UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended: July 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-13403
American Italian Pasta Company
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1032638
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1000 ITALIAN WAY, EXCELSIOR SPRINGS, MISSOURI 64024
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (816) 502-6000
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant has (1) filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
The number of shares outstanding as of July 30, 1998 of the Registrant's
Class A Convertible Common Stock was 18,022,224 and there were no shares
outstanding of the Class B Common Stock.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements (unaudited)
Balance Sheets at June 30, 1998 and
September 30, 1997.
Statements of Income for the three months ended
June 30, 1998 and 1997.
Statements of Income for the nine months ended
June 30, 1998 and 1997
Statements of Cash Flows for the nine months ended
June 30, 1998 and 1997.
Notes to Financial Statements
Item 2. Management s Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About
Market Risk
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and temporary investments $ 1,809 $ 2,724
Trade and other receivables 17,173 9,180
Prepaid expenses and deposits 3,055 1,028
Inventory 24,517 13,675
Deferred income taxes -- 635
-------- --------
Total current assets 46,554 27,242
Property, plant and equipment 215,589 130,845
Accumulated depreciation (35,419) (29,332)
-------- --------
180,170 101,513
Construction in progress 10,759 23,721
-------- --------
Total property, plant and equipment 190,929 125,234
Deferred income taxes -- 1,124
Other assets 600 4,575
-------- --------
Total assets $238,083 $158,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,482 $ 8,644
Income tax payable 2,249 134
Accrued expenses 6,486 5,447
Current maturities of
long-term debt 1,115 829
-------- --------
Total current liabilities 24,332 15,054
Long-term debt 42,816 100,137
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares 10,000,000 -- --
Class A common stock, $.001 par value:
Authorized shares 75,000,000 18 11
Class B common stock, $.001 par value:
Authorized shares 25,000,000 -- --
Additional paid-in capital 173,029 55,324
Notes receivable from officers (124) (298)
Accumulated deficit (1,988) (12,053)
-------- --------
Total stockholders' equity 170,935 42,984
-------- --------
Total liabilities and
stockholders' equity $238,083 $158,175
======== ========
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF INCOME
THREE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
[S]
Revenues $53,785 $31,952
Cost of goods sold 39,929 22,943
Plant expansion costs 865 --
------- -------
Gross profit 12,991 9,009
Selling and marketing expense 3,396 2,763
General and administrative expense 1,257 1,146
------- -------
Operating profit 8,338 5,100
Interest expense, net 415 2,508
------- -------
Income before income tax expense 7,923 2,592
Income tax expense 2,971 995
------- -------
Net income $ 4,952 $ 1,597
======= =======
Earnings Per Common Share:
Net income per common share $.28 $.14
==== ====
Weighted-average common shares outstanding 17,569 11,466
======= =======
Earnings Per Common Share - Assuming Dilution:
Net income per common share
assuming dilution $.27 $.13
==== ====
Weighted-average common shares outstanding 18,305 12,134
======= =======
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF INCOME
NINE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
Revenues $135,355 $93,616
Cost of goods sold 100,195 67,821
Plant expansion costs 1,552 --
-------- -------
Gross profit 33,608 25,795
Selling and marketing expense,
including product introduction
costs in 1997 9,145 10,212
General and administrative expense 3,630 2,855
-------- -------
Operating profit 20,833 12,728
Interest expense, net 904 7,800
-------- -------
Income before income tax expense and
extraordinary item 19,929 4,928
Income tax expense 7,533 1,878
-------- -------
Income before extraordinary item 12,396 3,050
Extraordinary item:
Loss due to early extinguishment of long-term
debt, net of income taxes 2,332 --
-------- -------
Net income $ 10,064 $ 3,050
======== =======
Earnings Per Common Share:
Income per common share before extraordinary
item $.73 $.27
-------- -------
Extraordinary item:
Loss per common share due to early
extinguishment of long-term debt, net of
income taxes .14 --
-------- -------
Net income per common share $.59 $.27
Weighted-average common shares outstanding 16,943 11,466
======== =======
Earnings Per Common Share - Assuming Dilution:
Income per common share before extraordinary
item $.70 $.25
Extraordinary item:
Loss per common share due to early
extinguishment of long-term debt, net of
income taxes .13 --
-------- -------
Net income per common share
assuming dilution $.57 $.25
======== =======
Weighted-average common shares outstanding 17,680 12,134
======== =======
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
STATEMENTS OF CASH FLOWS
Nine Months Ended
June 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
Operating activities:
Net income $10,064 $ 3,050
Adjustments to reconcile net
income to net cash provided
by operations:
Depreciation and amortization 6,598 5,784
Deferred income tax expense 2,553 1,878
Extraordinary loss due to early
extinguishment of long-term
debt, net 2,332 --
Changes in operating assets and liabilities:
Trade and other receivables (7,993) 942
Prepaid expenses and deposits (1,392) (396)
Inventory (10,842) 2,755
Accounts payable and accrued
expenses 6,621 315
Income tax payable 4,498 128
Other 29 (380)
------- -----
Net cash provided by
operating activities 12,468 14,076
Investing activities:
Additions to property, plant
and equipment (71,526) (11,464)
------- -------
Net cash used in investing activities (71,526) (11,464)
Financing activities:
Additions to deferred debt
issuance costs (325) (2,099)
Proceeds from issuance of debt 59,842 3,543
Net borrowings under revolving line
of credit facility -- (13,500)
Principal payments on debt and capital
lease obligations (116,877) (11,720)
Proceeds from issuance of common
stock, net of issuance costs 115,503 21,958
------- -------
Net cash provided by (used in)
financing activities 58,143 (1,818)
------- -------
Net increase (decrease) in cash and temporary
investments (915) 794
Cash and temporary investments at beginning of
period 2,724 1,818
------- -------
Cash and temporary investments at
end of period $ 1,809 $ 2,612
======= =======
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine-
month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended September 30, 1998. These
financial statements should be read in conjunction with the financial
statements and footnotes thereto and management s discussion and analysis
thereof included in the Company s Annual Report on Form 10-K for the year
ended October 3, 1997 and management s discussion and analysis included in
Item 2 hereof.
American Italian Pasta Company (the Company or AIPC ) uses a 52/53 week
financial reporting cycle with a fiscal year which ends on the last Friday of
September or the first Friday of October. 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. For purposes of this Form 10-Q,
the third fiscal quarter of fiscal years 1998 and 1997 both included thirteen
weeks of activity and are described as the three month periods ended June 30,
1998 and 1997.
2. Completion of Public Offerings
In October 1997, the Company completed an initial public offering (the
"Offering") of 7,900,000 shares of Class A Common Stock, par value of $.001
per share, of which 5,310,000 shares were offered by the Company and
2,590,000 shares were sold by certain selling stockholders. The Offering of
5,310,000 primary shares at $18 per share generated $95.6 million of gross
proceeds. Net proceeds of the Offering were $86.7 million, after deducting
the underwriting discount and the expenses of the Offering. The Company used
the proceeds of the Offering to reduce outstanding debt.
In May 1998, the Company completed a secondary public offering (the
Secondary Offering ) of 6,210,000 shares of Class A Common Stock, par value
of $.001 per share, at $30 per share, of which 1,000,000 shares were offered
by the Company and 5,210,000 shares were sold by certain selling
shareholders. The Secondary Offering generated $30 million of gross proceeds.
Net proceeds of the Secondary Offering were $27.8 million after deducting the
underwriting discount and the expenses of the Secondary Offering. The Company
used the net proceeds of the Secondary Offering to reduce outstanding debt.
In connection with the Secondary Offering, certain executive officers
exercised options to purchase and sell 239,620 shares of Class A Common
Stock.
3. 1997 Equity Incentive Plan
In October 1997, the Board of Directors adopted the 1997 Equity Incentive
Plan for all employees. Under the Plan, the Board or a committee designated
by the Board is authorized to grant nonqualified stock options, incentive
stock options, reload options, stock appreciation rights, shares of
restricted Common Stock, performance shares, performance units and shares of
Common Stock. There are 2,000,000 shares of Common Stock reserved for
issuance under the Plan. On October 9, 1997, the Board of Directors granted
options to purchase 993,391 shares of common stock at $18 per share. The
stock options expire 10 years from the date of grant and become exercisable
over the next five years in varying amounts depending on the terms of the
individual option agreements.
4. Revolving Credit Facility
In October 1997, the Company completed a restructuring of its primary bank
credit facility. The restructured facility initially provides the Company
with $150 million in credit on an unsecured, revolving basis at interest
rates which are indexed to LIBOR. As a result of the restructuring, the
Company incurred a first quarter extraordinary charge of approximately $2.3
million, net of tax, related to the write off of deferred debt issuance
costs.
5. AIPC and Harvest States/Amber Milling Arrangement
On June 17, 1998, the Company s Board of Directors approved a long-term
supply agreement with Amber Milling Company, a division of Harvest States
Cooperatives ( Harvest States ), one of the largest agribusiness cooperatives
in the United States. Under the agreement, the Company will construct a
pasta production facility adjacent to Harvest States wheat mill in Kenosha,
Wisconsin and Harvest States will supply semolina and other raw materials to
the planned new plant. The Company estimates that it will invest
approximately $35 million in capital expenditures to construct the new plant.
6. New Accounting Pronouncement
The Company adopted Statement of Financial Accounting Standards ( SFAS ) No.
128, Earnings Per Share in its quarter ended December 31, 1997. SFAS No.
128 replaced the former reporting of primary and fully diluted earnings per
share with its required reporting of basic and diluted earnings per share.
Under the new requirements, the dilutive effect of stock options is excluded
from basic earnings per share but included in the computation of diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS No. 128
requirements.
The following tables set forth the computation of the numerator and
denominator used in the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
Numerator for basic and diluted
earnings per share $4,952 $1,597
====== ======
Denominator:
Denominator for basic earnings per share -
weighted-average common shares
outstanding 17,569 11,466
Effect of dilutive securities:
Employee stock options 736 668
------ ------
Dilutive potential common shares 736 668
------ ------
Denominator for diluted earnings per share
adjusted weighted-average common shares
outstanding 18,305 12,134
====== ======
NINE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
(IN THOUSANDS)
(UNAUDITED)
Numerator:
Income before extraordinary item $12,396 $3,050
Extraordinary item:
Loss due to early extinguishment
of long- term debt,
net of income taxes 2,332 --
------- ------
Numerator for basic and diluted
earnings per share $10,064 $3,050
======= ======
Denominator:
Denominator for basic earnings per share -
weighted-average common shares
outstanding 16,943 11,466
Effect of dilutive securities:
Employee stock options 737 668
------- ------
Dilutive potential common shares 737 668
------- ------
Denominator for diluted earnings
per share
Adjusted weighted-average common shares
outstanding 17,680 12,134
======= ======
<PAGE>
Item 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion set forth below, as well as other portions of this Quarterly
Report, contains statements concerning potential future events. Such
forward-looking statements are based upon assumptions by the Company s
management, as of the date of this Quarterly Report, including assumptions
about risks and uncertainties faced by the Company. Readers can identify
these forward-looking statements by their use of such verbs as expects,
anticipates, believes or similar verbs or conjugations of such verbs. If any
management assumptions prove incorrect or should unanticipated circumstances
arise, the Company s actual results could materially differ from those
anticipated by such forward-looking statements. The differences could be
caused by a number of factors or combination of factors including, but not
limited to, those factors identified in the Company s Current Report on Form
8-K dated October 29, 1997, which is hereby incorporated by reference. This
report has been filed with the Securities and Exchange Commission (the SEC
or the Commission ) in Washington, D.C. and can be obtained by contacting
the SEC s public reference operations or obtaining it through the SEC s web
site on the World Wide Web at http://www.sec.gov. Readers are strongly
encouraged to consider those factors when evaluating any such forward-looking
statement. The Company will not update any forward-looking statements in
this Quarterly Report to reflect future events or developments.
Results of Operations
Third quarter fiscal 1998 compared to third quarter fiscal 1997.
REVENUES. Total revenues increased $21.8 million, or 68.3%, to $53.8
million for the three-month period ended June 30, 1998, from $32.0 million
for the three-month period ended June 30, 1997. The increase for the three-
month period ended June 30, 1998 was primarily due to increases in unit
volume including shipments of Mueller's brand pasta for Bestfoods (formerly
CPC International, Inc.), favorable changes in sales mix and increases in
average sales prices related to the pass through of higher durum wheat costs.
Management expects increases in revenues in fiscal 1998 and 1999 as a result
of the phase-in of the Company s long-term supply agreement with Bestfoods.
Revenues for the Retail market increased $22.6 million, or 134%, to
$39.5 million for the three-month period ended June 30, 1998, from $16.9
million for the three-month period ended June 30, 1997. The increase
primarily reflects gains in Bestfoods and private label volumes which are
offset by lower sales volumes of Pasta LaBella flavored pasta.
Revenues for the Institutional market decreased $0.8 million, or 5.3%,
to $14.3 million for the three-month period ended June 30, 1998, from $15.1
million for the three-month period ended June 30, 1997. This decrease was
primarily a result of decreases in opportunistic contract volumes versus the
prior period due to high capacity utilization in the current quarter to
support the Retail volume gains. Non-contract Institutional market unit
volumes and revenues increased slightly between periods.
GROSS PROFIT. Gross profit increased $4.0 million, or 44.2%, to $13.0
million for the three-month period ended June 30, 1998, from $9.0 million for
the three-month period ended June 30, 1997. This increase is generally
related to the revenue growth and favorable mix changes. Gross profit as a
percentage of revenues decreased to 24.2% for the three-month period ended
June 30, 1998 from 28.2% for the three-month period ended June 30, 1997. The
decrease in gross profit as a percentage of revenues relates to generally
lower gross margin Bestfoods volumes, lower sales of high margin flavored
pasta and plant expansion costs. Management expects continued increases in
gross profit as a result of revenue increases. However, management expects
gross profit as a percentage of revenues to continue to decrease versus
comparable periods based on the anticipated higher Bestfoods volumes and
related revenue share.
SELLING AND MARKETING EXPENSE. Selling and marketing expense increased
$0.6 million, or 22.9%, to $3.4 million for the three-month period ended June
30, 1998, from $2.8 million for the three-month period ended June 30, 1997.
Selling and marketing expense as a percentage of revenues decreased to 6.3%
for the three-month period ended June 30, 1998, from 8.6% for the comparable
prior year period. The increase in selling and marketing expense relates to
the growth in retail market revenues. However, management expects selling
and marketing expense as a percentage of revenues to continue to decrease
versus comparable periods based on the anticipated higher Bestfoods volumes
and related revenue share.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $0.1 million, or 9.1%, to $1.2 million for the three-month period
ended June 30, 1998, from $1.1 million for the comparable prior period.
General and administrative expense as a percentage of revenues decreased to
2.3% from 3.6%. The majority of the increase in general and administrative
expense relates to incremental public company costs.
OPERATING PROFIT. Operating profit for the three-month period ended
June 30, 1998, was $8.3 million, an increase of $3.2 million or 63.5% over
the $5.1 million reported for the three-month period ended June 30, 1997, and
decreased as a percentage of revenues to 15.5% for the three-month period
ended June 30, 1998, from 15.9% for the three-month period ended June 30,
1997 as a result of the factors discussed above.
INTEREST EXPENSE. Interest expense for the three-month period ended
June 30, 1998, was $0.4 million, decreasing $2.1 million or 83.5% from the
$2.5 million reported for the three-month period ended June 30, 1997. The
decrease was primarily the result of reduced borrowings under the Company s
credit facility as a result of the reduction of the Company s outstanding
debt with the net proceeds realized from the Company s 1998 initial and
secondary public offerings of common stock. In addition, the Company is
incurring lower effective interest rates as a result of the Company s October
1997 credit facility restructuring.
INCOME TAX. Income tax expense for the three-month period ended June
30, 1998, was $3.0 million, increasing $2.0 million from the $1.0 million
reported for the three-month period ended June 30, 1997, and reflects an
effective income tax rate of approximately 38% in both periods.
NET INCOME. Net income for the three-month period ended June 30, 1998,
was $5.0 million, increasing $3.4 million or 210% from the $1.6 million
reported for the three-month period ended June 30, 1997. Diluted earnings
per share was $0.27 per share for the three-month period ended June 30, 1998
compared to $0.13 per share in the comparable prior period.
Nine months fiscal 1998 compared to nine months fiscal 1997.
REVENUES. Revenues increased $41.7 million, or 44.6%, to $135.3 million
for nine-month period ended June 30, 1998, from $93.6 million for the nine-
month period ended June 30, 1997. The increase for the nine-month period
ended June 30, 1998 was primarily due to increases in unit volume including
shipments of Mueller's brand pasta for Bestfoods (formerly CPC International,
Inc.), favorable changes in sales mix and increases in average sales prices
related to the pass through of higher durum wheat costs. Management expects
increases in revenues in fiscal 1998 and 1999 as a result of the Company s
long-term supply agreement with Bestfoods and growth with existing and new
accounts.
Revenues for the Retail market increased $42.9 million, or 84.0%, to
$94.0 million for the nine-month period ended June 30, 1998, from $51.1
million for the nine-month period ended June 30, 1997. The increase primarily
reflects gains in Bestfoods and private label volumes which are offset by
lower sales volumes of Pasta LaBella flavored pasta.
Revenues for the Institutional market decreased $1.2 million, or 2.8%,
to $41.3 million for the nine-month period ended June 30, 1998, from $42.5
million for the nine-month period ended June 30, 1997. This decrease was
primarily a result of decreases in opportunistic contract volumes versus the
prior period due to high capacity utilization in the current period to
support the Retail and Mueller s volume gains. Non-contract Institutional
market unit volumes and revenues generally were consistent between periods.
GROSS PROFIT. Gross profit increased $7.8 million, or 30.3%, to $33.6
million for the nine-month period ended June 30, 1998, from $25.8 million for
the nine-month period ended June 30, 1997. This increase is generally related
to the revenue growth and includes $1.5 million in plant expansion costs.
Gross profit as a percentage of revenues decreased to 24.8% for the nine-
month period ended June 30, 1998 from 27.6% for the nine-month period ended
June 30, 1997. The decrease in gross profit as a percentage of revenues
relates to lower gross margin Bestfoods volumes, lower sales of high margin
flavored pasta and plant expansion costs. Management expects continued
increases in gross profit as a result of revenue increases discussed above.
However, management expects gross profit as a percentage of revenues to
continue to decrease in fiscal 1998 and 1999 versus fiscal 1997 based on the
anticipated higher Bestfoods volumes and related revenue share and plant
expansion costs.
SELLING AND MARKETING EXPENSE. Selling and marketing expense decreased
$1.1 million, or 10.8%, to $9.1 million for the nine-month period ended June
30, 1998, from $10.2 million for the nine-month period ended June 30, 1997.
Selling and marketing expense as a percentage of revenues decreased to 6.8%
for the nine-month period ended June 30, 1998, from 10.9% for the comparable
prior year period. The decrease was primarily due to the absence of $2.0
million product introduction costs incurred in the first and second quarters
of the Company s fiscal 1997 retail introduction of Pasta LaBella flavored
pasta, which was completed in 1997.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $0.8 million, or 28.6%, to $3.6 million for the nine-month period
ended June 30, 1998, from $2.8 million for the comparable prior period, a
decrease as a percentage of revenues from 3.0% to 2.7%. The increase in
administrative costs relates to increases in legal and accounting fees,
shareholder communication expenses and other incremental costs related to
being a public company and the recognition timing of certain property tax
abatements.
OPERATING PROFIT. Operating profit for the nine-month period ended June
30, 1998, was $20.8 million, an increase of $8.1 million or 63.8% over the
$12.7 million reported for the nine-month period ended June 30, 1997, and
increased as a percentage of revenues to 15.4% for the nine-month period
ended June 30, 1998, from 13.6% for the nine-month period ended June 30, 1997
as a result of the factors discussed above.
INTEREST EXPENSE. Interest expense for the nine-month period ended June
30, 1998, was $0.9 million, decreasing $6.9 million or 88.5% from the $7.8
million reported for the nine-month period ended June 30, 1997. The decrease
was primarily the result of reduced borrowings under the Company s credit
facility as a result of the $86.7 million in net proceeds realized from the
Company s October 1997 initial public offering of common stock, the $27.8
million in net proceeds realized from the Company s May 1998 secondary public
offering of common stock. In addition, the Company is incurring lower
interest rates as a result of the Company s October 1997 credit facility
restructuring.
INCOME TAX. Income tax expense for the nine-month period ended June 30,
1998, was $7.5 million, increasing $5.6 million from the $1.9 million
reported for the nine-month period ended June 30, 1997, and reflects an
effective income tax rate of approximately 38%.
EXTRAORDINARY ITEM. During the nine-month period ended June 30, 1998,
the Company incurred a $2.3 million (net of tax) extraordinary loss due to
the write-off of deferred debt issuance costs in conjunction with the
extinguishment and restructuring of the Company s principal bank credit
agreement. There was no such item for the nine-month period ended June 30,
1997.
NET INCOME. Net income for the nine-month period ended June 30, 1998,
was $10.0 million, increasing $7.0 million or 233% from the $3.0 million
reported for the nine-month period ended June 30, 1997. Diluted earnings per
common share before the extraordinary item was $0.70 per share for the nine-
month period ended June 30, 1998 compared to $0.25 per share for the nine-
month period ended June 30, 1997. Diluted earnings per share after the
extraordinary item was $0.57 per share for the nine-month period ended June
30, 1998 compared to $0.25 per share in the comparable prior year period.
Financial Condition and Liquidity
The Company s primary sources of liquidity are cash provided by
operations and borrowings under its credit facility. The Company received
approximately $86.7 million in net proceeds from the October 1997 initial
public offering and $27.8 in net proceeds from the May 1998 secondary
offering all of which was used to reduce indebtedness. Cash and temporary
investments totaled $1.8 million, and net working capital totaled $22.2
million at June 30, 1998.
The Company s net cash provided by operating activities totaled $12.5
million for the nine-month period ended June 30, 1998 compared to $14.1
million for the nine-month period ended June 30, 1997. The decrease in the
net cash provided by operations was due to increases in net working capital
investments required to support its revenue growth offset by the increased
earnings in 1998.
Cash used in investing activities principally relates to the Company s
investments in pasta production, distribution and milling assets. Capital
expenditures were $71.5 million for the nine-month period ended June 30, 1998
compared to $11.5 million in the comparable prior fiscal year period. The
increase in spending for the nine-month period ended June 30, 1998 was a
result of the Company s South Carolina and Missouri 1997/1998 capital
expansion programs.
Net cash provided by financing activities was $58.1 million for the
nine-month period ended June 30, 1998 compared to net cash used of $1.8
million for the nine-month period ended June 30, 1997. The $58.1 million is
primarily a result of (1) $114.5 million in net proceeds from the October
1997 initial public offering and the May 1998 secondary offering (2) $59.8
million proceeds from issuance of debt (net of $0.3 million deferred debt
issuance costs) offset by (3)$116.9 million debt repayment.
The Company currently uses cash to fund capital expenditures, repayments
of debt and working capital requirements. The Company expects that future
cash requirements will continue to be principally for capital expenditures,
repayments of indebtedness and working capital requirements.
The Company has current commitments for $27.7 million in raw material
purchases for fiscal year 1998 and has approximately $2.4 million in capital
expenditures remaining under the 1997/1998 capital expansion programs. The
Company anticipates the capital expansion programs will be fully funded by
the end of fiscal year 1998. On June 17, 1998, the Company s Board of
Directors approved an agreement with Harvest States together with capital
expenditures of approximately $75 million for its South Carolina, Missouri
and Wisconsin facilities. The capital expansion projects are expected to be
completed during fiscal 1999. The Company expects to fund these commitments
from operations and borrowings under the credit facility. The credit
facility currently has a credit commitment of $150 million and has scheduled
commitment reductions which begin at the end of fiscal year 1999. At this
time, the current and projected borrowings under the credit facility do not
exceed the facility s available commitment. The facility matures at the end
of fiscal year 2002. The Company anticipates that any borrowing outstanding
at that time will be satisfied with funds from operations or will be
refinanced. The Company currently has no other material commitments.
Management believes that net cash provided by operating and financing
activities will be sufficient to meet the Company s expected capital and
liquidity needs for the foreseeable future.
YEAR 2000 COMPLIANCE
Many computer software and hardware systems currently are not, or will
or may not be, able to read, calculate or output correctly using dates after
1999, and such systems will require significant modifications in order to be
year 2000 compliant. This issue may adversely affect the operations and
financial performance of the Company because its computer systems are an
integral part of the Company s manufacturing and distribution activities as
well as its accounting and other information systems and because the Company
will have to divert financial resources and personnel to address this issue.
The Company has reviewed its computer hardware and software systems and
has recently begun upgrading those systems that it has identified as not
being year 2000 compliant. The existing systems will be upgraded either
through modification or replacement. The Company currently anticipates this
upgrading to be completed during calendar year 1998, and the Company expects
to complete testing by the end of its first fiscal 1999 quarter. The Company
has alternate plans in the event that critical system upgrading is not
completed on time, which the Company believes are sufficient to meet the
Company s internal needs.
Although the Company is not aware of any material operational
impediments associated with upgrading its computer hardware and software
systems to be year 2000 compliant, the Company cannot make any assurances
that the upgrade of the Company s computer systems will be completed on
schedule, that the upgraded systems will be free of defects or that the
Company s alternate plans will meet the Company s needs. If any such risks
materialize, the Company could experience material adverse consequences to
the Company s operations and financial performance, material costs or both.
Year 2000 compliance may also adversely affect the operations and
financial performance of the Company indirectly by causing complications of,
or otherwise affecting, the operations of any one or more of the Company s
suppliers and customers. The Company is in the process of contacting its
significant suppliers and customers in 1998 in an attempt to identify any
potential year 2000 compliance issues with them. The Company is currently
unable to anticipate the magnitude of the operational or financial impact on
the Company of year 2000 compliance issues with its suppliers and customers.
The Company incurred approximately $195,000 in the second and third
fiscal quarters of 1998 and expects to incur approximately $395,000 in the
periods beginning with the fourth quarter of fiscal 1998 through the first
quarter of fiscal 1999 to resolve the Company s year 2000 compliance issues.
All expenses incurred in connection with year 2000 compliance will be
expensed as incurred, other than acquisitions of new software or hardware,
which will be capitalized.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------------
Not applicable
Item 2. Changes in Securities
-------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
-------------------------------
Not applicable
Item 5. Other Information
-------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
-------------------------------
Exhibits.
Ex 10.1 First Amendment to 1997 Equity Incentive Plan is attached
as Exhibit 10.1.
Ex 10.2 Product Supply and Pasta Production Cooperation Agreement
dated May 7, 1998 between the Registrant and Harvest
States Cooperatives is attached as Exhibit 10.2.
Ex-27 Financial Data Schedule.
Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ITALIAN PASTA COMPANY
July 30, 1998 /s/ Timothy S. Webster
Date ----------------------
President and Chief Executive Officer
(Principal Executive Officer)
July 30, 1998 /s/ David E. Watson
Date -------------------
Executive Vice President and Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 First Amendment to 1997 Equity Incentive Plan.
10.2* Product Supply and Pasta Production Cooperation Agreement
dated May 7, 1998 with Harvest States Cooperative.
27 Financial Data Schedule.
* Portions of the agreement subject to a request for confidential treatment.
FIRST AMENDMENT
OF
AMERICAN ITALIAN PASTA COMPANY
1997 EQUITY INCENTIVE PLAN
(Effective October 7, 1997 and as amended February 25, 1998)
-------------------------------
The American Italian Pasta Company 1997 Equity Incentive Plan, as
established as on October 7, 1997 is amended as follows, effective February
25, 1998:
I.
Section 2.8 is amended to read as follows:
"2.8 "COMMITTEE," "PLAN COMMITTEE," and "MANAGEMENT COMMITTEE" each
have the meanings set forth in Article 3.
II.
The first three sentences of Section 3.1 are deleted, and the
following substituted therefor:
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 appropriate, with respect to
Awards to any employee of the Company or any Subsidiary
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.
III.
A new subsection 4.1(f) is added, immediately following
subsection 4.1(e), to read as follows:
(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.
IV.
Except as amended herein, the Plan shall remain in full force
and effect.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS
DOCUMENT. THE REDACTED MATERIAL HAS BEEN INDICATED WITH AN
ASTERISK IN BRACKETS ("[ * ]") AND FILED SEPARATELY WITH THE
COMMISSION.
PRODUCT SUPPLY AND PASTA PRODUCTION COOPERATION AGREEMENT
This Agreement is made and entered into this 7th day of May, 1998,
between AMERICAN ITALIAN PASTA COMPANY, a Delaware corporation ("Customer")
and HARVEST STATES WHEAT MILLING DIVISION, a division of HARVEST STATES
COOPERATIVES, a Minnesota corporation, d/b/a AMBER MILLING COMPANY
("Supplier").
RECITALS
Customer and Supplier desire to enter into this Agreement to
provide for the supply of Products by Supplier to Customer all in accordance
with the terms hereof.
NOW, THEREFORE, Customer and Supplier agree as follows:
ARTICLE 1. DEFINITIONS.
The following capitalized terms used herein shall have the meaning
given them in this Article:
1.1 ACQUISITION AGREEMENTS shall mean that certain agreement of
even date herewith executed by Supplier as "Seller" and Customer as
"Purchaser" regarding the purchase and sale of the Customer Property and the
agreements between Customer, Edward D. Van Der Molen, D. Hayden Green, and
Elizabeth Green, and Supplier for certain additional property, easements and
other matters relating to construction and operation of the Customer
Facility. Copies of the Acquisition Agreements are attached hereto as
Schedule 1.1.
1.2 AFFILIATE shall mean a person, firm or corporation, which
directly or indirectly, along or through one or more intermediaries,
controls, or is controlled by, or is under common control with a party to
this Agreement.
1.3 AGREEMENT means this Product Supply and Pasta Production
Cooperation Agreement between Supplier and Customer dated as of the date
first above written.
1.4 ANNUAL MINIMUM PRODUCT PURCHASE REQUIREMENT shall have the
meaning set forth in Paragraph 3.1 of this Agreement.
1.5 CPR shall mean the CPR Institute for Dispute Resolution
(formerly, the Center for Public Resources).
1.6 CPR RULES shall mean the Arbitration Rules promulgated by CPR.
1.7 COMMENCEMENT DATE shall mean the earlier of: (a) date the
Customer Facility is completed, commissioned and commercially operable, or
(b) June 30, 1999, provided however, that the Commencement Date shall be
extended due to delays in completion of the Customer Facility for reasons
beyond Customer's reasonable control, provided that Customer is diligently
proceeding to complete the Customer Facility.
1.8 COMPETING MILLING BUSINESS INTEREST means a direct or indirect
ownership interest of 50% or more of the equity or voting interests, or
control over the management, of a flour milling business which competes with
Supplier within North America.
1.9 COMPETING PASTA BUSINESS INTEREST means a direct or indirect
ownership interest of 50% or more of the equity or voting interests, or
control over the management, of a pasta production business which competes
with Customer within North America.
1.10 CONFIDENTIAL INFORMATION shall have the meaning given it in
Paragraph 14.1.
1.11 CONTRACT YEAR means October 1 of each year through September
30 of the following year with the first contract year commencing October 1,
1999.
[ * ]
[ * ]
1.14 CUSTOMER means American Italian Pasta Company, a Delaware
corporation with its principal place of business at 1000 Italian Way,
Excelsior Springs, Missouri 64024.
1.15 CUSTOMER FACILITY means the approximately 150-200 million
pound pasta production plant to be constructed by Customer on the Customer
Property.
1.16 CUSTOMER LOSSES shall have the meaning given in Paragraph
11.1.
1.17 CUSTOMER PROPERTY means the property or interest therein
purchased or otherwise acquired by Customer pursuant to the Acquisition
Agreements which property shall be described on Schedule 1.17 to be attached
hereto when legal descriptions for such property has been determined.
1.18 FORMULA PRICE means the price for purchases and sales of
semolina and other Products as set forth on Schedule 3.5.
1.19 INITIAL TERM shall mean the term of this Agreement which
shall commence on the Commencement Date and continue for the period from the
Commencement Date through September 30, 2009.
1.20 KENOSHA MILL means the durum and flour mill owned by Supplier
and located upon the property legally described as follows:
PARCEL 3 OF CERTIFIED SURVEY MAP 1767, BEING A PART OF
THE NORTHEAST QUARTER, THE NORTHWEST QUARTER, THE
SOUTHWEST QUARTER AND THE SOUTHEAST QUARTER OF THE
NORTHEAST QUARTER AND THE NORTHWEST QUARTER, THE
NORTHEAST QUARTER, THE SOUTHWEST QUARTER AND THE
SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER OF SECTION 4,
TOWN 1 NORTH, RANGE 22 EAST, AS RECORDED IN THE OFFICE OF
THE REGISTER OF DEEDS FOR KENOSHA COUNTY, WISCONSIN ON
AUGUST 2, 1994 IN VOLUME 1697 OF RECORDS, PAGES 522-537,
AS DOCUMENT NO. 969593, LYING AND BEING IN THE CITY OF
KENOSHA, COUNTY OF KENOSHA AND STATE OF WISCONSIN.
1.21 NON-CONFORMING PRODUCT shall have the meaning given it in
Paragraph 9.1.
1.22 PROJECTED MONTHLY MAXIMUM PURCHASE means 120% of one-twelfth
(1/12) of the Annual Minimum Product Purchase Requirement.
1.23 PROJECTED MONTHLY MINIMUM PURCHASE means 80% of one-twelfth
(1/12) of the Annual Minimum Product Purchase Requirement.
1.24 QUANTITY DEFICIENCY shall have the meaning given it in
Paragraph 4.1.
1.25 SPECIFICATIONS shall mean the specifications for Product set
forth in Schedule 2.2 of this Agreement.
1.26 SUPPLIER means Harvest States Milling Division, a division of
Harvest States Cooperatives, a Minnesota cooperative corporation having its
principal place of business at 1667 North
Snelling Avenue, St. Paul, Minnesota 55108 and which does business as Amber
Milling Company.
1.27 SUPPLIER GUARANTEED MAXIMUM ANNUAL VOLUME shall mean [ * ]
cwts of Product annually above the Annual Minimum Product Purchase
Requirement, up to a maximum of [ * ] cwts per Contract Year, subject to
Paragraph 3.2.
1.28 SUPPLIER LOSSES shall have the meaning given it in Paragraph
11.2.
1.29 TRANSFER SYSTEM means the blower equipment located in the
Kenosha Mill and the product transfer line from such equipment up to the
outside wall of the Customer Facility and which is used to transfer Product
from the Kenosha Mill to the Customer Facility.
ARTICLE 2. PRODUCTS; SPECIFICATIONS.
2.1 The products to be sold by Supplier to Customer under this
Agreement shall be as follows:
a) Semolina
b) Durum Granulars
c) Fancy Patent Flours
d) Durum/Hard wheat Flours (such as 50/50 blends)
e) Other products pursuant to specifications mutually agreed upon
between Supplier and Customer.
2.2 The specifications for the Products described in a) through d)
above are attached hereto as Schedule 2.2.
ARTICLE 3. MINIMUM QUANTITY REQUIREMENT, PURCHASE PRICE.
3.1 Supplier shall be obligated to sell to Customer and Customer
shall be obligated to purchase from Supplier, pursuant to the terms and
conditions of this Agreement, for each Contract Year, the Annual Minimum
Product Purchase Requirement of Product for the Customer Facility. All
Product shall be originated at the Kenosha Mill and transported to the
Customer Facility via the Transfer System or shipped to other Customer
Facilities at Customer's expense including a reasonable loading and rail
equipment charge payable to Supplier.
It is anticipated by the parties that the Annual Minimum Product
Purchase Requirement for the first Contract Year will be approximately [ * ]
cwts; for the second Contract Year will be approximately [ * ] cwts; and for
the third Contract Year will be approximately [ * ] cwts. The actual Annual
Minimum Product Purchase Requirement for each Contract Year shall be
established by mutual agreement of the parties on or before July 1
immediately preceding such Contract Year. At the time of establishing the
Annual Minimum Product Purchase Requirements for the third Contract Year,
Customer shall provide Supplier with good faith estimates of the Annual
Minimum Product Purchase Requirements for the balance of the Initial Term.
The actual Annual Minimum Product Purchase Requirements for the period from
March 31, 1999 through September 30, 1999 will be established by mutual
agreement on or before July 1, 1998.
Subject to Paragraph 3.2, Customer agrees, in any case, to purchase
at least [ * ]% of its Semolina requirements for the Customer Facility from
Supplier's Kenosha Mill.
Supplier guarantees to supply to Customer up to the Supplier
Guaranteed Maximum Annual Volume for each Contact Year. Supplier will use
commercially reasonable efforts to supply Customer with Product in excess of
the Supplier Guaranteed Maximum Annual Volume if required by Customer.
3.2 Supplier and Customer acknowledge that Customer desires to
increase demand for its products and the capacity of the Customer Facility to
an amount in excess of [ * ] pounds of pasta product per Contract Year, and
that Supplier intends to supply Product for such increased capacity.
Customer acknowledges that Supplier may need substantial lead-time and
capital investment to satisfy an increase in demand for Product because of
such expansion.
Customer will provide Supplier at least eighteen (18) months
advance written notice of changes in volume requirements for Product
exceeding [ * ] cwts. annually. Supplier shall use commercially reasonable
efforts to satisfy such increased volume from the Kenosha Mill provided the
parties are able to agree upon the price for such increased Product volume.
If Supplier is unable to successfully produce the volume of Product (or
Products) requested by Customer, Supplier shall promptly notify Customer in
writing. Customer shall then have the right to develop an alternative source
for such excess volume provided, as a condition to such right Customer will
use commercially reasonable efforts to secure such requirements under a term
that closely matches Supplier s estimate of when, if at all, Supplier will be
able to produce these requirements. In any event, Customer agrees to purchase
such requirements from Supplier as soon as commercially reasonable (and
consistent with Customer's contractual obligations) after the date Supplier
notifies Customer that Supplier has added such capacity.
If Supplier is unable to satisfy Customer's additional volume
requirements for semolina, such additional requirements shall be excluded
from consideration in determining whether Customer has met its requirement to
purchase [ * ] percent ([ * ]%) of its semolina needs from the Kenosha Mill.
3.3 It is anticipated that out of the total Annual Minimum Product
Purchase Requirement purchased by Customer from Supplier approximately [ * ]
percent ([ * ]%) will be semolina. At the time of establishing the Annual
Minimum Product Purchase Requirements pursuant to Paragraph 3.1,the parties
shall mutually agree upon the percentage of each type of non-semolina
Product. In any case, the Annual Minimum Product Purchase Requirement for
semolina shall be no less than [ * ] cwts.
3.4 Customer will use commercially reasonable efforts to purchase
one-twelfth (1/12) of the Annual Minimum Product Purchase Requirement each
month during the Initial Term of this Agreement. Customer will purchase not
less than the Projected Monthly Minimum Purchase nor more than the Projected
Monthly Maximum Purchase each month during the Initial Term and any renewal
term; PROVIDED THAT, in the event it becomes necessary for Customer to
purchase less than its Projected Minimum Monthly Purchase or more than its
Projected Maximum Monthly Purchase in any given month due to the unique
seasonal purchase requirements of Customer's customers, Supplier agrees to
use commercially reasonable efforts to accommodate Customer's actual purchase
requirements during any such months. Options which the parties agree to
consider during such negotiations will include, without limitation, the
partial supply of Customer's purchase requirements from other Supplier's
facilities, and the temporary purchase of Product by Customer from third
party suppliers, without penalty, to cover Customer's short-term customer
demand (provided that such purchases from third parties shall not apply
towards or reduce the Annual Minimum Product Purchase Requirement).
3.5 The Purchase Price per cwt of Product purchased by Customer
from Supplier under this Agreement shall be the Formula Price determined in
accordance with Schedule 3.5; [ * ]
[ * ]
3.6 Supplier guarantees that Customer will receive Product yields
equal to or greater than the overall average performance of the Kenosha Mill
for identical products and product specifications as the Products. Supplier
will provide to Customer, at Customer s request, applicable monthly records
to substantiate this guarantee.
3.7 Customer and Supplier will discuss grain specifications by
November 1 of each year for sourcing targets and will adjust the same as
needed from time to time based upon grain availability. Supplier will
provide to Customer, at Customer's request, official grade certificates on
types of grain which would be used for the manufacture of Customer s
Products. Supplier and Customer will maintain open discussions on market
price and grain quality opportunities, and will implement specific grain
coverage as directed by Customer, based upon the availability of offers in
the market. Sourcing areas will include but will not be limited to northern
and western United States and Canada.
3.8 To the extent Supplier has records available, Supplier will
provide Customer, at Customer's request, copies of all production records at
the Kenosha Mill which relate to Product transferred or shipped to Customer.
3.9 Supplier's obligation to sell and Customer's obligations to
purchase the Annual Minimum Product Purchase Requirement to Customer is
absolute and subject to no conditions or qualifications, except for Force
Majeure as provided in Article 23. If Supplier, for any reason whatsoever,
shall lack the capacity or otherwise be unable to deliver the Supplier
Guaranteed Maximum Annual Volume Product Purchase Requirement to Customer,
Supplier shall be obligated, subject to said Force Majeure provision, to
purchase on the open market in the United States for delivery to Customer the
Products necessary to satisfy Supplier's obligation to sell to Customer the
Supplier Guaranteed Maximum Annual Volume in the quantities requested by
Customer subject to Paragraph 3.4 and at the price and otherwise on the terms
and conditions provided in this Agreement. If Supplier purchases Product on
the open market, Supplier shall be required to notify Customer in advance and
the Product purchased must satisfy all specifications set forth in Paragraph
2.2, all quality control requirements set forth in Article 8 and Kosher
requirements. If Supplier fails to purchase the Product on the open market
as provided herein, Customer shall have the option to purchase Product from
other suppliers and Supplier shall reimburse Customer for any incremental
costs (compared to what Supplier would have been charged under the terms of
this Agreement) incurred by Customer if purchasing Product from other
sources, including without limitation added freight costs. Customer agrees
to use commercially reasonable efforts to mitigate such costs to be
reimbursed by Supplier.
ARTICLE 4. QUANTITY DEFICIENCIES.
4.1 If, during any Contract Year, Customer shall, for any reason
whatsoever (other than a "Supplier Deficiency", as defined below), fail to
purchase from Supplier the Annual Minimum Product Purchase Requirement for
such Contract Year, as provided in Article 3, the difference between the
Annual Minimum Product Purchase Requirement and the amount of Products
actually purchased during such Contract Year shall be deemed the " Quantity
Deficiency".
4.2 In the event of a Quantity Deficiency for any Contract Year
("Deficiency Contract Year") and absent a Supplier Deficiency during the
Deficiency Contract Year, anything herein above to the contrary
notwithstanding, Customer shall be obligated to pay Supplier on account of
such deficiency an amount equal to [ * ] Said amount shall be paid within 45
days following the end of the Contract Year.
4.3 For purposes of this Article 4, a "Supplier Deficiency" means
the inability of Supplier, for any reason whatsoever (including Force Majeure
and regardless of whether the cause thereof constitutes a breach by Supplier
of its obligations under this Agreement) to ship any Product timely ordered
by Customer on or before the transfer date stipulated in Customer's purchase
order, in accordance with the provisions of Paragraph 7.1.
ARTICLE 5. VOLUME FORECASTS.
During the Initial Term and any renewal term, Customer shall
provide Supplier with 30, 60, 90 and 180 day non-binding rolling forecasts of
its Product requirements for the applicable period.
ARTICLE 6. TERM.
6.1 The term of this Agreement shall commence on the Commencement
Date and shall continue for the Initial Term. At least eighteen (18) months
prior to the end of the Initial Term Supplier and Customer shall commence
negotiations for renewal terms upon the same general terms and conditions as
set forth in this Agreement; provided that terms shall be competitive with
the market terms at the time of renewal. Agreement on renewal terms, if any,
shall be reached by the parties at least twelve (12) months prior to the end
of the Initial Term.
ARTICLE 7. PURCHASE ORDERS; TERMS OF PAYMENT; WORKING CAPITAL.
7.1 Terms of Payment. Firm pricing commitments for Product shall
be made at least thirty (30) days in advance of the first delivery date
thereunder. Purchase orders for Products under firm pricing commitments
shall be in writing and received by Supplier at least five (5) days in
advance of the requested shipment date. All Products ordered by Customer
hereunder shall be invoiced by Supplier to Customer as of the date of
transfer through the Transfer System or shipment. Terms of payment shall be
cash due upon receipt of the Product.
7.2 Customer shall, at its option, either: (a) deposit with
Supplier an amount equal to the cost of [ * ] days supply of wheat needed for
production of Products for Customer based upon the forecasts of Products
needed by Customer over the next [ * ] day period ("Customer Product Need"),
or (b) pay Supplier monthly, in advance, an amount equal to [ * ] basis
points over the LIBOR interest rate in effect on the date of payment applied
to the cost of [ * ] days supply of wheat to meet Customer Product Need. The
cost of wheat shall be based upon the average cost of wheat F.O.B.
Minneapolis, Minnesota over the previous [ * ] days to be adjusted quarterly.
ARTICLE 8. QUALITY; QUALITY CONTROL; QUALITY RESPONSIBILITIES.
8.1 Quality. All Products shall be manufactured, processed and
packaged by Supplier under this Agreement in accordance with the
Specifications, which have been prepared by Customer; provided that wheat
purchased by Supplier at the direction of Customer shall meet raw material
specifications mutually agreed upon by Supplier and Customer. Products shall
(i) not be short in weight, adulterated, misbranded, mispackaged or
mislabeled within the meaning of any applicable federal, state or local food
and drug laws and regulations and shall not otherwise violate any applicable
federal, state or local law, regulation, rule or ordinance (unless such
violation is because of the specifications provided by or other actions of
the Customer), and (ii) be merchantable, of good quality and fit for the
purpose intended.
8.2 Quality Control. In connection with the manufacture and
refining of Products under this Agreement, Supplier shall comply with the
quality standards and procedures set forth in the Specifications. Supplier
shall conduct periodic ingredient and process tests as set forth in the
Specifications and shall reject any ingredients or process which do not
conform to the standards set forth in the Specifications. Supplier will
ensure proper sanitation, and will provide for annual AIB inspections,
maintaining a consistent minimum score of 800. If the score drops below 800,
Supplier will provide more frequent AIB inspections until the score is above
800. If the score drops below 800, Customer shall have the option to
temporarily purchase Product from other suppliers until such time as Supplier
is able to demonstrate to Customer that a minimum score of 800 has been
restored. Supplier agrees to reimburse Customer for any incremental costs
(compared to what Supplier would have charged under the terms of this
Agreement) incurred by Customer in purchasing Product from alternative
sources during such interim period of time, including without limitation,
added freight costs. Customer agrees to use commercially reasonable efforts
to mitigate such costs to be reimbursed by Supplier.
8.3 Regulatory Action. In the event of any regulatory action with
respect to Supplier's operations, Supplier will notify Customer immediately
[within no later than twenty-four (24) hours] of notice of such action, and
will provide Customer with a copy of any written notice and any related
documentation received by the Supplier from the regulatory authority.
8.4 HAACP. Supplier agrees to maintain an HAACP program and to
provide copies of the required HAACP documentation to Customer upon
reasonable request.
8.5 Quality Responsibilities. Supplier's responsibility to
Customer for the quality of Products sold by Supplier to Customer under this
Agreement shall be limited to its obligations set forth in this Agreement.
Anything herein to the contrary notwithstanding, Supplier shall have no
responsibility to Customer for the adequacy of the Specifications.
8.6 Inspections. Customer shall have the right to have
representatives of Customer enter the Kenosha Mill for the purpose of
observing, on behalf of Customer, all aspects of Supplier's manufacturing
techniques, quality control, sanitation procedures and testing procedures.
Supplier shall maintain and make available to such representatives all
records of chemical, physical and microbiological tests of raw materials and
ingredients used in the manufacture of Products. Such representatives shall
also be permitted to inspect Products after manufacture and prior to delivery
to Customer, provided that such inspections shall not delay or in any manner
interfere with Supplier's production or delivery schedules.
8.7 Traceability and Recall. Supplier agrees to maintain standard
traceability and recall procedures, and to promptly provide copies of related
documentation to Customer upon request.
8.8 Certificates of Analysis (COA). Supplier agrees to test
Product samples and complete standard COA forms for all Product produced for
Customer. Supplier shall retain all required COA documentation, and shall
make the documentation available for review by Customer upon reasonable
request.
ARTICLE 9. NON-CONFORMING PRODUCTS.
9.1 The term "Non-Conforming Product" shall mean any Product which
is not manufactured in accordance with the Specifications or Paragraph 8.1 of
this Agreement.
9.2 Rejection; Replacement. Customer shall have the right to
reject any Non-Conforming Products prior to their being delivered to Customer
or within seventy-two (72) hours after processing such Product, but in no
event after fifteen (15) days after delivery of such Product to Customer.
Rejection shall be made by written notice to Supplier, stating in reasonable
detail the reasons for such rejection. Non-Conforming Products so rejected
after delivery may be returned by Customer to Supplier at the Kenosha Mill
and within 10 days after written request by Customer, Supplier shall refund
the purchase price of rejected Non-Conforming Products. If Customer elects to
return the rejected Non-Conforming Products, Supplier shall reimburse
Customer for all reasonable shipping and handling costs incurred thereby.
9.3 Reworking. Supplier may use or rework for Customer's account
any Non-Conforming Products into replacement products provided that such
replacement products meet the Specifications, except for any Non-Conforming
Products which contain food safety defects (such as micro, chemical or
physical defects).
ARTICLE 10. MODIFICATIONS TO SPECIFICATIONS.
10.1 The Specifications for the Products described in Paragraph 1
and attached hereto as Schedule 2.2 have been prepared by Customer and may be
changed by Customer, in its discretion, at any time and from time to time, by
ten (10) business days prior written notice to Supplier, in which event, the
Specifications, so changed, shall thereafter be deemed to be the
"Specifications" for all purposes of this Agreement, provided that Customer
and Supplier shall first agree upon the Formula Price applicable to such
changed Specifications, and provided that the Kenosha Mill is capable of
producing Product according to such new specifications.
10.2 Unless and until Customer and Supplier agree upon the Formula
Price applicable to changed Specifications for Products subject to this
Agreement, the change in Specifications shall not become effective.
ARTICLE 11. INDEMNIFICATION.
11.1 Indemnification by Supplier. Except as otherwise limited
below, Customer and its officers, directors, employees, successors and
assigns shall be indemnified and held harmless by Supplier from any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable attorney's
fees and expenses) actually suffered or incurred by it or them (hereinafter
a "Customer Loss"), actually arising out of or resulting from:
a) the breach of any representation, warranty, covenant or
agreement by Supplier contained herein, including without limitation the
occurrence of a Supplier Deficiency;
b) the consumption or use by any person of any Products sold by
Customer which include Products purchased by Customer from Supplier if such
Products fail to meet the Specifications or otherwise fail to meet the
quality standards set forth in Article 8.
Notwithstanding the foregoing, Supplier shall have no obligation to
indemnify or hold harmless Customer to the extent such Customer Losses shall
result from (i) the negligence of Customer, (ii) compliance with the
Specifications, or (iii) the acts or omissions of employees or agents of
Customer.
11.2 Indemnification by Customer. Except as otherwise limited
below, Supplier and its officers, directors, employees, successors and
assigns shall be indemnified and held harmless by Customer from any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgment and penalties (including, without limitation, reasonable attorney's
fees and expenses) actually suffered or incurred by it or them (hereinafter a
"Supplier Loss") actually arising out of or resulting from:
a) the breach of any representation, warranty, covenant or
agreement by Customer contained herein;
b) the consumption or use by any person of any Products which meet
the Specifications, provided that such Supplier Loss shall not have been
caused by; a failure to meet the quality standards set forth in Article 8
c) the negligence of Customer; or
d) defects in the Specifications.
11.3 Indemnification Procedures.
11.3.1 For the purposes of this Paragraph 11.3, the term
"Indemnitee" shall refer to the person indemnified, or entitled, or claiming
to be entitled to be indemnified, pursuant to the provisions of Paragraphs
11.1 or 11.2 as the case may be, and the term "Indemnitor" shall refer to the
person having the obligation to indemnify pursuant to such provisions.
"Losses" shall refer to "Customer Losses" or "Supplier Losses", as the case
may be.
11.3.2 An Indemnitee shall give written notice (a "Notice of
Claim") to the Indemnitor within ten (10) business days after the Indemnitee
has knowledge of any claims (including a Third Party Claim, as hereinafter
defined) which could give rise to a right of indemnification under this
Agreement. No failure to give such Notice of Claim shall affect the
indemnification obligations of the Indemnitor hereunder, except to the extent
Indemnitor can demonstrate such failure materially prejudiced such
Indemnitor's ability to successfully defend the matter giving rise to the
claim. The Notice of Claim shall state the nature of the claim, the amount of
the Loss, if known, and the method of computation thereof, all with
reasonable particularity and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises.
11.3.3 The obligations and liabilities of an Indemnitor under this
Paragraph 11.3 with respect to Losses arising from claims of any third party
that are subject to the indemnification provisions provided for in this
Paragraph 11.3 ("Third Party Claims") shall be governed by and be contingent
upon the following additional terms and conditions:
The Indemnitee at the time it gives a Notice of Claim to the
Indemnitor of the Third Party Claim shall advise the Indemnitor that it shall
be permitted, at its option, to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice if it gives
prompt notice of its intention to do so to the Indemnitee and confirms that
the Third Party Claim is one with respect to which the Indemnitor is
obligated to indemnify. In the event that Indemnitor exercises its right to
undertake the defense against any such Third Party Claim as provided above,
the Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitor and the Indemnitee may participate
through its own counsel and, subject to the proviso below, at its own expense
in the defense of such Third Party Claim; provided, however, that in the
event both the Indemnitee and the Indemnitor are named as parties and the
Indemnitee shall in good faith determine that representation by the same
counsel is inappropriate, the fees and expenses of the Indemnitee's separate
counsel shall be at the expense of the Indemnitor. Similarly, in the event
the Indemnitee is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in
such defense and make available to it all such witnesses, records, materials
and information in its possession or under its control relating thereto as
shall be reasonably required by the Indemnitee and the Indemnitor may
participate by its own counsel and at its own expense in the defense of such
Third Party Action. Except for the settlement of a Third Party Claim which
involves the payment of money only, no Third Party Claim may be settled by
the Indemnitor without the written consent of the Indemnitee, which consent
shall not be unreasonably withheld or delayed. No Third Party Claim may be
settled by the Indemnitee without the written consent of the Indemnitor,
which consent shall not be unreasonably withheld or delayed.
Payment of Losses by the Indemnitor to the Indemnitee shall be made
within five (5) business days after the Losses become known and final which
shall mean, in the case of litigated or arbitrated claims which have been
reduced to judgment, when all appeals have been exhausted or the time for
appeal has expired, or if the Loss is uncontested, within five (5) business
days after notice of the Loss is given to the Indemnitor.
ARTICLE 12. INSURANCE.
During the term of this Agreement, Supplier shall maintain
comprehensive general liability insurance of at least $10,000,000, with a
deductible not to exceed $500,000, endorsed to cover the indemnifications
contained in this Agreement. Customer shall maintain comprehensive general
liability insurance of at least $10,000,000 with a deductible not to exceed
$500,000 endorsed to cover the indemnifications contained in this Agreement.
Supplier and Customer shall also carry contingent BI coverage. Upon the
execution of this Agreement, Supplier and Customer shall furnish each other
with certificates of insurance evidencing such coverages. Such certificates
shall contain clauses for notification of both Supplier and Customer
thirty days in advance of any cancellation, reduction or change in coverage.
ARTICLE 13. TRADEMARKS AND TRADE NAMES.
Neither party shall have any right, title or interest in and to the
trademarks or trade names of the other party. Neither party shall use any of
such trademarks or trade names except as authorized in advance and in writing
by the other party
ARTICLE 14. CONFIDENTIAL INFORMATION.
14.1 The term "Confidential Information" as used herein shall mean
(i) all proprietary information and material relating to the Specifications,
(ii) all information contained in the Volume Forecasts, and (iii) all other
sales volume information, Product distribution information, and other
information of a scientific, technical, engineering, operational or financial
nature disclosed by the disclosing party to the receiving party and
designated in writing by either party as "Confidential Information" or if
orally communicated, confirmed in writing within thirty (30) days by the
disclosing party The receiving party shall hold the Confidential Information
in confidence and shall use the same only for the purpose of manufacturing
Products under this Agreement, provided that the receiving party may disclose
the Confidential Information to such of its employees who shall have a need
to know same in order to carry out, on behalf of the receiving party, the
disclosing party's obligations under this Agreement; and provided further
that the receiving party informs each such employee of the proprietary and
confidential nature of the Confidential Information disclosed and of the
obligation imposed under this Agreement. Upon the expiration or termination
of this Agreement, the receiving party shall promptly return to the
disclosing party all such Confidential Information which shall be in written
form, together with all copies thereof, and retain none for its files.
14.2 The restriction in this Article 14, relating to Confidential
Information, shall not apply to such Confidential Information that (i) is or
becomes available to the public or part of the public domain other than as a
result of wrongful disclosure by the receiving party, its employees, agents
or representatives, (ii) was known by the receiving party (without a
non-disclosure obligation on the part of the receiving party) before
disclosure by the disclosing party, its employees, agents or representatives,
(iii) becomes known to the receiving party from any source (except from
parties obligated not to disclose same) other than the disclosing party, its
employees, agents or representatives, (iv) is approved for release by written
authorization of the disclosing party, or (v) shall be required by law to be
disclosed. In the case of clause (v), the receiving party shall promptly
notify the disclosing party before such Confidential Information is disclosed
so that Customer may seek a protective order or other appropriate remedy or
waive compliance with this Paragraph. In the event that such protective order
or other remedy is not obtained, the receiving party shall disclose only that
portion of the Confidential Information that it is legally required to
disclose, as confirmed by a legal opinion of a nationally recognized law
firm, and will exercise all reasonable efforts to assist the disclosing party
to obtain reliable assurance that confidential treatment will be accorded the
Confidential Information, provided, however, that any such assistance
rendered by receiving party, its agents and representatives, shall be at the
sole cost and expense of the disclosing party.
ARTICLE 15. NON-COMPETE.
15.1 Supplier shall not during the Term of this Agreement or any
renewal term agreed upon by the parties: (a) solicit any third party to
build, nor will Supplier or any of its Affiliates build on property now or
hereafter owned or leased by Supplier or its Affiliates, a pasta production
facility within a radius of five (5) miles of the Kenosha Mill, or (b) build
or acquire a competing Pasta Business Interest.
15.2 Customer shall not, during the Term of this Agreement or any
renewal term agreed upon by the parties: (a) solicit any third party to
build, or will Customer or any of its Affiliates build on any property now or
hereafter owned or leased by Customer, a semolina or flour mill within a
radius of five (5) miles of the Kenosha Mill, or (b) build or acquire a
Competing Milling Interest; provided that, if Customer acquires an existing
integrated pasta, milling operation, such an acquisition is specifically
excluded from the foregoing non-compete restrictions if 85% of the mill
product is used to supply the attached pasta facility.
15.3 Customer and Supplier believe that the restrictive covenant
contained in this Article is reasonable. However, if any court having
jurisdiction shall at any time hereafter hold the restrictive covenants to
be unenforceable or unreasonable, whether as to scope, territory or period of
time specified herein, and if such court shall declare or determine the
scope, territory or period of time which it deems to be reasonable, such
scope, territory or period of time shall be deemed to be reduced to that
declared or determined by said court to be reasonable.
15.4 Customer and Supplier recognize that in the event of
violation of the terms of the above covenants, Customer or Supplier will
suffer irreparable damages and that it will be difficult if not impossible to
compute actual damages sustained by the Customer or Supplier as the result of
such unauthorized competition. Therefore, the parties agree that either
party shall be entitled to apply to a court of competent jurisdiction for
equitable relief and to enjoin any breach, threatened or actual, of the
covenants contained herein.
ARTICLE 16. STORAGE.
Customer agrees that the Customer Facility shall be constructed to
provide a minimum of five (5) days storage of Product and shall be increased
with increases in capacity of the Customer Facility, based upon the then
current rate of production. Supplier agrees to provide Customer with storage
for wheat at the Kenosha Mill on a non-identity preserved basis equal to the
lesser of: (a) amount of storage necessary for seventeen (17) days production
for the Customer Facility, or (b) 250,000 bushels.
ARTICLE 17. TRANSFER SYSTEM; RAIL.
The cost of purchase and construction of the Transfer System up to
the outside wall of the Customer Facility shall be shared equally by the
parties. Each party shall be responsible for maintenance of the Transfer
System within the boundaries of its property line. The scale for weighing
Product shall be located in the Customer Facility.
Customer shall be entitled to connect a rail line to the rail line
entering Supplier's warehouse and to use Supplier s rail line so long as such
use does not unreasonably interfere with Supplier s operations. Ordinary and
usual maintenance of Supplier's rail line shall be shared on an equitable
basis by Customer and Supplier based upon the use each party makes of such
line. Extraordinary repairs or maintenance shall be borne by the party
causing the same to be incurred. Supplier and Customer shall, as soon as
practical after completion of Customer's plans for the Customer Facility,
enter into an agreement with respect to use of Supplier's rail line upon
terms mutually agreeable to Supplier and Customer.
ARTICLE 18. TERMINATION.
18.1 Either party shall have the right to terminate this Agreement
"for cause" in the event of any of the following events:
(a) A material breach of the terms and conditions of the Agreement
by the other party which breach is not cured within sixty (60)
days after written notice is sent to the breaching party.
(b) The bankruptcy or insolvency of the other party which
proceeding is not terminated within sixty (60) days after
written notice is sent to the other party.
(c) A material misrepresentation of financial or other information
by the other party which has a material adverse affect on the
terminating party.
(d) An occurrence involving the criminal activity of any of the
officers or directors of the other party, the occurrence of
which materially harms the terminating party's business or
reputation.
(e) Persistent disregard of applicable laws, rules or regulations
by the other party which materially harms the business or
reputation of the terminating party.
(f) An event of Force Majeure specified in Article 23 occurs will
respect to the other party and continues uninterrupted for a
continuous period of twelve (12) months.
(g) A sale, or change of control, involving one party to the
Agreement, which has a materially adverse effect on the other
party. Customer acknowledges that a merger or consolidation
between Harvest States Cooperatives and Cenex, Inc. will not
materially adversely effect Customer.
18.2 In the event that the Customer does not, for any reason,
purchase the Customer Property and close on the other transactions provided
for in the Acquisition Agreements, and the Acquisition Agreements are
terminated, this Agreement shall automatically terminate and neither party
shall have any further obligation hereunder, except to the extent that the
express provisions hereof provide that the terms of this Agreement shall
survive termination of this Agreement.
18.3 This Agreement may be terminated be either party upon written
notice to the other party if Customer has not obtained final board approval
for this Agreement on or before July 1, 1998.
ARTICLE 19. GENERAL COOPERATION.
Supplier and Customer agree to meet at least annually to discuss
and implement procedures or agreements to the extent commercially and
financially reasonable for both parties, with respect to the following:
19.1 Opportunities for business referrals from Supplier to Customer
for the purchase of Customer Products.
19.2 Short term and long term goals of Customer and Supplier with
respect to the Kenosha Mill and Customer Facility and how the goals impact
both parties business.
19.3 Coordinating durum grain procurement processes,
transportation and shipment of raw materials and finished products, cost
improvement and optimization of resources for both parties.
19.4 Sharing resources including without limitation, Suppliers
grain market analysis.
During construction of the Customer Facility, the parties shall
meet at least quarterly to discuss the status and progress for completion of
the Facility, estimated completion dates and Customer s Product Needs prior
to the beginning of the first Contract Year.
Customer and Supplier also agree to coordinate and cooperate with
respect to maintenance and fumigation of the Kenosha Mill and Customer
Facility so as to protect the health and safety of persons at both facilities
and minimize interference with each other's operations.
In addition to the restrictions contained in Article 15, Supplier
agrees, during the term of this Agreement, that Supplier will not enter into
an agreement with, solicit, initiate or encourage any other pasta company or
other third party ("Customer Competitor") to construct a pasta production
facility adjacent to or in the vicinity of another Supplier facility for the
purpose of entering into a long-term supply agreement similar to the type and
nature provided for in this Agreement ("Similar Relationship") until Supplier
has first given Customer the opportunity to enter into the Similar
Relationship with Supplier. Customer shall have a period of thirty (30) days
from the date Supplier first offers in writing to Customer to enter into the
Similar Relationship, to sign a letter of intent with Supplier to enter into
such relationship. The parties shall negotiate the terms of the letter of
intent in good faith. If the parties are unable to reach agreement on the
terms of the letter of intent within such thirty (30) day period, Supplier
shall have the right to enter into a Similar Relationship with the Customer
Competitor.
ARTICLE 20. MATERIAL ADVERSE EFFECT.
If, at any time during the term of this Agreement, either Customer
or Supplier shall claim, in written notice to the other, that economic,
business or other conditions have changed since the Commencement Date, with
the result that the continuation of this Agreement would have a material
adverse effect upon its financial condition, business operations, business
prospects or business opportunities ("Material Adverse Effect"), then the
parties shall be obligated to negotiate in an attempt to agree upon an
amendment to this Agreement which will eliminate or substantially reduce such
claimed Material Adverse Effect to the extent commercially reasonable. If,
within ninety (90) days after the date of such notice, the issue shall not
have been resolved to the satisfaction of both parties, then the party
claiming a Material Adverse Effect may apply to CPR for arbitration of the
dispute in accordance with the CPR Rules and otherwise in accordance with the
arbitration rules and procedures provided for in the case of other disputes
under this Agreement. The arbitration proceedings shall commence upon
referral of the dispute to arbitration by either party after the expiration
of the ninety (90) day period referred to above. In any such case, the sole
issue to be determined by the arbitrator shall be whether or not a Material
Adverse Effect exists and to determine with reasonable specificity the nature
and extent thereof. The arbitrator shall not have the authority to require
any amendment to this Agreement. If, the arbitrator shall determine that a
Material Adverse Effect exists, then the parties shall again negotiate in an
attempt to agree upon an amendment to this Agreement which will eliminate or
substantially reduce the Material Adverse Effect to the extent commercially
reasonable, as the same shall have been determined by the arbitrator. Neither
party shall be under any obligation to agree upon such amendment but only to
negotiate in good faith towards a commercially reasonable solution. If the
parties cannot agree on an amendment to the terms of this Agreement, the
party experiencing the Material Adverse Effect may, at its option, terminate
this Agreement.
ARTICLE 21. NON-SOLICITATION OF EMPLOYEES.
During the Initial Term of this Agreement, and any renewal terms
agreed upon by the parties, neither party shall directly or indirectly
solicit for hire the employees of the other party.
ARTICLE 22. RELATIONSHIP OF PARTIES.
The parties hereto are independent contractors and engage in the
operation of their own respective businesses and neither Supplier nor
Customer shall be considered the agent of the other for any purpose
whatsoever, and neither Supplier nor Customer has any authority to enter into
any contracts or assume any obligations for the other or to make any
warranties or representations on behalf of the other. Nothing in this
Agreement shall be considered to establish a relationship of co-partners or
joint venturers between Supplier and Customer.
ARTICLE 23. FORCE MAJEURE.
23.1 If the performance of this Agreement (including without
limitation any deliveries hereunder) is interfered with by any circumstance
or event of force Majeure, the party affected will be excused from such
performance on a day-to-day basis to the extent of such interference (and the
other party will likewise be excused from performance on a day-to-day basis
to the extent such party's obligations relate to the performance so
interfered with), and such event shall not give rise to any claim for damages
or other relief; PROVIDED, that the affected party gives (i) prompt notice to
the other party, no later than five (5) business days after the commencement
of the Force Majeure, stating the specific circumstances constituting the
Force Majeure and describing the obligation or performance which is thereby
delayed or prevented and (ii) prompt notice to the other party, within five
(5) business days after cessation of the Force Majeure, of such cessation and
of the specific facts and circumstances supporting the Party's claim
concerning the occurrence and duration of the Force Majeure event.
23.2 "Force Majeure" means an act, event or occurrence that
materially and adversely affects a party's ability to perform hereunder, and
is demonstrably beyond the control of the affected party, such as (i) acts of
war, whether declared or not; (ii) insurrection, rebellion, sabotage, acts of
terrorists, public or local disorders, riots, or violent demonstrations;
(iii) explosions, fires, floods, earthquakes, crop failures, or other such
natural calamities which it is not reasonably possible for the affected party
to overcome; (iv) embargoes, judicial action, lack of or inability to obtain
export/import permits or approvals or other governmental action or inaction
not occasioned by the fault or negligence of the Party affected thereby; (v)
abnormal or unusually severe weather conditions which it is not reasonably
possible for the affected party to overcome; or (vi) strikes, boycotts or
lockouts or such other labor disputes (but excluding those that are initiated
within or limited to the labor force of the affected party).
23.3 A claim of Force Majeure not adequately supported within
thirty (30) days of the date of such claim by specific facts and evidence
shall be void and treated, for purposes of this Agreement, as if never made.
23.4 A party subject to Force Majeure shall exercise all possible
diligence in order to, as soon as possible, remove the effects of, or to
mitigate said effects if their removal is not immediately possible, such
Force Majeure, including the expenditure of a reasonable amount of money. A
party shall be excused from performing hereunder only to the extent affected
by the Force Majeure and shall be required to perform to the extent not so
affected.
23.5 Unless this Agreement has been terminated as provided herein,
each party shall reassume, with full rights, the duty of complying with its
obligations hereunder as soon as the Force Majeure ceases, without the right
to claim any compensation from the other party for the period of suspension.
ARTICLE 24. GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Minnesota without regard to its
provisions concerning conflicts or choice of law.
ARTICLE 25. GENERAL DISPUTE RESOLUTION PROVISIONS.
25.1 The parties hereto desire to avoid all forms of traditional
litigation, subject to the provision for preliminary injunctive relief
described in Paragraph 25.5 below. Any dispute, controversy or claim of any
nature whatsoever between the parties hereto arising out of or relating to
this Agreement or the breach, termination or invalidity of this Agreement or
any related agreements, whether in contract, tort or equity, or under any
statute or regulation arising out of or relating to such agreements (a
"Dispute"), shall be resolved in accordance with this Article 25. All other
remedies to which the parties (including their respective Affiliates) may
otherwise have been entitled, whether at law or in equity, are hereby waived
to the fullest extent allowed by law. The obligations under this Article 25
shall survive termination of this Agreement.
The preceding provision notwithstanding, if a Dispute arises out of
a third-party claim against any party hereto, these procedures shall not be
mandatory, and such party shall have the right to engage in such litigation
with the third-party claimant and with each other concerning such Dispute.
For purposes of this exception pertaining to Disputes arising out of
third-party litigation, a third-party means a party (i) which is not an
Affiliate of a party hereto, (ii) has no record or beneficial, financial,
ownership or other significant interest in or with a party hereto and (iii)
in which a party hereto has no record or beneficial, financial, ownership or
other significant interest.
25.2 Informal Dispute Resolution. The parties shall attempt in
good faith to promptly resolve any Dispute promptly by confidential
negotiations between representatives of the parties with authority to settle
the matter. All such negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. Any
party making claim shall give the other party written notice that the party
is invoking the dispute resolution procedures of this Article 25 with respect
to a specific Dispute. Within ten (10) days after delivery of the written
notice, the receiving party shall submit to the other a written response. The
notice and the response shall include (a) a statement of each party's
position and a summary of arguments supporting that position, and (b) the
name of the person (s) who will represent that party and the name of any
other person (and an indication, if applicable, that such other person is an
attorney) who will accompany the representatives (s) to the meeting. Within
thirty (30) days after delivery of the written notice, the representatives of
both parties shall meet at a mutually acceptable time and place (or failing
such agreement at Supplier's headquarters), or confer by telephone and
thereafter as often as they reasonably deem necessary, to attempt to resolve
the Dispute.
25.3 Mediation. If the Dispute has not been resolved by
negotiation within forty-five (45) days of the initial written notice (or
such longer time as the parties may agree), either party may notify the other
that it intends to submit such Dispute to non-binding mediation under the
then current model procedure for mediation of business disputes promulgated
by CPR. In such event the parties shall mediate the Dispute. The parties
shall promptly attempt to agree upon a reputable and experienced mediator.
Failing agreement within five (5) days after the notice of intent to mediate
has been given by a party hereto (or such longer time as the parties may
agree), the mediator will be selected in accordance with the previously
mentioned CPR procedure. Any such mediation process shall be concluded in
Milwaukee, Wisconsin and must be completed within seventy-five (75) days of
delivery of the initial written notice unless otherwise agreed by the
parties.
25.4 Formal Dispute Resolution.
25.4.1 Any Dispute which remains unresolved seventy-five (75) days
after delivery of the initial written notice shall be promptly resolved by
final and binding arbitration. Such arbitration shall be conducted pursuant
to the CPR Rules except to the extent herein otherwise provided. The place of
arbitration shall be Milwaukee, Wisconsin unless both parties agree to a
different locale. There shall be a single neutral and impartial arbitrator
appointed by CPR experienced in the subject matter of the Dispute and who has
not had a material personal or financial relationship with either participant
to the Dispute or any Affiliate of either participant, to be selected in
accordance with the CPR Rules. The arbitrator shall follow the laws of the
State of Minnesota (without regard to conflict of law provisions) in
resolving any Dispute, provided that any question concerning arbitrability
shall be governed exclusively by the United States Arbitration Act as then in
force. Each party hereby waives any right to and the arbitrator shall not
have the power to award punitive, exemplary, double or treble damages.
The award of the arbitrator shall be final and binding, and
judgment on it may be entered in any court having jurisdiction. The parties
agree that any decision or award resulting from proceedings in accordance
with this dispute resolution provision shall have not preclusive or other
effect in any other matter between the parties or involving a third-party.
25.4.2 The arbitrator may consolidate an arbitration under this
Agreement with any other arbitration between the parties to this Agreement if
the subject of the Dispute arises out of or relates essentially to the same
facts or transaction(s). No other person may be included in the arbitration
of a Dispute, whether by consolidation, joinder or in any other manner,
except by written consent of both parties to the Dispute.
25.4.3 Each party shall bear its own costs and attorneys' fees,
and the parties shall equally bear the fees, costs and expenses of the
arbitrator and the arbitration proceedings; provided, however, that the
arbitrator may exercise discretion to award costs and/or attorneys' fees to
the prevailing party.
25.5 Injunctive Relief. The parties agree that notwithstanding
anything to the contrary contained herein, any party may seek a temporary
restraining order, a preliminary injunction or other form of appropriate
equitable relief from any court of competent jurisdiction in order to prevent
immediate and irreparable injury, loss or damage. The arbitrator once
appointed shall have the power to modify or vacate such temporary restraining
order or preliminary injunction or to issue a restraining order or
injunction.
25.6 Confidentiality. The dispute resolution proceedings
contemplated by this Article 25 shall be as confidential and private as
permitted by law. To that end, the parties shall not disclose the existence,
content or results of any proceedings conducted in accordance with this
Article 25, and materials submitted in connection with such proceedings shall
be treated as Confidential Information, provided, however, that this
confidentiality provision shall not prevent a petition to vacate or enforce
an arbitral award, and shall not bar disclosures required by law or prevent
use of such information in a proceeding involving a third party, provided,
that Customer and Supplier shall use reasonable efforts to obtain a
protective order to protect the confidentiality of such information. Any
decision or award resulting from proceedings in accordance with this Article
25 shall have no preclusive effect in any matter involving third parties.
25.7 Limitations Period. The statutes of limitation of the State
of Minnesota shall be applicable to the arbitration of any Dispute hereunder
just as if such arbitration were a lawsuit between the parties, except that
all applicable statutes of limitation and defenses based upon the passage of
time shall be tolled during the pendency of any informal dispute resolution
or mediation under Paragraphs 25.2 and 25.3 hereof. The parties shall take
such action, if any, as may be required to effectuate the tolling provided
for in this Paragraph 25.7.
25.8 Continued Performance. Each party is required to continue to
perform its obligations under the Agreement pending final resolution of any
dispute arising out of or relating to this Agreement.
ARTICLE 26. SEVERABILITY.
If any portion of this Agreement shall be in violation of any
applicable law, such paragraph or portion shall be inoperative, but the
remainder of this Agreement shall remain valid and shall continue to bind the
parties.
ARTICLE 27. ASSIGNMENTS.
This Agreement shall be binding and inure to the benefit of each of
the parties, their successors and assigns, provided that this Agreement may
not be transferred or assigned by either party without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
ARTICLE 28. NOTICES.
All notices permitted or required to be given by Customer and
Supplier hereunder shall be delivered via fax or mailed certified mail,
return receipt requested as follows:
To Supplier: Harvest States Cooperatives
Wheat Milling Division
1667 North Snelling Avenue
P.O. Box 64594
St. Paul, Minnesota 55164
Attn: President
Copy To: Harvest States Cooperatives
Attn: Legal Department
1667 North Snelling Avenue
P.O. Box 64594
St. Paul, Minnesota 55164
To Customer: American Italian Pasta Company
100 Italian Way
Excelsior Springs, Missouri 64024
Attn: President and Chief Executive Officer
Copy To: Sonnenschein, Nath & Rosenthal
4520 Main Street
Suite 1100
Kansas City, Missouri 64111
Attn: James A. Heeter, Esq.
ARTICLE 29. ENTIRE AGREEMENT.
This Agreement, together with the Schedules attached hereto, and
the Acquisition Agreements contain all of the terms, warranties,
representations, agreements, covenants, conditions, and provisions agreed
upon by the parties with respect to the matters described herein. This
agreement shall not be altered or changed unless the change shall be in
writing and signed by authorized officials of both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
HARVEST STATES COOPERATIVES
By:/s/ Gary A. Pistoria
Its: Group Vice President
AMERICAN ITALIAN PASTA COMPANY
By:/s/ Timothy S. Webster
Its: President and Chief Executive
Officer
<PAGE>
SCHEDULE 2.2
SPECIFICATIONS
[ * ]
<PAGE>
Schedule 3.5
Product Costing Formulas
[ * ]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM Balance Sheets at June 30, 1998;
Statements of Operations for the nine months ended June
30, 1998; the Statements of Cash Flows for the nine
months ended June 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
THE NOTES THERETO
<MULTIPLIER> 1000
<PERIOD-START> OCT-04-1997
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-END> JUL-03-1998
<CASH> 1809
<SECURITIES> 0
<RECEIVABLES> 17296
<ALLOWANCES> 123
<INVENTORY> 24517
<CURRENT-ASSETS> 46554
<PP&E> 215589
<DEPRECIATION> 35419
<TOTAL-ASSETS> 238083
<CURRENT-LIABILITIES> 24332
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 170917
<TOTAL-LIABILITY-AND-EQUITY> 238083
<SALES> 135355
<TOTAL-REVENUES> 135355
<CGS> 101747
<TOTAL-COSTS> 114522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 904
<INCOME-PRETAX> 19929
<INCOME-TAX> 7533
<INCOME-CONTINUING> 12396
<DISCONTINUED> 0
<EXTRAORDINARY> 2332
<CHANGES> 0
<NET-INCOME> 10064
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.57
</TABLE>
