested in accordance with said Subsection (d)
and which shall not have been previously exercised (a "Vested Option")
shall become exercisable in accordance with Section (e) below.
(d) Vesting Schedule. (i) Unless and to the extent otherwise
provided in the Option Agreement, and except as provided by Clause
(ii) through Clause (iv) and Subsection 6(h) below, the following
schedule (the "Vesting Schedule") shall apply to an Options:
Years of Service Since Date of Grant Vested Options
------------------------------------ --------------
0 (On Date of Grant) 0%
3 100%
(ii) Accelerated Vesting For Initial Options.
Notwithstanding the Vesting Schedule above, but only if and to
the extent provided by the provisions of the applicable Option
Agreement, an Initial Option granted hereunder may vest upon the
Date of Grant, or upon such other time or times as provided under
the provisions of the applicable Option Agreement.
(iii) Accelerated Vesting Upon Occurrence of
Realization Event. Notwithstanding the Vesting Schedule above but
subject to the provisions of the applicable Option Agreement,
upon occurrence of a Realization Event, each outstanding Option
(including any outstanding Initial Option) shall become fully
vested as of a date immediately prior to the occurrence of such
Realization Event. The Committee shall notify the Optionee of
the occurrence of a Realization Event within a reasonable period
of time.
(iv) Full Discretion In Committee. No provision
of this Section 6(d) shall impair the Committee's authority to
accelerate the vesting of any outstanding Option at any time, or
to provide in any Option Agreement for provisions that differ
from the provisions set forth in this Section (d) relating to
vesting of Options (including Initial Options) upon the
occurrence of a Realization Event.
(e) Exercise of Vested Options. Unless and to the extent
otherwise provided in the applicable Option Agreement and subject to
Section 6(h) below, each Vested Option shall be exercisable at such
time or times throughout a period commencing upon the earlier of [a]
the occurrence of a Realization Event, or [b] the expiration of five
(5) years from the Date of Grant, and ending upon the expiration or
termination of such Option as set forth herein or as set forth in the
applicable Option Agreement; provided, however, that no provision of
this Section 6(e) shall impair the Committee's authority to accelerate
the exercisability of any outstanding Vested Option at any time, or to
provide in any Option Agreement for provisions that differ from the
provisions set forth in this Section (e) relating to exercisability
upon the expiration of five (5) years from the Date of Grant or upon
the occurrence of a Realization Event. The Committee may impose in
any Option Agreement such conditions with respect to the exercise of
each Vested Option as it may deem necessary or advisable.
(f) Shareholder Rights. Each Optionee shall, if requested by
the Company on or after the Date of Grant, execute and become a party
to a shareholders agreement or a similar type of agreement with such
provisions regarding shareholder matters as the Company considers
appropriate. An Optionee shall not have any of the rights of a
shareholder of the Company in respect of the Common Shares subject to
an Option until or unless certificates evidencing the Common Shares
purchased pursuant to the exercise of such Option are properly
delivered to such Optionee.
(g) Nontransferability. Except as otherwise provided in the
Option Agreement to which the Optionee is a party and notwithstanding
any other provision of this Plan or of any shareholders agreement to
which the Optionee is a party, no Option shall be transferable or
assignable by an Optionee, other than by will or the laws of descent
and distribution, and each such Option shall be exercisable, during
the Optionee's lifetime, only by such Optionee.
(h) Certain Forfeitures and Repurchases of Options.
(i) Unless otherwise expressly provided in the Option
Agreement or in another agreement between the Company and the
Optionee, upon the termination of an Optionee's employment for
any reason other than by reason of death of the Optionee,
Disability or Retirement, any Option (whether or not then a
Vested Option and whether or not then exercisable) held by such
Optionee shall be deemed immediately forfeited and cancelled
without any payment or consideration being due from the Company.
(ii) Unless otherwise expressly provided in the
Option Agreement or in another agreement between the Company and
the Optionee, upon termination of an Optionee's employment with
the Company by reason of death of the Optionee, Disability or
Retirement, any Option held by such Optionee which is not a
Vested Option shall be deemed immediately forfeited and cancelled
and any Vested Option held by the Optionee shall, at the
Company's election at any time after such termination, be subject
to purchase by the Company for an amount equal to the Fair Market
Value of such Vested Option on the repurchase date. In the event
the Fair Market Value of a Vested Option shall be zero or less,
the repurchase of such Vested Option shall be effected by the
delivery by the Company to the Optionee or his Successor, as
appropriate, of a written notice stating that the Fair Market
Value is zero and that such Vested Option is cancelled.
If the Company elects to purchase a Vested Option pursuant to
this Section 6(h), the Company shall deliver written notice (a
"Purchase Notice") to such Optionee or such Optionee's Successor, as
appropriate, to such effect. Upon receipt of any Purchase Notice each
Vested Option subject to being purchased shall be deemed to be expired
and cancelled automatically upon receipt of the Purchase Notice and
the purchase price. Payment of the purchase price may be made in cash
or by certified check. Payment effected through a promissory note of
the Company in accordance with the provisions of Section 6(i)(iv)
hereof shall be deemed payment in cash for purposes of this Section
6(h).
(i) Certain Repurchases of Common Shares.
(i) Notwithstanding any other provision of this
Plan or any shareholders agreement to which the Optionee is a
party but subject to the provisions of any Option Agreement, upon
the termination of an Optionee's employment prior to an initial
Public Offering by the Company, the Company may elect, at any
time after such termination and prior to such Public Offering, to
require such Optionee or his Successor to sell to the Company,
and such Optionee or such Successor shall sell, all Common Shares
acquired as a result of the exercise of an Option and owned by
such Optionee and Successor in accordance with this Section 6(i).
The price at which such Surrendered Shares (as defined in Section
6(i)(iii)) may be repurchased shall be determined as follows: (1)
in the case of a repurchase arising from a termination under the
circumstances set forth in Section 6(h)(i), an amount equal to
the product of (x) the lower of (A) the exercise price for the
Option pursuant to which the Common Shares were purchased and (B)
the Fair Market Value of a Common Share as of the date of such
termination of employment multiplied by (y) the number of Common
Shares so repurchased, and (2) in other cases, an amount equal to
the product of Fair Market Value of a Common Share as of the
termination date multiplied by the number of Common Shares
repurchased.
(ii) If the Company elects to exercise its right
to require any Optionee or any Optionee's Successor to sell
Common Shares pursuant to this Section 6(i), the Company shall
deliver written notice (a "Repurchase Notice") to such Optionee
or such Successor to such effect.
(iii) The Common Shares specified in the Repurchase
Notice as being subject to repurchase (collectively, "Surrendered
Shares") shall be surrendered for repurchase within ten (10)
business days of the date of such receipt of such notice (the
"Repurchase Date"). On the Repurchase Date, the Optionee or the
Optionee's Successor selling such Surrendered Shares (the
"Seller") shall deliver to the Company the certificate or
certificates representing the Surrendered Shares owned by such
Seller on such date against delivery by the Company of the
repurchase amount to such Seller, which may be paid at the
election of the Company, in cash or by certified check, or, in
the event the Company is prohibited from making payment with cash
as a result of a credit agreement or debt obligation binding upon
the Company, by a promissory note issued by the Company (a
"Payment Note") payable to the order of the Seller. All
certificates for Surrendered Shares shall be duly endorsed in
favor of the Company by the Seller in whose name such certificate
or certificates is registered or accompanied by a duly executed
stock or security assignment in favor of the Company with the
signature(s) thereon guaranteed by a commercial bank or trust
company or a member of a national securities exchange or the
National Association of Securities Dealers, Inc. If any Seller
shall fail to deliver such certificate or certificates (or
evidence) to the Company within the time required, the Company
shall cause its books and records to show that the Surrendered
Shares are bound by the provisions of this Section 6(i) of the
Plan and that the Surrendered Shares, until transferred to the
Company, shall not be entitled to any proxy, dividend or other
rights from the date by which such certificate or certificates
should have been delivered to the Company.
(iv) Each Payment Note shall (A) be payable to the
order of the Seller, (B) be issued and dated the Repurchase Date,
(C) be in a principal amount equal to the repurchase price of
such Surrendered Shares and (D) mature on demand or at a stated
maturity date. Each Payment Note shall bear interest in respect
of the unpaid principal amount of such Payment Note from the
Repurchase Date to the maturity date thereof at a rate per annum
equal to the then-current yield to maturity on United States
treasury securities of comparable maturity, as determined in good
faith by the Company, plus 100 basis points.
(v) The Company shall have the right to resell to
any Person any Surrendered Shares received from a Seller pursuant
to this Section 6(i), whether or not the applicable Repurchase
Price has been paid to such Seller; provided that any such sale
or other disposition by the Company of Surrendered Shares shall
not relieve the Company of its obligation to pay the applicable
repurchase price for such Surrendered Shares.
(j) Other Provisions. The grant of any Option may also be
subject to such other provisions (whether or not applicable to any
Option granted to any other Optionee) as the Committee deems
appropriate, including provisions to assist the Optionee in financing
the acquisition of Common Shares, provisions for the forfeiture of, or
restrictions on resale or other disposition of, shares acquired under
any Option in addition to those provisions set forth in Section 8
hereof or in any shareholders agreement to which the Optionee is a
party, provisions giving the Company the right to purchase Options in
circumstances other than those described in Section 6(h) and to
repurchase shares acquired under any Option in the event the Optionee
elects to dispose of such shares, provisions to comply with federal
and state securities laws, understandings or conditions as to the
Optionee's employment in addition to those specifically provided for
under the Plan and provisions accelerating the vesting of any Option
upon the occurrence of specified events or otherwise in the discretion
of the Committee.
7. Adjustment Provisions.
(a) If the Company shall at any time change the number of issued
Common Shares without new consideration to it (by stock dividends,
stock splits, or similar transactions), the total number of Common
Shares reserved for issuance under this Plan and the number of such
shares covered by each outstanding Option shall be adjusted so that
the aggregate consideration payable by the Optionee upon exercise, and
the benefit intended to be provided under each such Option immediately
before and immediately after such adjustment, shall be maintained.
(b) In the case of any merger, recapitalization, consolidation,
split-up, spin-off, repurchase, distribution or similar transaction
affecting the Common Shares, the Committee shall take such action as
in its sole discretion it deems appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under this Plan and the Options granted hereunder.
(c) Notwithstanding any other provision of this Plan, and
without affecting the number of Common Shares reserved or available
hereunder, the Committee may authorize the issuance or assumption of
Options or similar rights in connection with any merger,
consolidation, acquisition of property or stock, or reorganization,
whether or not the Company is a surviving or continuing corporation,
upon such terms and conditions as it may deem appropriate.
(d) Notwithstanding any other provision of this Plan, the
payment to any Optionee at any time of an amount equal to the excess,
if any, of the Fair Market Value at such time of the number of Common
Shares subject to such Option over the aggregate exercise price of
such Option, in consideration of the cancellation thereof, shall
extinguish any rights of the holder of such Option in connection
therewith.
(e) Notwithstanding any other provision of this Plan, in the
event of the dissolution or liquidation of the Company, any Option
granted under the Plan shall terminate as of a date to be fixed by the
Committee, provided that not less than thirty (30) days' written
notice of the date so fixed shall be given to each Optionee, and each
such Optionee shall have the right during such period to exercise his
Option as to all or any part of the Common Shares covered thereby.
8. Restrictions on Common Shares Issued. The exercise of each
Option shall be subject to the condition that if at any time the Company
shall determine in its discretion that the satisfaction of withholding tax
or other withholding liabilities, or that the listing, registration, or
qualification of any Common Share otherwise deliverable upon such exercise
upon any securities exchange or under any state, or federal law, or that
the consent or approval of any regulatory body, is necessary or desirable
as a condition of, or in connection with, such exercise or the delivery or
purchase of Common Shares pursuant thereto, then in any such event, such
exercise shall not be effective unless such withholding, listing,
registration, qualification, consent, or approval shall have been effected
or obtained free of any conditions not acceptable to the Company.
9. No Right to Continued Employment. The granting of an Option to
any person does not alter in any way the rights of the Company to terminate
such Optionee's employment at any time for any reason nor does it confer
upon such person any rights or privileges to continue employment or
otherwise except as specifically provided for in the Plan.
10. Amendment, Suspension, and Termination of Plan. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in
such respects as the Board may deem advisable, in the best interests of the
Company and in accordance with the purposes of the Plan; provided, however,
that without approval by the holders of a majority of the securities of the
Company entitled to vote, no such amendments shall (i) except as specified
in Section 7, increase the maximum number of Common Shares with respect to
which Options may be granted under the Plan, or (ii) change the provisions
of the second sentence of this Section 10 relating to the term of this Plan
or (iii) change the class of persons eligible to receive Options under the
Plan. Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate 10 years after the Effective Date of the Plan. No
Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without
an Optionee's consent, impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Withholding. The Company may establish appropriate procedures to
provide for payment of such income and other taxes as may be required by
law to be paid or withheld in connection with the exercise of Options, and
to ensure that the Company receives prompt advice concerning the occurrence
of any event that may create, or affect the timing or amount of, any
obligation to pay or withhold such taxes or that may make available to the
Company any tax deduction resulting from such occurrence. Without limiting
the generality of the foregoing, an Optionee may be given the opportunity
to elect to have Common Shares withheld to satisfy withholding obligations.
<PAGE>
EXHIBIT D
AMERICAN ITALIAN PASTA COMPANY
1997 EQUITY INCENTIVE PLAN
Effective October 7, 1997
Note the following plan reflects the amendment adopted by the Company
on February 25, 1998.
Article 1. Establishment, Effective Date, Objectives, and Duration
1.1 Establishment of the Plan. American Italian Pasta Company, a
Delaware corporation (the "Company"), hereby establishes an incentive
compensation plan to be known as the "American Italian Pasta Company 1997
Equity Incentive Plan" (the "Plan"). The Plan has been adopted by the
Board of Directors of the Company (the "Board") and the stockholders of the
Company. The Plan shall be effective as of October 7, 1997 (the "Effective
Date").
1.2 Objectives of the Plan. The Plan is intended to allow selected
employees, directors and consultants of the Company and its Subsidiaries to
acquire or increase equity ownership in the Company, thereby strengthening
their commitment to the success of the Company and stimulating their
efforts on behalf of the Company, and to assist the Company and its
Subsidiaries in attracting new employees, directors and consultants and
retaining existing employees, directors, and consultants. The Plan is also
intended to optimize the profitability and growth of the Company through
incentives which are consistent with the Company's goals; to provide
employees and directors with an incentive for excellence in individual
performance; and to promote teamwork among employees, directors, and
consultants.
1.3 Duration of the Plan. The Plan shall commence on the Effective
Date and shall remain in effect, subject to the right of the Board to amend
or terminate the Plan at any time pursuant to Article 15 hereof, until all
Shares subject to it shall have been purchased or acquired according to the
Plan's provisions. However, in no event may an Incentive Stock Option be
granted under the Plan on or after the date 10 years following the earlier
of (i) the date the Plan was adopted and (ii) the date the Plan was
approved by the stockholders of the Company.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
2.1 "Article" an Article of the Plan.
2.2 "Award" means Options (including Incentive Stock Options),
Restricted Shares, Bonus Shares, stock appreciation rights (SARs), perfor-
mance units or performance shares granted under the Plan.
2.3 "Award Agreement" means the written agreement by which an Award
shall be evidenced.
2.4 "Board" -- see Section 1.1.
2.5 "Bonus Shares" means Shares that are awarded to a Grantee without
cost and without restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the Company or
otherwise) or as an incentive to become an employee, director or consultant
of the Company or a Subsidiary.
2.6 "Cause" means, unless otherwise defined in any Employment
Agreement or Award Agreement, any one or more of the following:
(A) a Grantee's commission of a crime which, in the judgment of
the Committee, is likely to result in injury to the Company or a
Subsidiary;
(B) the material violation by the Grantee of written policies of
the Company or a Subsidiary;
(C) the habitual neglect by the Grantee in the performance of
his or her duties to the Company or a Subsidiary;
(D) action or inaction by the Grantee in connection with his or
her duties to the Company or a Subsidiary resulting, in the judgment
of the Committee, in a material injury to the Company or a Subsidiary;
(E) the rendering of services by the Grantee for any organiza-
tion or engaging directly or indirectly in any business which is or
becomes competitive with the Company or a Subsidiary or which organi-
zation or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict
with the interests of the Company or a Subsidiary;
(F) any attempt by the Grantee directly or indirectly to induce
any employee of the Company or a Subsidiary to be employed or perform
services elsewhere or any attempt directly or indirectly to solicit
(other than for the account of the Company or a Subsidiary) the trade
or business of any current or prospective customer, supplier, or
partner of the Company or a Subsidiary; or
(G) any other conduct or act determined by the Committee to be
injurious, detrimental, or prejudicial to any interest of the Company
or a Subsidiary.
2.7 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and regulations and rulings thereunder. References to a
particular section of the Code include references to successor provisions.
2.8 "Committee," "Plan Committee," and "Management Committee" each
have the meanings set forth in Article 3. [Amended February 25, 1998].
2.9 "Common Stock" means the Class A Convertible Common Stock, $.001
par value, of the Company.
2.10 "Company" -- see Section 1.1.
2.11 "Covered Employee" means a Grantee who, as of the date of the
value of an Award is recognizable as income, is one of the group of
"covered employees," within the meaning of Code Section 162(m).
2.12 "Disability" means, unless otherwise defined in an Employment
Agreement or Award Agreement, for purposes of the exercise of an Incentive
Stock Option after Termination of Affiliation, a disability within the
meaning of Section 22(e)(3) of the Code, and for all other purposes, a
mental or physical condition which, in the judgment of the Committee,
renders a Grantee unable to perform any of the principal job responsibili-
ties which such Grantee held or the tasks to which such Grantee was
assigned at the time the disability was incurred, and which condition is
expected to be permanent or for an indefinite duration exceeding two years.
2.13"Disqualifying Disposition" -- see Section 6.4.
2.13 "Effective Date" -- see Section 1.1.
2.14 "Eligible Person" means (i) any employee (including any officer)
of the Company or any Subsidiary, including any such employee who is on an
approved leave of absence, layoff, or has been subject to a disability
which does not qualify as a Disability; (ii) any director of the Company or
any Subsidiary; and (iii) any person performing services for the Company or
a Subsidiary in the capacity of a consultant.
2.15"Employment Agreement" means, with respect to any Grantee, any
employment agreement by and between the Company and such Grantee.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to a particular section of the
Exchange Act include references to successor provisions.
2.17 "Fair Market Value" means (A) with respect to any property other
than Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee, and (B) with respect to Shares, unless otherwise determined in
the good faith discretion of the Committee, as of any date, (i) the closing
price on the date of determination on the New York Stock Exchange (or, if
no sale of Shares was reported for such date, on the next preceding date on
which a sale of Shares was reported), (ii) if the Shares are not listed on
the New York Stock Exchange, the closing price of the Shares on such other
national exchange on which the Shares are principally traded or as reported
by the National Market System, or similar organization, or if no such
quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National
Quotation Bureau Incorporated or similar organizations; or (iii) in the
event that there shall be no public market for the Shares, the fair market
value of the Shares as determined (which determination shall be conclusive)
in good faith by the Committee, based upon the value of the Company as a
going concern, as if such Shares were publicly owned stock, but without any
discount with respect to minority ownership. Notwithstanding the forego-
ing, Fair Market Value for Awards made on the effective date of the initial
public offering of the Company shall mean the price to the public pursuant
to the form of final prospectus used in connection with the initial public
offering, as indicated on the cover page of such prospectus or otherwise.
2.18 "Freestanding SAR" means an SAR that is granted independently of
any other Award.
2.19 "Grant Date" -- see Section 5.2.
2.20 "Grantee" means an individual who has been granted an Award.
2.21 "Incentive Stock Option" means an option granted under Article 6
of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provisions thereto.
2.22 "including" or "includes" means "including, without limitation,"
or "includes, without limitation", respectively.
2.23 "Mature Shares" means Shares for which the holder thereof has
good title, free and clear of all liens and encumbrances, and which such
holder either (i) has held for at least six months or (ii) has purchased on
the open market.
2.24 "Minimum Consideration" means $.001 per Share or such other
amount that is from time to time considered to be capital for purposes of
Section 154 of the Delaware General Corporation Law.
2.25 "Option" means an option granted under Article 6 of the Plan.
2.26 "Option Price" means the price at which a Share may be purchased
by a Grantee pursuant to an Option.
2.27 "Option Term" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in
the Award Agreement for such Option and as may, in the discretion of the
Committee and consistent with the provisions of the Plan, be extended from
time to time prior to the expiration date of such Option then in effect.
2.28 "Performance-Based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.29 "Performance Period" -- see Section 9.2.
2.30 "Period of Restriction" means the period during which the
transfer of Restricted Shares is limited in some way (the length of the
period being based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the Commit-
tee, in its discretion), and the Shares are subject to a substantial risk
of forfeiture, as provided in Article 8.
2.31 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.32 "Plan" -- see the introductory paragraph.
2.33 "Reload Option" -- see Section 6.5.
2.34 "Required Withholding" -- see Article 16.
2.35 "Restricted Shares" means Shares that are subject to forfeiture
if the Grantee does not satisfy the conditions specified in the Award
Agreement applicable to such Shares.
2.36 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor
rule, as effect from time to time.
2.37 "Retirement" means for any Grantee who is an employee, a Termina-
tion of Affiliation by the Grantee upon attaining age 65 with at least five
years of service as an employee of the Company or a Subsidiary.
2.38 "SAR" means a stock appreciation right.
2.39 "SEC" means the United States Securities and Exchange Commission,
or any successor thereto.
2.40 "Section" means, unless the context otherwise requires, a Section
of the Plan.
2.41 "Share" means a share of Common Stock.
2.42 "Strike Price" of any SAR shall equal, for any Tandem SAR that is
identified with an option, the Option Price of such option, or for any
other SAR, 100% of the Fair Market Value of a Share on the Grant Date of
such SAR; provided that the Committee may specify a higher Strike Price in
the Award Agreement.
2.43 "Subsidiary" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition) and, for all other purposes, a United States or foreign
corporation with respect to which the Company owns, directly or indirectly,
50% or more of the then-outstanding common stock.
2.44 "Tandem SAR" means an SAR that is granted in connection with a
related Award, the exercise of which shall require cancellation of the
right to purchase a Share under the related Award (and when a Share is
purchased under the related Award, the Tandem SAR shall similarly be
canceled).
2.45 "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or
any Subsidiary in the capacity of an employee, director or consultant, or
with respect to an individual who is an employee or director of, or
consultant to, a Subsidiary, the first day on which the Company no longer
owns, directly or indirectly, voting securities possessing at least 50% of
the combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of such Subsidiary.
Article 3. Administration
3.1 Committee. Subject to Article 15, and to Section 3.2, the Plan
shall be administered by the Board, or a committee appointed by the Board
to administer the Plan ("Plan Committee"). The Board or the Plan Committee
may appoint a committee ("Management Committee") consisting of two or more
members of the Board and delegate to such Management Committee such
nonexclusive power and authority as such appointing entity deems appropri-
ate, with respect to Awards to any employee of the Company or any Subsid-
iary below the rank of Vice President, subject to the terms of the Plan.
Notwithstanding any delegation of authority to the Management Committee, in
the event of any conflict between the Plan Committee and the Management
Committee, the Plan Committee shall prevail. Any references herein to
"Committee" are references to the Board, or the Plan Committee or the
Management Committee, as applicable. The number of members of the Commit-
tee shall from time to time be increased or decreased, and shall be subject
to such conditions, in each case as the Board deems appropriate to permit
transactions in Shares pursuant to the Plan to satisfy such conditions of
Rule 16b-3 as then in effect.
3.2 Powers of Committee. Subject to the express provisions of the
Plan, the Committee has full and final authority and sole discretion as
follows:
(i) to determine when, to whom and in what types and
amounts Awards should be granted and the terms and conditions
applicable to each Award, including the benefit payable under any
SAR, performance unit or performance share, and whether or not
specific Awards shall be granted in connection with other specif-
ic Awards, and if so whether they shall be exercisable cumula-
tively with, or alternatively to, such other specific Awards;
(ii) to determine the amount, if any, that a Grantee shall
pay for Restricted Shares, whether to permit or require the
payment of cash dividends thereon to be deferred and the terms
related thereto, when Restricted Shares (including Restricted
Shares acquired upon the exercise of an option) shall be forfeit-
ed and whether such shares shall be held in escrow;
(iii) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of
the Plan;
(iv) to make, amend, and rescind rules relating to the
Plan, including rules with respect to the exercisability and
nonforfeitability of Awards upon the Termination of Affiliation
of a Grantee;
(v) to determine the terms and conditions of all Award
Agreements (which need not be identical) and, with the consent of
the Grantee, to amend any such Award Agreement at any time, among
other things, to permit transfers of such Awards to the extent
permitted by the Plan; provided that the consent of the Grantee
shall not be required for any amendment which (A) does not
adversely affect the rights of the Grantee, or (B) is necessary
or advisable (as determined by the Committee) to carry out the
purpose of the Award as a result of any new or change in existing
applicable law;
(vi) to cancel, with the consent of the Grantee, outstand-
ing Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including
exercisability within a period of less than six months after the
Grant Date) of, and to accelerate or waive any or all of the
terms and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection
with a Termination of Affiliation (other than for Cause);
(viii) subject to Sections 1.3 and 5.3, to extend the time
during which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to
fulfill the purposes of the Plan;
(x) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Committee may,
before or concurrently with the grant thereof, deem appropriate,
including limiting the percentage of Awards which may from time
to time be exercised by a Grantee; and
(xi) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
The determination of the Committee on all matters relating to the Plan
or any Award Agreement shall be final, conclusive and binding on all
Persons. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2, the number of Shares hereby reserved for issuance
under the Plan shall be 2,000,000. If any Shares subject to an Award
granted hereunder are forfeited or such Award otherwise terminates without
the issuance of such Shares or of other consideration in lieu of such
Shares, the Shares subject to such Award, to the extent of any such
forfeiture or termination shall again be available for grant under the
Plan. The Committee shall from time to time determine the appropriate
methodology for calculating the number of shares issued pursuant to the
Plan. Shares issued pursuant to the Plan may be treasury shares or newly-
issued Shares.
(a) Options: The maximum aggregate number of Shares that may be
granted in the form of options, pursuant to any Award granted in
any one calendar year to any one Grantee shall be 500,000.
(b) SARs: The maximum aggregate number of SARs available under the
Plan shall be 500,000, and the maximum aggregate number of SARs
that may be granted in any one calendar year to any one Grantee
shall be 500,000.
(c) Restricted Shares: The maximum aggregate number of Shares that
may be granted as Restricted Shares under the Plan shall be
500,000, and the maximum aggregate grant with respect to Awards
of Restricted Shares granted in any one calendar year to any one
Grantee shall be 500,000.
(d) Bonus Shares: The maximum number of Shares that may be granted
as Bonus Shares under the Plan shall be 500,000.
(e) Performance Shares/Performance Units: The maximum aggregate
payout (determined as of the end of the applicable performance
period) with respect to Awards of performance shares or perfor-
mance units granted in any one calendar year to any one Grantee
shall be equal to the value of 250,000 Shares.
(f) Awards by Management Committee: The maximum aggregate number of
shares that may be delivered pursuant to Awards granted by the
Management Committee shall be 10,000, or such larger number as
the Board or the Plan Committee may designate from time to time.
4.2 Adjustments in Authorized Shares. In the event that the Commit-
tee determines that any dividend or other distribution (whether in the form
of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, subdivision, consolidation or reduction
of capital, reorganization, merger, scheme of arrangement, split-up, spin-
off or combination involving the Company or repurchase or exchange of
Shares or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares
such that any adjustment is determined by the Committee to be appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i)
the number and type of Shares (or other securities or property) with
respect to which Awards may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an out-
standing Award; provided, in each case that with respect to Awards of
Incentive Stock Options no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section
422(b)(1) of the Code or any successor provision thereto; and provided
further, that the number of Shares subject to any Award denominated in
Shares shall always be a whole number.
Article 5. Eligibility and General Conditions of Awards
5.1 Eligibility. The Committee may in its discretion grant Awards to
any Eligible Person, whether or not he or she has previously received an
Award.
5.2 Grant Date. The Grant Date of an Award shall be the date on
which the Committee grants the Award or such later date as specified in
advance by the Committee.
5.3 Maximum Term. Any provision of the Plan to the contrary notwith-
standing, the Option Term or other period during which an Award may be
outstanding shall under no circumstances extend more than 10 years after
the Grant Date, and shall be subject to earlier termination as herein
provided.
5.4 Award Agreement. To the extent not set forth in the Plan, the
terms and conditions of each Award (which need not be the same for each
grant or for each Grantee) shall be set forth in an Award Agreement.
5.5 Restrictions on Share Transferability. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise or
vesting of an Award as it may deem advisable, including restrictions under
applicable federal securities laws.
5.6 Termination of Affiliation. Each Grantee's Award Agreement shall
set forth the extent to which the Grantee shall have the right to exercise
the option following Termination of Affiliation. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in
the Award Agreement, need not be uniform among all options granted under
the Plan, and may reflect distinctions based on the reasons for Termination
of Affiliation.
5.7 Nontransferability of Awards.
(a) Each Award, and each right under any Award, shall be exer-
cisable only by the Grantee during the Grantee's lifetime, or, if
permissible under applicable law, by the Grantee's guardian or legal
representative or by a transferee receiving such Award pursuant to a
qualified domestic relations order (a "QDRO") as defined in the Code
or Title I of the U.S. Employee Retirement Income Security Act of 1974
("ERISA"), or the rule thereunder, or any analogous order in any other
relevant jurisdiction.
(b) No Award (prior to the time, if applicable, Shares are
issued in respect of such Award), and no right under any Award, may be
assigned, alienated, pledged, attached, sold or otherwise transferred
or encumbered by a Grantee otherwise than by will or by the laws of
descent or distribution (or in the case of Restricted Shares, to the
Company) or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Subsidiary; provid-
ed, that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or encum-
brance.
5.8 Cancellation and Rescission of Awards.
(a) Unless the Award Agreement specifies otherwise, the Commit-
tee may cancel, rescind, suspend, withhold, or otherwise limit or
restrict any unexercised Award at any time if the Grantee is not in
compliance with all applicable provisions of the Award Agreement and
the Plan or if the Grantee has a Termination of Affiliation for Cause.
(b) Upon exercise, payment, or delivery pursuant to an option,
the Grantee shall certify in a manner acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan.
In the event a Grantee fails to comply with the provisions of this
Section 5.8 prior to, or during the six months after, any exercise,
payment, or delivery pursuant to an Award, such exercise, payment, or
delivery may be rescinded by the Company within two years thereafter.
In the event of any such rescission, the Grantee shall pay to the
Company the amount of any gain realized or payment received as a
result of the rescinded exercise, payment, or delivery in such manner
and on such terms and conditions as may be required, and the Company
shall be entitled to set-off against the amount of any such gain any
amount owed to the Grantee by the Company.
5.9 Loans and Guarantees. The Committee may in its discretion allow
a Grantee to defer payment to the Company of all or any portion of (i) the
Option Price of an option, (ii) the purchase price of Restricted Shares, or
(iii) subject to applicable law, any taxes associated with the exercise,
nonforfeitability of, or payment of benefits in connection with, an Award,
or cause the Company to guarantee a loan from a third party to the Grantee,
in an amount equal to all or any portion of such Option Price, or any
related taxes. Any such payment deferral or guarantee by the Company shall
be on such terms and conditions as the Committee may determine.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the
Plan, Options may be granted to any Eligible Person in such number, and
upon such terms, and at any time and from time to time as shall be deter-
mined by the Committee.
6.2 Award Agreement. Each Option grant shall be evidenced by an
Award Agreement that shall specify the Option Price, the Option Term, the
number of shares to which the Option pertains, the time or times at which
such Option shall be exercisable and such other provisions as the Committee
shall determine.
6.3 Option Price. The Option Price of an option under this Plan
shall be determined in the sole discretion of the Committee, but shall be
at least equal to 100% of the Fair Market Value of a Share on the Grant
Date.
6.4 Grant of Incentive Stock Options. At the time of the grant of
any Option, the Committee may in its discretion designate that such Option
shall be made subject to additional restrictions to permit it to qualify as
an "incentive stock option" under the requirements of Section 422 of the
Code. Any Option designated as an Incentive Stock Option:
(i) shall, if granted to a 10% Owner, have an Option Price
not less than 110% of the Fair Market Value of a Share on its
Grant Date;
(ii) shall be for a period of not more than 10 years (five
years in the case of an Incentive Stock Option granted to a 10%
Owner) from its Grant Date, and shall be subject to earlier
termination as provided herein or in the applicable Award Agree-
ment;
(iii) shall not have an aggregate Fair Market Value (as of
the Grant Date of each Incentive Stock Option) of the Shares with
respect to which Incentive Stock Options (whether granted under
the Plan or any other stock option plan of the Grantee's employer
or any parent or Subsidiary thereof ("Other Plans")) are exercis-
able for the first time by such Grantee during any calendar year,
determined in accordance with the provisions of Section 422 of
the Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of the
Shares (determined on the Grant Date) with respect to the portion
of such grant which is exercisable for the first time during any
calendar year ("Current Grant") and all Incentive Stock Options
previously granted under the Plan and any Other Plans which are
exercisable for the first time during a calendar year ("Prior
Grants") would exceed the $100,000 Limit, be exercisable as
follows:
(A) the portion of the Current Grant which
would, when added to any Prior Grants, be exercisable with
respect to Shares which would have an aggregate Fair Market
Value (determined as of the respective Grant Date for such
options) in excess of the $100,000 Limit shall, notwith-
standing the terms of the Current Grant, be exercisable for
the first time by the Grantee in the first subsequent calen-
dar year or years in which it could be exercisable for the
first time by the Grantee when added to all Prior Grants
without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current
Grant, any portion of a Current Grant could not be exercised
under the preceding provisions of this Section during any
calendar year commencing with the calendar year in which it
is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion
of the Current Grant shall not be an Incentive Stock Option,
but shall be exercisable as a separate option at such date
or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company;
(vi) shall require the Grantee to notify the Committee of any
disposition of any Shares issued pursuant to the exercise of the
Incentive Stock Option under the circumstances described in Sec-
tion 421(b) of the Code (relating to certain disqualifying disposi-
tions) (any such circumstance, a "Disqualifying Disposition"), within
10 days of such Disqualifying Disposition; and
(vii) shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and may be
exercised, during the Grantee's lifetime, only by the Grantee; provid-
ed, however, that the Grantee may, to the extent provided in the Plan
in any manner specified by the Committee, designate in writing a
beneficiary to exercise his or her Incentive Stock Option after the
Grantee's death.
Notwithstanding the foregoing, the Committee may, without the consent
of the Grantee, at any time before the exercise of an option (whether or
not an Incentive Stock Option), take any action necessary to prevent such
option from being treated as an Incentive Stock Option.
6.5 Grant of Reload Options. The Committee may in connection with
the grant of an option or thereafter provide that a Grantee who (i) is an
Eligible Person when he or she exercises an Option, (ii) exercises such
option for Shares which have a Fair Market Value equal to not less than
120% of the Option Price for such option ("Exercised Option") and (iii)
satisfies the Option Price or Required Withholding applicable thereto with
Shares shall automatically be granted, subject to Article 3, an additional
option ("Reload Option") in an amount equal to the sum ("Reload Number") of
the number of Shares tendered to exercise the Exercised Option plus, if so
provided by the Committee, the number of Shares, if any, retained by the
Company in connection with the exercise of the Exercised Option to satisfy
any federal, state or local tax withholding requirements; provided that no
Reload Option shall be granted in connection with the exercise of an Option
that has been transferred by the initial Grantee thereof.
6.6 Conditions on Reload Options. Reload Options shall be subject to
the following terms and conditions:
(a) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
(b) subject to Article 5, the Reload Option may be exercised at
any time during the Option Term of the Exercised Option (subject to
earlier termination thereof as provided in the Plan or in the applica-
ble Award Agreement); and
(c) the terms of the Reload Option shall be the same as the
terms of the Exercised Option to which it relates, except that the
Option Price for the Reload Option shall be 100% of the Fair Market
Value of a Share on the Grant Date of the Reload Option.
6.7 Payment. Options granted under this Article 6 shall be exercised
by the delivery of a written notice of exercise to the Company, setting
forth the number of Shares with respect to which the option is to be
exercised, accompanied by full payment for the Shares made by any one or
more of the following means subject to the approval of the Committee:
(A) cash, personal check or wire transfer;
(B) Mature Shares, valued at their Fair
Market Value on the date of exercise;
(C) with the approval of the Committee,
Restricted Shares held by the Grantee for at least six
months prior to the exercise of the option, each such share
valued at the Fair Market Value of a Share on the date of
exercise;
(D) subject to applicable law, pursuant to
procedures previously approved by the Company, through the
sale of the Shares acquired on exercise of the Option
through a broker-dealer to whom the Grantee has submitted an
irrevocable notice of exercise and irrevocable instructions
to deliver promptly to the Company the amount of sale or
loan proceeds sufficient to pay for such Shares, together
with, if requested by the Company, the amount of federal,
state, local or foreign withholding taxes payable by Grantee
by reason of such exercise; or
(E) in the discretion of the Committee,
payment may also be made in accordance with Section 5.9.
The Committee may in its discretion specify that, if any Restricted Shares
("Tendered Restricted Shares") are used to pay the Option Price, (x) all
the Shares acquired on exercise of the option shall be subject to the same
restrictions as the Tendered Restricted Shares, determined as of the date
of exercise of the option, or (y) a number of Shares acquired on exercise
of the option equal to the number of Tendered Restricted Shares shall be
subject to the same restrictions as the Tendered Restricted Shares,
determined as of the date of exercise of the option.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of the Plan,
SARs may be granted to any Eligible Person at any time and from time to
time as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs, or any combination thereof.
Except as provided in Section 7.2, the Committee shall have complete
discretion in determining the number of SARs granted to each Grantee
(subject to Article 4), the Strike Price thereof, and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining
to such SARs.
7.2 Exercise of Tandem SAR. Tandem SARs may be exercised for all or
part of the Shares subject to the related Award upon the surrender of the
right to exercise the equivalent portion of the related Award. A Tandem
SAR may be exercised only with respect to the Shares for which its related
Award is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with a related option; (i)
the Tandem SAR will expire no later than the expiration of the underlying
option; (ii) the value of the payout with respect to the Tandem SAR may be
for no more than 100% of the difference between the Option Price of the
underlying option and the Fair Market Value of the Shares subject to the
underlying option at the time the Tandem SAR is exercised; and (iii) the
Tandem SAR may be exercised only when the Fair Market Value of the Shares
subject to the option exceeds the Option Price of the option.
7.3 Payment of SAR Amount. Upon exercise of an SAR, the Grantee
shall be entitled to receive payment from the Company in an amount deter-
mined by multiplying:
(a) the excess of the Fair Market Value of a Share on the date
of exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is
exercised;
provided that the Committee may provide that the Committee may provide that
the benefit payable on exercise of any SAR shall not exceed such percentage
of the Fair Market Value of a Share on the Grant Date as the Committee
shall specify. At the discretion of the Committee, the payment upon SAR
exercise may be in cash, in Shares of equivalent value, or in some combina-
tion thereof, as set forth in the Award Agreement.
Article 8. Restricted Shares
8.1 Grant of Restricted Shares. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time to time, may grant
Restricted Shares to any Eligible Person in such amounts as the Committee
shall determine.
8.2 Award Agreement. Each grant of Restricted Shares shall be
evidenced by an Award Agreement that shall specify the Period(s) of
Restriction, the number of Restricted Shares granted, and such other
provisions as the Committee shall determine. Subject to Article 11, the
Committee shall impose such other conditions and/or restrictions on any
Restricted Shares granted pursuant to the Plan as it may deem advisable,
including restrictions based upon the achievement of specific performance
goals (Company-wide, divisional, and/or individual), time-based restric-
tions on vesting following the attainment of the performance goals, and/or
restrictions under applicable securities laws.
8.3 Other Restrictions. The Committee shall determine the amount, if
any, that a Grantee shall pay for Restricted Shares, subject to the
following sentence. Except with respect to Restricted Shares that are
treasury shares, for which no payment need be required, the Committee shall
require the Grantee to pay at least the Minimum Consideration for each
Restricted Share. Such payment shall be made in full by the Grantee before
the delivery of the shares and in any event no later than 10 business days
after the Grant Date for such shares.
8.4 Effect of Forfeiture. If Restricted Shares are forfeited, then
if the Grantee was required to pay for such shares or acquired such
Restricted Shares upon the exercise of an option, the Grantee shall be
deemed to have resold such Restricted Shares to the Company at a price
equal to the lesser of (x) the amount paid by the Grantee for such Re-
stricted Shares, or (y) the Fair Market Value of a Share on the date of
such forfeiture. The Company shall pay to the Grantee the required amount
as soon as is administratively practical. Such Restricted Shares shall
cease to be outstanding, and shall no longer confer on the Grantee thereof
any rights as a stockholder of the Company, from and after the date of the
event causing the forfeiture, whether or not the Grantee accepts the
Company's tender of payment for such Restricted Shares.
8.5 Escrow; Legends. The Committee may provide that the certificates
for any Restricted Shares (x) shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary of the Company
until such Restricted Shares become nonforfeitable or are forfeited or (y)
shall bear an appropriate legend restricting the transfer of such Restrict-
ed Shares. If any Restricted Shares become nonforfeitable, the Company
shall cause certificates for such shares to be issued without such legend.
8.6 Termination of Affiliation. Each Restricted Shares Award
Agreement shall set forth the extent to which the Participant shall have
the right to receive unvested Restricted Shares following his or her
Termination of Affiliation. Such provision shall be determined in the sole
discretion of the Board, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Restricted Shares
issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units/Shares. Subject to the terms of the
Plan, performance units or performance shares may be granted to any
Eligible Person in such amounts and upon such terms, and at any time and
from time to time as shall be determined by the Committee.
9.2 Value of Performance Units/Shares. Each performance unit shall
have an initial value that is established by the Committee at the time of
grant. Each performance share shall have an initial value equal to the
Fair Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which
they are met, will determine the number or value of performance units or
performance shares, as applicable, that will be paid out to the Grantee.
For purposes of this Article 9, the time period during which the perfor-
mance goals must be met shall be called a "Performance Period."
9.3 Earning of Performance Units/Shares. Subject to the terms of
this Plan, after the applicable Performance Period has ended, the holder of
performance units or performance shares shall be entitled to receive payout
on the number and value of performance units or performance shares earned
by the Grantee over the Performance Period, to be determined as a function
of the extent to which the corresponding performance goals have been
achieved.
If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Performance Period, then, to the
extent the Committee determines the performance goals or Performance Period
are no longer appropriate, the Committee may adjust, change or eliminate
the performance goals or the applicable Performance Period as it deems
appropriate in order to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4 Form and Timing of Payment of Performance Units/Shares. Payment
of earned performance units or performance shares shall be made in a lump
sum following the close of the applicable Performance Period. Subject to
the terms of this Plan, the Committee, in its sole discretion, may pay
earned performance units or performance shares in the form of cash or in
Shares (or in a combination thereof) which have an aggregate Fair Market
Value equal to the value of the earned performance units or performance
shares at the close of the applicable Performance Period. Such Shares may
be granted subject to any restrictions deemed appropriate by the Committee.
The form of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.
At the discretion of the Committee, a Grantee may be entitled to
receive any dividends declared with respect to Shares which have been
earned in connection with grants of performance units or performance shares
which have been earned, but not yet distributed to the Grantee. In
addition, a Grantee may, at the discretion of the Committee, be entitled to
exercise his or her voting rights with respect to such Shares.
9.5 Performance Measures. Unless and until the Committee proposes
for stockholder vote and stockholders approve a change in the general
performance measures set forth in this Article 9, the attainment of which
may determine the degree of payout and/or vesting with respect to Awards
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such Awards shall be chosen from
among the following:
(a) Earnings (either in the aggregate or on a per-share basis);
(b) Net income (before or after taxes);
(c) Operating income;
(d) Cash flow;
(e) Return measures (including return on assets, equity, or
sales);
(f) Earnings before or after taxes, and before or after depreci-
ation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and total stockholder
return or attainment by the Shares of a specified value for a speci-
fied period of time);
(i) Reductions in expense levels in each case where applicable
determined either in a Company-wide basis or in respect of any one or
more business units;
(j) Net economic value; or
(k) Market share.
The Committee shall have the discretion to adjust the determinations
of the degree of attainment of the preestablished performance goals;
provided, however, that Awards which are designed to qualify for the
Performance-Based Exception, may not be adjusted upward (the Committee
shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, and still qualify
for the Performance-Based Exception, the Committee shall have sole discre-
tion to make such changes without obtaining stockholder approval.
Article 10. Bonus Shares.
10.1 Grant of Bonus Shares. Subject to the terms of the Plan, the
Committee may grant Bonus Shares to any Eligible Person, in such amount and
upon such terms and at any time and from time to time as shall be deter-
mined by the Committee. The terms of such Bonus Shares shall be set forth
in the form of the Award Agreement.
Article 11. Beneficiary Designation
Each Grantee under the Plan may, from time to time, name any benefi-
ciary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designa-
tion shall revoke all prior designations by the same Grantee, shall be in a
form prescribed by the Company, and will be effective only when filed by
the Grantee in writing with the Company during the Grantee's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Grantee's death shall be paid to the Grantee's estate.
Article 12. Deferrals
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due by
virtue of the exercise of an Option or SAR, the lapse or waiver of restric-
tions with respect to Restricted Shares, or the satisfaction of any
requirements or goals with respect to performance units or performance
shares. If any such deferral is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
Article 13. Rights of Employees/Directors
13.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Grantee's employment at
any time, nor confer upon any Grantee's right to continue in the employ of
the Company.
13.2 Participation. No Employee or Director shall have the right to
be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
Article 14. Change in Control
14.1 Treatment of Outstanding Awards. The Committee may provide in an
Award Agreement for different terms and conditions to apply prior to and
after a Change in Control of the Company or a Subsidiary.
14.2 Occurrence of Change of Control. The Committee may set rules for
determining when a Change of Control of the Company or a Subsidiary has
occurred.
14.3 Pooling of Interests Accounting. Notwithstanding any other
provision of the Plan to the contrary, (a) in the event that the consumma-
tion of a Change in Control is contingent on using pooling of interests
accounting methodology the Committee may take any action necessary to
preserve the use of pooling of interests accounting; and (b) if the
Committee determines, in its discretion exercised prior to a sale or merger
of the Company that in the Committee's judgment is reasonably likely to
occur, that the exercise of SARs would preclude the use of pooling-of-
interests accounting ("pooling") after the consummation of such sale or
merger and that such preclusion of pooling would have a material adverse
effect on such sale or merger, the Committee may either unilaterally cancel
such SARs prior to the sale or merger or cause the Company to pay the
benefit attributable to such SARs in the form of Shares if the Committee
determines that such payment would not cause the transaction to become
ineligible for pooling.
Article 15. Amendment, Modification, and Termination
15.1 Amendment, Modification, and Termination. Subject to the terms
of the Plan, the Board may at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part without the approval of
the Company's stockholders, except to the extent that such stockholder
approval may be required under the listing requirements of any securities
exchange or national market system on which are listed the Company's equity
securities or pursuant to any other regulatory or legal requirement;
provided that shareholder approval is required to increase the number of
Shares available under the Plan (except as provided in Section 4.2).
15.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including the events described in Section
4.2) affecting the Company or the financial statements of the Company or of
changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that no such
adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's meeting the requirements of Section 162(m) of
the Code.
15.3 Awards Previously Granted. Notwithstanding any other provision
of the Plan to the contrary (but subject to Section 14.3), no termination,
amendment, or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without the
written consent of the Grantee of such Award.
Article 16. Withholding
(a) Mandatory Tax Withholding.
(1) Whenever under the Plan, Shares are to be
delivered upon exercise or payment of an Award or upon Restricted
Shares becoming nonforfeitable, or any other event with respect
to rights and benefits hereunder, the Company shall be entitled
to require (i) that the Grantee remit an amount in cash, or in
the Company's discretion, Mature Shares, sufficient to satisfy
all federal, state, and local tax withholding requirements
related thereto ("Required Withholding"), (ii) the withholding of
such Required Withholding from compensation otherwise due to the
Grantee or from any Shares due to the Grantee under the Plan or
(iii) any combination of the foregoing.
(2) Any Grantee who makes a Disqualifying Dispo-
sition or an election under Section 83(b) of the Code shall remit
to the Company an amount sufficient to satisfy all resulting
Required Withholding; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such
Required Withholding from compensation otherwise due to the
Grantee or from any Shares or other payment due to the Grantee
under the Plan.
(b) Elective Share Withholding.
(1) Subject to the following subsection, a
Grantee may elect the withholding ("Share Withholding") by the
Company of a portion of the Shares otherwise deliverable to such
Grantee upon the exercise of an Award or upon Restricted Shares
becoming nonforfeitable (each, a "Taxable Event") having a Fair
Market Value equal to (i) the minimum amount necessary to satisfy
Required Withholding liability attributable to the Taxable Event;
or (ii) with the Committee's prior approval, a greater amount,
not to exceed the estimated total amount of such Grantee's tax
liability with respect to the Taxable Event.
(2) Each Share Withholding election shall be
subject to the following conditions:
(A) any Grantee's election shall be
subject to the Committee's discretion to revoke the
Grantee's right to elect Share Withholding at any time
before the Grantee's election if the Committee has reserved
the right to do so in the Award Agreement;
(B) the Grantee's election must be
made before the date (the "Tax Date") on which the amount of
tax to be withheld is determined; and
(C) the Grantee's election shall be
irrevocable.
16.1. Notification under Code Section 83(b). If the Grantee, in
connection with the exercise of any option, or the grant of Restricted
Shares, makes the election permitted under Section 83(b) of the Code to
include in such Grantee's gross income in the year of transfer the amounts
specified in Section 83(b) of the Code, then such Grantee shall notify the
Company of such election within 10 days of filing the notice of the
election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under Section 83(b) of
the Code. The Committee may, in connection with the grant of an Award or at
any time thereafter, prohibit a Grantee from making the election described
above.
Article 17. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise of all or substantially all
of the business and/or assets of the Company.
Article 18. Additional Provisions
18.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine;
the plural shall include the singular and the singular shall include the
plural.
18.2 Severability. If any part of the Plan is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or
part of a Section so declared to be unlawful or invalid shall, if possible,
be construed in a manner which will give effect to the terms of such
Section or part of a Section to the fullest extent possible while remaining
lawful and valid.
18.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. Notwithstanding any provision of
the Plan or any Award, Grantees shall not be entitled to exercise, or
receive benefits under, any Award, and the Company shall not be obligated
to deliver any Shares or deliver benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the Company of any
applicable law or regulation.
18.4 Securities Law Compliance. (a) If the Committee deems it
necessary to comply with any applicable securities law, or the requirements
of any stock exchange upon which Shares may be listed, the Committee may
impose any restriction on Shares acquired pursuant to Awards under the Plan
as it may deem advisable. All certificates for Shares delivered under the
Plan pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the SEC,
any stock exchange upon which Shares are then listed, any applicable
securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restric-
tions. If so requested by the Company, the Grantee shall make a written
representation to the Company that he or she will not sell or offer to sell
any Shares unless a registration statement shall be in effect with respect
to such Shares under the Securities Act of 1993, as amended, and any
applicable state securities law or unless he or she shall have furnished to
the Company, in form and substance satisfactory to the Company, that such
registration is not required.
(b) If the Committee determines that the exercise or nonforfeitability
of, or delivery of benefits pursuant to, any Award would violate any
applicable provision of securities laws or the listing requirements of any
national securities exchange or national market system on which are listed
any of the Company's equity securities, then the Committee may postpone any
such exercise, nonforfeitability or delivery, as applicable, but the
Company shall use all reasonable efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the
earliest practicable date.
18.5 No Rights as a Stockholder. A Grantee shall not have any rights
as a stockholder of the Company with respect to the Shares (other than
Restricted Shares) which may be deliverable upon exercise or payment of
such Award until such shares have been delivered to him or her. Restricted
Shares, whether held by a Grantee or in escrow by the Secretary of the
Company, shall confer on the Grantee all rights of a stockholder of the
Company, except as otherwise provided in the Plan or Award Agreement. At
the time of a grant of Restricted Shares, the Committee may require the
payment of cash dividends thereon to be deferred and, if the Committee so
determines, reinvested in additional Restricted Shares. Stock dividends and
deferred cash dividends issued with respect to Restricted Shares shall be
subject to the same restrictions and other terms as apply to the Restricted
Shares with respect to which such dividends are issued. The Committee may
in its discretion provide for payment of interest on deferred cash divi-
dends.
18.6 Parties to Stockholders Agreement. Prior to the delivery of
Shares to a Grantee pursuant to an Award, the Committee, in its discretion,
may require such Grantee to become party to, and such Shares to become
subject to, the Stockholders' Agreement dated as of the October 6, 1997
among the Company and the stockholders thereto (the "Stockholders' Agree-
ment"), provided that any Shares delivered pursuant to an Award granted
under this Plan to any Grantee who is a party to the Stockholders Agreement
as of the date hereof shall automatically be subject to the terms of the
Stockholders Agreement.
18.7 Nature of Payments. Awards shall be special incentive payments
to the Grantee and shall not be taken into account in computing the amount
of salary or compensation of the Grantee for purposes of determining any
pension, retirement, death or other benefit under (a) any pension, retire-
ment, profit-sharing, bonus, insurance or other employee benefit plan of
the Company or any Subsidiary or (b) any agreement between (i) the Company
or any Subsidiary and (ii) the Grantee, except as such plan or agreement
shall otherwise expressly provide.
18.8 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Delaware, other than its laws respecting choice of law.
<PAGE>
APPENDIX A - GRAPHIC AND IMAGE MATERIAL IN PROXY STATEMENT
In accordance with Rule 304 of Regulation S-T, the following graphic
and image material is included in the AIPC proxy statement.
STOCK PERFORMANCE GRAPH
The proxy statement also includes a stock performance graph, which is
supplemented by a table showing the dollar value of the points on the
graph. The table is set forth in this electronic format document in the
section entitled "STOCK PERFORMANCE GRAPH." Both the graph and the table
will be included in the paper format definitive proxy mailed to AIPC's
Stockholders. In accordance with a letter to EDGAR filers dated November
16, 1992 from Mauri L. Osheroff, Associate Director of Regulatory Policy of
the Division of Corporate Finance, no further explanation of the graph is
set forth in this appendix.
<PAGE>
APPENDIX B - FORMS OF PROXY AND VOTING INSTRUCTION CARD
AMERICAN ITALIAN PASTA COMPANY
1000 Italian Way
Excelsior Springs, Missouri 64024
This proxy confers discretionary authority as described in and may be
revoked in the manner described in the proxy statement dated December 28,
1998, receipt of which is hereby acknowledged.
Signature Date ___________, 1998
Signature Date ___________, 1998
Please date and sign exactly as name(s) appear. All joint owners should
sign. Executors, administrators, trustees, guardians, attorneys-in-fact,
and officers of corporate stockholders should indicate the capacity in
which they are signing. Please indicate whether you plan to attend the
Annual Meeting:
[ ] Will attend [ ] Will not attend
(Continued on other side)
<PAGE>
[BACK OF PROXY]
(Continued, and to be signed on reverse side)
AMERICAN ITALIAN PASTA COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. Horst W. Schroeder,
Timothy S. Webster and David E. Watson, or a majority of them, are hereby
authorized, with full power of substitution, to vote the shares of stock of
American Italian Pasta Company entitled to vote for the stockholder(s)
signing this proxy at the Annual Meeting of Stockholders to be held on
February 4, 1999, or any adjournment thereof as specified below and in
their discretion on all other matters that are properly brought before the
Annual Meeting. IF NO CHOICE IS SPECIFIED, SUCH PROXIES WILL VOTE "FOR"
THE NOMINEES NAMED HEREON AND "FOR" PROPOSAL 2.
1. Election of three directors: Nominees: Jonathan E. Baum, Robert H.
Niehaus and Richard C. Thompson.
[ ] FOR all nominees
[ ] FOR all nominees except those indicated below:
[ ] WITHHOLD AUTHORITY to vote for all nominees.
2. Ratification of the Board of Directors' selection of Ernst & Young LLP
to serve as AIPC's independent auditors for fiscal year 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of American Italian Pasta Company Employee Stock Purchase
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of American Italian Pasta Company 1992 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of American Italian Pasta Company 1993 Nonqualified Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Approval of American Italian Pasta Company 1997 Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The nominees named above and each of the other matters specified above are
proposed by the Board of Directors. None of the matters is related to or
conditioned on the approval of other matters.
<PAGE>
[FRONT OF VOTING INSTRUCTION CARD]
AMERICAN ITALIAN PASTA COMPANY
1000 Italian Way
Excelsior Springs, Missouri 64024
December 28, 1998
Dear Retirement Savings Plan Participant:
Enclosed is your voting instruction card to George K. Baum Trust Company as
Trustee for shares allocated to your account under the Retirement Savings
Plan (Retirement Plan).
Please do NOT deliver this card to the Company, as your vote is confiden-
tial. Your card should be returned directly to the Trustee, George K. Baum
Trust Company, Twelve Wyandotte Plaza, 120 West 12th Street, Suite 830,
Kansas City, Missouri 64105, in the enclosed postage-paid return envelope
at your earliest convenience.
If you have questions about the allocation of these shares, you may call
the following individual for further information:
AIPC employee contact: Valerie R. Finney
(816) 502-6000
Thank you,
/s/ David E. Watson
Executive Vice President - Operations Support and Technology and Secretary
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly
in the prepaid envelope enclosed.)
(Tear Here)
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS TO GEORGE K. BAUM TRUST COMPANY
AS TRUSTEE UNDER THE AMERICAN ITALIAN PASTA COMPANY
RETIREMENT SAVINGS PLAN
Signature Date , 1998
Please sign exactly as name appears.
(Continued on other side.)
<PAGE>
This voting instruction card is solicited by the Trustee. I hereby direct
that the voting rights pertaining to shares of stock of American Italian
Pasta Company held by the Trustee and allocated to my account shall be
exercised at the Annual Meeting of Stockholders to be held on February 4,
1999 or any adjournment thereof as specified hereon and in their discretion
on all other matters that are properly brought before the Annual Meeting.
1. Election of three directors: Nominees: Jonathan E. Baum, Robert H.
Niehaus and Richard C. Thompson.
[ ] FOR all nominees
[ ] FOR all nominees except those indicated below:
[ ] WITHHOLD AUTHORITY to vote for all nominees.
2. Ratification of the Board of Directors' selection of Ernst & Young LLP
to serve as AIPC's independent accountants for fiscal year 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of American Italian Pasta Company Employee Stock Purchase
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of American Italian Pasta Company 1992 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of American Italian Pasta Company 1993 Nonqualified Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Approval of American Italian Pasta Company 1997 Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
If no choice is specified, the shares held in your ESOP account will be
voted in the same proportion as the shares held by the Retirement Plan for
which the Trustee receives voting instructions.
