10-Q

                                  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:   March 31, 2002

                                       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.)

4100 N. Mulberry Drive, Suite 200, Kansas City, Missouri               64116
 (Address of principal executive office)                             (Zip Code)

            Registrant's telephone number, including area code: (816) 584-5000


--------------------------------------------------------------------------------

             (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 May 6, 2002 of the Registrant's
Class A Convertible Common Stock was 17,959,372 and there were no shares
outstanding of the Class B Common Stock.

                         American Italian Pasta Company
                                    Form 10-Q
                          Quarter Ended March 31, 2002


                                Table of Contents


Part I - Financial Information                                                          Page

         Item 1.           Consolidated Financial Statements (unaudited)

                           Consolidated Balance Sheets at March 31, 2002 and
                           September 30, 2001.                                             3

                           Consolidated Statements of Income for the three
                           months ended March 31, 2002 and 2001.                           4

                           Consolidated Statements of Income for the six
                           months ended March 31, 2002 and 2001.                           5

                           Consolidated Statements of Stockholders' Equity
                           for the six months ended March 31, 2002.                        6

                           Consolidated Statements of Cash Flows for the
                           six months ended March 31, 2002 and 2001.                       7

                           Notes to Consolidated Financial Statements                      8

         Item 2.           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                   9

         Item 3.           Quantitative and Qualitative Disclosures About
                           Market Risk                                                    14

Part II - Other Information

         Item 1.           Legal Proceedings                                              15

         Item 2.           Changes in Securities                                          15

         Item 3.           Defaults Upon Senior Securities                                15

         Item 4.           Submission of Matters to a Vote of Security Holders            15

         Item 5.           Other Information                                              16

         Item 6.           Exhibits and Reports on Form 8-K                               16


Signature Page                                                                            17

                        PART I - FINANCIAL INFORMATION
             Item 1 - Consolidated Financial Statements (Unaudited)

                         AMERICAN ITALIAN PASTA COMPANY
                           Consolidated Balance Sheets

                                                                                    March 31,           September 30,
                                                                                      2002                   2001
                                                                                      ----                   ----
                                                                                            (In thousands)
                                                                                              (Unaudited)
Assets
Current assets:
   Cash and temporary investments                                                        $4,726             $5,284
   Trade and other receivables                                                           36,074             37,546
   Prepaid expenses and deposits                                                          6,337              8,024
   Inventory                                                                             53,248             43,866
   Deferred income taxes                                                                  2,689              3,565
                                                                                        --------          --------
Total current assets                                                                    103,074             98,285
Property, plant and equipment:
     Land and improvements                                                               10,843              8,123
   Buildings                                                                            101,134             99,548
     Plant and mill equipment                                                           272,319            269,751
   Furniture, fixtures and equipment                                                     13,563             10,957
                                                                                        --------          --------
                                                                                        397,859            388,379
     Accumulated depreciation                                                           (89,625)          (80,453)
                                                                                        -------           --------
                                                                                        308,234            307,926
     Construction in progress                                                            49,060             31,236
                                                                                        --------          --------
Total property, plant and equipment                                                     357,294            339,162
Intangible assets                                                                       117,042            116,707
Other assets                                                                              5,916              5,989
                                                                                        --------          --------
Total assets                                                                           $583,326           $560,143
                                                                                       ========           ========

Liabilities and stockholders' equity 
     Current liabilities:
     Accounts payable                                                                  $ 19,597           $ 22,416
     Accrued expenses                                                                    15,839             19,652
     Income tax payable                                                                   2,304                877
     Current maturities of long-term debt                                                 2,404              1,559
                                                                                        --------          --------
Total current liabilities                                                                40,144             44,504
Long-term debt                                                                          233,646            236,783
Deferred income taxes                                                                    38,623             33,664
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                                                      20                 19
     Class B common stock, $.001 par value:
          Authorized shares - 25,000,000                                                     --                 --
     Additional paid-in capital                                                         209,564            202,674
     Treasury stock                                                                     (34,394)          (34,394)
     Notes receivable from officers                                                         (61)              (61)
     Unearned compensation                                                                 (173)             (223)
     Retained earnings                                                                   99,474             80,563
   Accumulated other comprehensive loss                                                  (3,517)           (3,386)
                                                                                        --------          --------
Total stockholders' equity                                                              270,913            245,192
                                                                                         -------           -------
Total liabilities and stockholders' equity                                             $583,326           $560,143
                                                                                       ========           ========


See accompanying notes to consolidated financial statements.

                         AMERICAN ITALIAN PASTA COMPANY

                        Consolidated Statements of Income

                                                                                          Three Months Ended
                                                                                               March 31,
                                                                                      2002                   2001
                                                                                      ----                   ----
                                                                                            (In thousands)
                                                                                              (Unaudited)

Revenues                                                                              $94,843               $75,030
Cost of goods sold                                                                     61,126                51,642
                                                                                       ------                ------
Gross profit                                                                           33,717                23,388
Selling and marketing expense                                                          12,845                 7,022
General and administrative expense                                                      3,209                 2,562
                                                                                        -----                 -----
Operating profit                                                                       17,663                13,804
Interest expense, net                                                                   2,422                 2,073
                                                                                        -----                 -----
Income before income tax expense                                                       15,241                11,731
Income tax expense                                                                      5,182                 4,041
                                                                                        -----                 -----
Net income                                                                            $10,059                $7,690
                                                                                      =======               ======

Earnings Per Common Share:
    Net income per common share                                                          $.56                  $.44
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         17,835                17,453
                                                                                      =======               =======

Earnings Per Common Share - Assuming Dilution:
    Net income per common share assuming dilution                                        $.54                  $.42
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         18,653                18,161
                                                                                      =======               =======

     See accompanying notes to consolidated financial statements.

                         AMERICAN ITALIAN PASTA COMPANY

                        Consolidated Statements of Income

                                                                                            Six Months Ended
                                                                                               March 31,
                                                                                      2002                    2001
                                                                                      ----                    ----
                                                                                            (In thousands)
                                                                                              (Unaudited)

Revenues                                                                             $186,846              $141,434
Cost of goods sold                                                                    120,285                98,956
                                                                                      -------                ------
Gross profit                                                                           66,561                42,478
Selling and marketing expense                                                          26,641                12,562
General and administrative expense                                                      6,186                 4,744
Provision for acquisition expenses                                                         --                 1,827
                                                                                      -------                ------
Operating profit                                                                       33,734                23,345
Interest expense, net                                                                   4,978                 3,601
                                                                                      -------                ------
Income before income tax expense                                                       28,756                19,744
Income tax expense                                                                      9,845                 6,805
                                                                                      -------                ------
Net income                                                                            $18,911               $12,939
                                                                                      =======               =======

Earnings Per Common Share:
    Net income per common share                                                         $1.06                  $.75
                                                                                      =======               =======
    Weighted-average common shares outstanding                                         17,764                17,290


Earnings Per Common Share - Assuming Dilution:
    Net income per common share assuming dilution                                       $1.02                  $.72
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         18,605                17,857
                                                                                      =======               =======

     See accompanying notes to consolidated financial statements.

                                             AMERICAN ITALIAN PASTA COMPANY

                                     Consolidated Statements of Stockholders' Equity


                                                                                                          Six months ended
                                                                                                            March 31, 2002
                                                                                                      ---------------------------
                                                                                                          (In thousands)
                                                                                                            (unaudited)
Class A Common Shares
  Balance, beginning of period                                                                                19,218
  Issuance of shares of Class A Common stock to option holders & other issuances                                 321
                                                                                                              ------
  Balance, end of period                                                                                      19,539
                                                                                                              ======

Class A Common Stock
  Balance, beginning of period                                                                               $    19
  Issuance of shares of Class A Common stock to option holders & other issuances                                   1
                                                                                                           ---------
  Balance, end of period                                                                                       $  20
                                                                                                           =========

Additional Paid-in Capital
  Balance, beginning of period                                                                             $ 202,674
  Issuance of shares of Class A Common stock to option holders & other issuances                               6,890
                                                                                                           ---------
  Balance, end of period                                                                                   $ 209,564
                                                                                                           =========

Treasury Stock
  Balance, beginning and end of period                                                                     $ (34,394)
                                                                                                           =========

Notes Receivable from Officers
  Balance, beginning and end of period                                                                     $     (61)
                                                                                                           =========

Unearned compensation
 Balance, beginning of period                                                                              $    (223)
 Earned compensation                                                                                              50

 Balance, end of period                                                                                    $     (173)
                                                                                                            =========

Accumulated Other Comprehensive Loss
  Balance, beginning of period                                                                             $  (3,386)
  Foreign currency translation adjustment                                                                        (53)
  Interest rate swaps fair value adjustment                                                                      (78)
                                                                                                            ---------
  Balance, end of period                                                                                   $  (3,517)
                                                                                                            =========

Retained Earnings
  Balance, beginning of period                                                                             $  80,563
  Net income                                                                                                  18,911
                                                                                                            --------
  Balance, end of period                                                                                      99,474
                                                                                                            --------
Total Stockholders' Equity                                                                                 $ 270,913
                                                                                                           =========

       See accompanying notes to consolidated financial statements.

                         AMERICAN ITALIAN PASTA COMPANY

                      Consolidated Statements of Cash Flows

                                                                                                    Six Months Ended
                                                                                                       March 31,
                                                                                                2002                  2001
                                                                                                ----                  ----
                                                                                                       (In thousands)
                                                                                                        (Unaudited)
Operating activities:
Net income                                                                                    $18,911              $12,939
Adjustments to reconcile net income to net cash provided by operations:
    Depreciation and amortization                                                               9,984                8,052
    Deferred income tax expense                                                                 4,959                4,998
    Changes in operating assets and liabilities,
      net of Mueller's brand acquisition:
           Trade and other receivables                                                          1,137                 (590)
           Prepaid expenses and deposits                                                        1,687               (2,062)
           Inventory                                                                           (9,453)                 863
           Accounts payable and accrued expenses                                               (5,558)               4,645
           Income tax payable                                                                   4,132                1,296
           Other                                                                                 (551)                (979)
                                                                                              --------             --------
Net cash provided by operating activities                                                      25,248               29,162

Investing activities:
Purchase of Mueller's pasta brand                                                                  --              (23,552)
Additions to property, plant and equipment                                                    (29,593)             (17,020)
                                                                                              --------             --------
Net cash used in investing activities                                                         (29,593)             (40,572)

Financing activities:
Proceeds from issuance of debt                                                                    979               20,000
Principal payments on debt and capital lease
     obligations                                                                                 (789)                (727)
Proceeds from issuance of common stock, net of
     issuance costs                                                                             3,668                1,718
Purchase of treasury stock                                                                        --                (3,032)
                                                                                              --------             --------
Net cash provided by financing activities                                                       3,858               17,959
Effect of exchange rate changes on cash                                                           (71)              (1,724)
                                                                                              --------             --------
Net increase (decrease) in cash and temporary
     investments                                                                                 (558)               4,825

Cash and temporary investments at beginning of period                                           5,284                6,677
                                                                                              --------             --------
Cash and temporary investments at end of period                                               $ 4,726              $11,502
                                                                                              ========             =======


                See accompanying notes to consolidated financial statements.

                         AMERICAN ITALIAN PASTA COMPANY
                   Notes to Consolidated Financial Statements

                                 March 31, 2002


1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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 six-month periods ended March 31, 2002 are not necessarily indicative
of the results that may be expected for the year ended September 30, 2002. These
financial statements should be read in conjunction with the consolidated
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 September 29, 2001 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
second fiscal quarter of fiscal years 2002 and 2001 both included thirteen weeks
of activity and are described as the three month periods ended March 31, 2002
and 2001.

2. Earnings Per Share

Dilutive securities, consisting of options to purchase the Company's Class A
common stock, included in the calculation of diluted weighted average common
shares were 818,000 and 841,000 shares for the three-month and six-month periods
ended March 31, 2002, respectively, and 708,000 and 567,000 shares for the
three-month and six-month periods ended March 31, 2001, respectively.

     A summary of the Company's stock option activity:

                                                                        Number of Shares
     Outstanding at September 30, 2001                                       2,630,864
          Exercised                                                           (313,781)
          Granted                                                               91,490
          Canceled/Expired                                                     (30,314)
                                                                             ---------
     Outstanding at March 31, 2002                                           2,378,259
                                                                             =========

3.  Continued Dumping and Subsidy Offset Act of 2000

On October 28, 2000, the U.S. government enacted the "Continued Dumping and
Subsidy Offset Act of 2000" (the "Act") which provides that assessed
anti-dumping and subsidy duties liquidated by the Department of Commerce after
October 1, 2000 will be distributed to affected domestic producers. Accordingly,
in late December, AIPC received payment from the Department of Commerce of $7.6
million as the Company's calculated share, based on tariffs liquidated by the
government from October 1, 2000 to September 30, 2001 on Italian and Turkish
imported pasta.

According to Congressional documents, these payments to affected U.S. producers
are for the purpose of maintaining jobs and investments that might be affected
through unfair trade practices, and to offset revenues lost through foreign
companies' dumping practices and foreign governments' subsidy practices. There
are no specific requirements on how the funds are to be used by the Company
other than the funds are intended to benefit future periods. As such, the
Company used a significant portion to increase investment in long-term brand
building activities (for example, slotting to expand or recapture distribution;
cooperative advertising and consumer promotion reinforcing the long-term quality
tradition of the Company's brands), and continued strengthening of the Company's
organization.

The Company is recognizing the receipt ratably over the current fiscal year
which patterns the program year under which the payment was received.
Accordingly, during the first six months of 2002, the Company recognized $3.8
million of retail revenue, which equals 50% of the $7.6 million payment
received. The Company expects to recognize an additional 25%, or $1.9 million,
in each of the next two quarters of the fiscal year.

It is the Company's understanding that procedures will be established by U.S.
Customs to recover potential overpayments under this program to U.S. producers.
Overpayments may be recovered by U.S. Customs for a number of reasons up to one
year after payment is made. The Company has not received any claims of
overpayment.

At this time, indications are that the Company may receive additional payments
under this Act in subsequent years, along with others in the industry. It is not
possible to reasonably estimate the potential amount to be received in future
periods, or to state with certainty whether any payment will be received at all.


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 our management, as of
the date of this Quarterly Report, including assumptions about risks and
uncertainties faced by AIPC. 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, our actual results could
materially differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors, including but not limited
to, our dependence on a limited number of customers for a substantial portion of
our revenue, our ability to manage rapid growth, our ability to obtain necessary
raw materials and minimize fluctuations in raw material prices, the impact of
the highly competitive environment in which we operate, reliance exclusively on
a single product category, our limited experience in the branded retail pasta
business, our ability to attract and retain key personnel, our ability to
cost-effectively transport our products and the significant risks inherent in
our recent international expansion. For additional discussion of the principal
factors that could cause actual results to be materially different, refer to our
Annual Report on Form 10-K dated December 19, 2001, filed by the Company with
the Securities and Exchange Commission (Commission File No. 001-13403), any
amendments thereto and other matters disclosed in the Company's other public
filings. 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. We
will not update any forward-looking statements in this Quarterly Report to
reflect future events or developments.

Results of Operations

General

     Markets. We are the largest producer and one of the fastest-growing
marketers of dry pasta in North America. We produce and sell our pasta products
from three plants in the United States and one plant in Italy.

     Our customers are generally separated into two groups: Retail, which
includes our own product brands (e.g. Mueller's, Anthony's, Globe/A-1, Luxury,
Mrs. Grass, Pennsylvania Dutch, R & F, and Ronco), and our private label
business and comprised 73.6% and 74.9% of revenue for the three and six month
periods ended March 31, 2002, respectively; and Institutional, which includes
ingredient, food service and contract, and comprised 26.4% and 25.1% of revenue
for the three and six month periods ended March 31, 2002, respectively.

     Costs. Our primary costs are durum wheat, packaging materials, labor, and
selling and marketing (personnel, trade spending). Durum wheat is a cash crop,
the average monthly market price of which fluctuates. We manage our durum wheat
cost risk through cost pass-through mechanisms and other arrangements with our
customers and advance purchase contracts which are generally less than twelve
months' duration. Our labor costs remain relatively stable, but are declining as
a percentage of revenue.

     Selling and marketing costs have increased substantially over the last two
years in line with the significant expansion of our Retail business. These costs
increased 114.4% from FY1999 through FY2001, increasing from $14.9 million to
$31.8 million over this three-year period, and constituted 14.3% of revenues for
the six months ended March 31, 2002. We expect to continue to increase our
selling and marketing expenditures although not at the rate seen through FY
2001, because we have substantially completed the development of the selling and
marketing infrastructure needed to support our branded business. We expect
selling and marketing expense to exceed 10% of revenues for the foreseeable
future.

      Brand Acquisitions. In November 2000, we purchased the Mueller's
pasta brand from Bestfoods. In July 2001, we purchased seven pasta brands from
Borden Foods. As discussed below, the timing of these brand acquisitions had an
impact on the period to period comparisons.


Second quarter fiscal 2002 compared to second quarter fiscal 2001.

     Revenues. Total revenues increased $19.8 million, or 26.4%, to $94.8
million for the three-month period ended March 31, 2002, from $75.0 million for
the three-month period ended March 31, 2001. The increase for the three-month
period ended March 31, 2002 was primarily due to higher volume due to the
acquisitions along with strong organic volume growth. In addition to volume
growth, average prices were higher primarily due to the brand acquisitions. Also
included in Retail revenue is $1.9 million, which represents 25% of the $7.6
million Department of Commerce payment received in December 2001 (see Note 3 to
the Consolidated Financial Statements).

     Revenues for the Retail market increased $17.4 million, or 33.2%, to $69.8
million for the three-month period ended March 31, 2002, from $52.4 million for
the three-month period ended March 31, 2001. The increase

primarily reflects volume growth of 21.3%, much of which came from the brand
acquisitions, and the higher per unit selling prices of the acquired brands.

     Revenues for the Institutional market increased $2.4 million, or 10.7%, to
$25.0 million for the three-month period ended March 31, 2002, from $22.6
million for the three-month period ended March 31, 2001. This increase was
primarily a result of ingredient volume growth of 12.3%, along with growth in
our food service business, partially offset by lower contract volumes.

     Gross Profit. Gross profit increased $10.3 million, or 44.2%, to $33.7
million for the three-month period ended March 31, 2002, from $23.4 million for
the three-month period ended March 31, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, the gross margin
benefited from lower manufacturing costs and slightly lower durum costs. Gross
profit as a percentage of revenues increased to 35.6% for the three-month period
ended March 31, 2002 from 31.2% for the three-month period ended March 31, 2001.
The increase in gross profit as a percentage of revenues relates to incremental
gross profit on branded products subsequent to the acquisitions. For the
remainder of the 2002 year, we expect year-over-year increases in gross profit
to continue as a result of the brand acquisitions.

     Selling and Marketing Expense. Selling and marketing expense increased $5.8
million, or 82.9%, to $12.8 million for the three-month period ended March 31,
2002, from $7.0 million for the three-month period ended March 31, 2001. This
increase was primarily due to higher marketing costs associated with higher
retail revenues, as well as the incremental marketing and personnel costs
associated with the brand acquisitions. Selling and marketing expense as a
percentage of revenues increased to 13.5% for the three-month period ended March
31, 2002, from 9.4% for the comparable prior year period. Going forward, we
expect selling and marketing expenses to exceed 10% of net revenues due to the
additional promotional support dedicated to the branded business.

     General and Administrative Expense. General and administrative expenses
increased $0.6 million, or 25.3% to $3.2 million for the three-month period
ended March 31, 2002 from $2.6 million for the three-month period ended March
31, 2001. General and administrative expense as a percentage of revenues
remained relatively the same at 3.4%. The majority of the increase relates to
personnel costs associated with the acquired brands.

     Operating Profit. Operating profit for the three-month period ended March
31, 2002, was $17.7 million, an increase of $3.9 million or 28.0% over the $13.8
million reported for the three-month period ended March 31, 2001, and increased
as a percentage of revenues to 18.6% for the three-month period ended March 31,
2002, from 18.4% for the three-month period ended March 31, 2001 as a result of
the factors discussed above.

     Interest Expense. Interest expense for the three-month period ended March
31, 2002, was $2.4 million, increasing $0.3 million or 16.8% from the $2.1
million reported for the three-month period ended March 31, 2001. The increase
related to borrowings associated with the brand acquisitions and capital
expenditures, offset by lower interest rates in the current year.

     Income Tax. Income tax expense for the three-month period ended March 31,
2002, was $5.2 million, comparable to the $4.0 million reported for the
three-month period ended March 31, 2001, and reflects effective income tax rates
of approximately 34.0% and 34.5%, respectively.

     Net Income. Net income for the three-month period ended March 31, 2002, was
$10.1 million, increasing $2.4 million or 30.8% from the $7.7 million reported
for the three-month period ended March 31, 2001. Diluted earnings

per share was $0.54 per share for the three-month period ended March 31, 2002,
an increase of 28.6% over the prior year quarter of $0.42 per share.

Six months fiscal 2002 compared to six months fiscal 2001.

     Revenues. Revenues increased $45.4 million, or 32.1%, to $186.8 million for
the six-month period ended March 31, 2002, from $141.4 million for the six-month
period ended March 31, 2001. The increase for the six-month period ended March
31, 2002 was primarily due to higher volume due to the acquisitions along with
strong organic growth. Volumes were up 25.4% over the prior year period. Volume
growth was led by private label (26.2%) and ingredient (18.4%). In addition to
volume growth, average prices were higher primarily due to the brand
acquisitions. Also included in Retail revenue is $3.8 million, which represents
50% of the $7.6 million Department of Commerce payment received in December 2001
(see Note 3 to the Consolidated Financial Statements).

     Revenues for the Retail market increased $39.4 million, or 39.3%, to $139.9
million for the six-month period ended March 31, 2002, from $100.5 million for
the six-month period ended March 31, 2001. The increase primarily reflects
volume growth of 30.3%, much of which came from the brand acquisitions, and the
higher per unit selling prices of the acquired brands.

     Revenues for the Institutional market increased $6.0 million, or 14.6%, to
$46.9 million for the six-month period ended March 31, 2002, from $41.0 million
for the six-month period ended March 31, 2001. This increase was primarily due
to volume growth in the ingredient market of 18.4% offset by lower contract
volumes.

     Gross Profit. Gross profit increased $24.1 million, or 56.7%, to $66.6
million for the six-month period ended March 31, 2002, from $42.5 million for
the six-month period ended March 31, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, gross margin
benefited from lower manufacturing costs. Gross profit as a percentage of
revenues increased to 35.6% for the six-month period ended March 31, 2002, from
30.0% for the six-month period ended March 31, 2001. The increase in gross
profit as a percentage of revenues relates to incremental gross profit on our
branded products subsequent to the acquisitions. For the remainder of the 2002
year, we expect year-over-year increases in gross profit to continue as a result
of our brand acquisitions.

     Selling and Marketing Expense. Selling and marketing expense increased
$14.1 million, or 112.1%, to $26.6 million for the six-month period ended March
31, 2002, from $12.6 million for the six-month period ended March 31, 2001.
Selling and marketing expense as a percentage of revenues increased to 14.3% for
the six-month period ended March 31, 2002, from 8.9% for the comparable prior
year period. This increase was primarily due to higher marketing costs
associated with higher retail revenues as well as incremental marketing and
personnel costs associated with the brand acquisitions. Going forward, we expect
selling and marketing expenses to exceed 10% of net revenues due to the
additional promotional support dedicated to the branded business.

     General and Administrative Expense. General and administrative expense
increased $1.4 million, or 30.4%, to $6.2 million for the six-month period ended
March 31, 2002, from $4.7 million for the comparable prior period, and remained
relatively the same as a percentage of revenues at 3.3% and 3.4% for the
six-month periods ended March 31, 2002 and 2001, respectively. The majority of
the increase relates to personnel costs associated with the brand acquisitions.

     Provision for Acquisition Related Expenses. The provision for acquisition
related expenses of $1.8 million for the six-month period ended March 31, 2001
consisted of one-time costs associated with the Mueller's brand acquisition.

     Operating Profit. Operating profit for the six-month period ended March 31,
2002, was $33.7 million, an increase of $10.4 million or 44.5% over the $23.3
million reported for the six-month period ended March 31, 2001, and increased as
a percentage of revenues to 18.1% for the six-month period ended March 31, 2002,
from 16.5% for the six-month period ended March 31, 2001 as a result of the
factors discussed above. Excluding the impact of the $1.8 million charge for
acquisition-related costs, operating profit for the prior six-month period
totaled $25.2 million. Operating profit as a percentage of net revenues,
excluding the non-recurring charge, was 17.8% versus 18.1% in the current year.

     Interest Expense. Interest expense for the six-month period ended March 31,
2002, was $5.0 million, increasing $1.4 million or 38.2% from the $3.6 million
reported for the six-month period ended March 31, 2001. The increase related to
borrowings associated with the brand acquisitions and capital expenditures,
offset by lower interest rates in the current year.

     Income Tax. Income tax expense for the six-month period ended March 31,
2002, was $9.8 million, increasing $3.0 million from the $6.8 million reported
for the six-month period ended March 31, 2001, and reflects effective income tax
rates of approximately 34.2% and 34.5%, respectively.

     Net Income. Net income for the six-month period ended March 31, 2002, was
$18.9 million, increasing $6.0 million or approximately 46.2% from the $12.9
million reported for the six months ended March 31, 2001. Excluding the impact
of the $1.8 million charge for non-recurring acquisition costs, net income for
the six months ended March 31, 2001, totaled $14.1 million. Diluted earnings per
common share were $1.02 per share for the six-month period ended March 31, 2002
compared to $0.72 per share for the six-month period ended March 31, 2001.
Excluding the impact of the $1.8 million charge for non-recurring acquisition
costs, diluted earnings per common share were $0.79, and net income as a
percentage of net revenue was 10.0% versus 10.1% in the current year.

Financial Condition and Liquidity

     Our primary sources of liquidity are cash provided by operations and
borrowings under our credit facility. Cash and temporary investments totaled
$4.7 million, and working capital totaled $62.9 million at March 31, 2002.

     Our net cash provided by operating activities totaled $25.2 million for the
six-month period ended March 31, 2002 compared to $29.2 million for the
six-month period ended March 31, 2001. The decrease in the net cash provided by
operations is due to higher working capital requirements, offset by an increase
in net income before non-cash charges.

     Cash used in investing activities principally relates to our investments in
manufacturing, distribution and milling assets. Capital expenditures were $29.6
million for the six-month period ended March 31, 2002 compared to $17.0 million
in the comparable prior year period. The primary increase was related to capital
expenditures for our new Arizona manufacturing facility. The total cost of this
facility is expected to be approximately $45 million, and will be completed in
early fiscal 2003. In addition to the new Arizona facility, we plan to spend
approximately $10 million in the remainder of fiscal year 2002, primarily for
cost savings projects, maintenance projects, and capacity

expansion projects. We anticipate completion of these projects during the fiscal
year ending September 30, 2002.

     Net cash provided by financing activities was $3.9 million for the
six-month period ended March 31, 2002 compared to $18.0 million for the
six-month period ended March 31, 2001. In the prior year, borrowings under our
revolver increased by $20.0 million to fund the Mueller's pasta brand purchase
and the purchase of treasury stock.

     We currently use cash from operations and borrowings to fund capital
expenditures, repayments of debt and working capital requirements. We expect
that future cash requirements will principally be for capital expenditures,
repayments of indebtedness and working capital requirements.

     We have current commitments for $27.9 million in raw material purchases for
fiscal years 2002 and 2003. Additionally, we have approximately $52.0 million,
including the new Arizona facility, in expenditures remaining under our current
capital expenditure programs. Included in this total, is $42 million for the
Arizona facility, which is expected to be spent over the remainder of fiscal
2002 and early in fiscal 2003. We expect to fund these commitments from
operations and borrowings under our credit facility. The credit facility
currently has available a credit of approximately $80 million. At this time, the
current and projected borrowings under the credit facility do not exceed the
facility's available commitment. The facility matures on October 2, 2006. We
currently have no other material commitments.

     We believe that net cash provided by operating and financing activities
will be sufficient to meet our expected capital and liquidity needs for the
foreseeable future.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our principal exposure to market risk associated with financial instruments
relates to interest rate risk associated with variable rate borrowings and
foreign currency exchange rate risk associated with borrowings denominated in
foreign currency. We occasionally utilize simple derivative instruments such as
interest rate swaps to manage our mix of fixed and floating rate debt. We had
various fixed interest rate swap agreements with notional amounts of $145
million outstanding at March 31, 2002. The estimated fair value of the interest
rate swap agreements of $(508,000) is the amount we would be required to pay to
terminate the swap agreements at March 31, 2002. If interest rates for our
long-term debt under our credit facility had averaged 10% more and the full
amount available under our credit facility had been outstanding for the entire
year, our interest expense would have increased, and income before taxes would
have decreased by $0.6 million for the quarter ended March 31, 2002. We hedge
our net investment in our foreign subsidiaries with euro borrowings under our
credit facility. Changes in the U.S. dollar equivalent of euro-based borrowings
are recorded as a component of the net translation adjustment in the
consolidated statement of stockholders' equity.

     The functional currency for our Italy operation is the Euro. At March 31,
2002, long-term debt includes obligations of 63.3 million Euros ($55.0 million)
under a credit facility which bears interest at a variable rate based upon the
Euribor rate.

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
- -------------------------------
                  The Annual Meeting of Shareholders was held on February 6, 2002.

                  There were two matters submitted to a vote of security
                  holders. The first matter was for the election of directors.
                  Each of the persons named in the Proxy Statement as a nominee
                  for director was elected. Following are the voting results on
                  each of the nominees for director:

                      Election of Directors                   Votes For                 Votes Withheld
                           Jonathan E. Baum                   16,089,038                111,523
                           Robert H. Niehaus                  16,140,270                 60,291
                           Richard C. Thompson                16,140,639                 59,922

                  The following directors continued in office:

                      Serving Until 2003                        Serving Until 2004
                           Horst W. Schroeder                      Tim M. Pollak
                           Mark C. Demetree                        John P. O'Brien
                           Timothy S. Webster                      William R. Patterson
                           James A. Heeter

                  The second matter was the ratification of the Board of
                  Directors' selection of Ernst & Young LLP to serve as the
                  Company's independent auditors for the fiscal year 2002. The
                  shareholders cast 16,099,689 votes in the affirmative and
                  88,797 votes in the negative and shareholders holding 12,075
                  votes abstained from voting on the ratification of Ernst &
                  Young LLP as the Company's independent auditors for the fiscal
                  year 2002.

Item 5.    Other Information
- -------------------------------
           Not applicable


Item 6.    Exhibits and Reports on Form 8-K
- -------------------------------
           (a)      Exhibits.

                    10. Letter Agreement among American Italian Pasta Company
                    and Bay State Milling Company dated March 28, 2002. (We have
                    omitted certain information from the Agreement and filed it
                    separately with the Securities and Exchange Commission
                    pursuant to our request for confidential treatment under
                    Rule 24b-2. We have identified the omitted confidential
                    information by the following statement, "Confidential
                    portions of material have been omitted and filed separately
                    with the Securities and Exchange Commission," as indicated
                    throughout the document with an asterisk in brackets
                    ([*])).

           (b)      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



May 6, 2002                         /s/ Timothy S. Webster
- ---------------------------         ----------------------------------------------------
Date                                Timothy S. Webster
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)



May 6, 2002                         /s/ Warren B. Schmidgall
- ---------------------------         ----------------------------------------------------
Date                                Warren B. Schmidgall
                                    Executive Vice President and Chief Financial
                                    Officer
                                    (Principal Financial and Accounting Officer)

                                  EXHIBIT INDEX


Exhibit No.         Description
- -----------         -----------------------------------------------------

10.                 Letter Agreement among American Italian Pasta Company and
                    Bay State Milling Company dated March 28, 2002. (We have
                    omitted certain information from the Agreement and filed it
                    separately with the Securities and Exchange Commission
                    pursuant to our request for confidential treatment under
                    Rule 24b-2. We have identified the omitted confidential
                    information by the following statement, "Confidential
                    portions of material have been omitted and filed separately
                    with the Securities and Exchange Commission," as indicated
                    throughout the document with an asterisk in brackets
                    ([*])).

EX-10

Exhibit 10

CONFIDENTIAL PORTIONS OF MATERIAL HAVE BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.  THE REDACTED MATERIAL HAS BEEN
INDICATED WITH AN ASTERISK IN BRACKETS ([*]). 


                            BAY STATE MILLING COMPANY
                                CORPORATE OFFICES
                 100 CONGRESS STREET QUINCY, MASSACHUSETTS 02169


                                  March 28, 2002


American Italian Pasta Company
4100 N. Mulberry Drive, Suite 200
Kansas City, MO  64116

Gentlemen:

     This letter sets forth the terms and conditions upon which Bay State
Milling Company, a Minnesota corporation ("Bay State"), will sell to American
Italian Pasta Company, a Delaware corporation, or its affiliates, ("AIPC"), and
AIPC will purchase from Bay State, AIPC's requirements of semolina flour and
other durum flour products for AIPC's pasta production plant to be located in
the southwestern region of the United States (the "Pasta Plant") from Bay
State's flour mill located in Tolleson, Arizona (the "Mill," and such purchase
and sale arrangement, the "Supply Arrangement). The parties shall execute a
definitive agreement (the "Supply Agreement") containing the final terms and
conditions of the Supply Arrangement, and addressing the following:

     1. Requirements. Bay State shall sell to AIPC, and AIPC shall
purchase from Bay State, at least 80% of AIPC's entire requirements of the durum
flours listed on Schedule A hereto (the "Products") for the Pasta Plant
during each year of the term of the Supply Agreement. Notwithstanding the
foregoing, in no event shall the aggregate amount of Products purchased by AIPC
and sold by Bay State in any one-year period during the term of the Supply
Agreement (each one-year period being a "Fiscal Year" commencing on October 1 of
each year) be less than 50 million pounds for such Fiscal Year; provided,
however, that AIPC shall not be subject to the foregoing purchase volume
requirement during the period commencing on the date that AIPC begins pasta
production at the Pasta Plant and ending on September 30, 2003. In the event
that the aggregate amount of Products purchased by AIPC during any Fiscal Year
is less than 50 million pounds, AIPC shall make payment to Bay State, at the end
of such Fiscal Year, in an amount equal to the product of (i) the difference, in
100 cwts, between (A) 50 million pounds and (B) the actual number of pounds of
Products purchased by AIPC during such Fiscal Year multiplied by (ii) the
milling conversion in effect for such Fiscal Year.

     2. Term. The initial term of the Supply Agreement shall be for a
period of ten (10) years (the "Initial Term") commencing on the effective date
of the Supply Agreement and, thereafter, the Supply Agreement shall
automatically renew for additional five-year terms unless either of the parties
shall have delivered written notice of termination to the other party not less
than two (2) years prior to the expiration of any term; provided,
however, that in the event the

                                       1

production capacity of the Mill is expanded in accordance with the provisions of
Section 8 below, a new Initial Term of 10 years shall commence on the date on
which Bay State commences improvements on the Mill.

     3. Pricing. The purchase price of the Products shall be calculated
in accordance with the formulas set forth on Schedule B hereto. In
calculating the purchase price of any Products, the following terms shall apply:


          (a) All purchase prices shall be calculated on the basis of the (i)
          actual costs of the wheat grain, including any cost incurred by Bay
          State to transport the wheat grain to the Mill, (ii) actual purchased
          product enrichment material costs (iii) by-product sales values in
          effect at the time of determination of the selling price of the
          semolina flour and (iv) the milling conversion which shall be
          comprised of the operating costs, including manufacturing costs and
          overhead, of the Mill and the profit to be earned on the sale of the
          Products to AIPC.

          (b) In calculating the purchase price, the actual flour extraction
          rates and moisture gains achieved in the milling of the wheat, as
          determined on a quarterly basis, will be used; provided, that the
          aggregate flour extraction rate in any quarter shall not be less than
          78%, consisting of 72% semolina flour and 6% clear flours. The flour
          extraction rates and moisture gains for each quarter during the term
          of the Supply Agreement, except for the first quarter for which the
          extraction rates and moisture gains shall be agreed by the parties and
          set forth in the Supply Agreement, shall be determined by Bay State
          and AIPC at the end of the previous quarter based on the extraction
          rates and moisture gains actually achieved during such previous
          quarter. Bay State and AIPC shall cooperate to maximize yields and
          efficiencies of the milling process in an effort to achieve an
          aggregate flour extraction rate of at least 80%, consisting of 75%
          semolina flour, 2% 1st Clear flour and 3% 2nd Clear flour; provided,
          that AIPC will not be obligated to pay any costs or make any
          investments with regard to the foregoing. Bay State's obligation to
          meet the extraction rates set forth in this Section 3(b) shall be
          subject to the provisions of Section 24 hereof.

          (c) For the first two (2) years of the term of the Supply Agreement
          the "milling conversion" shall be fixed as follows:

               (i) if the quantity of Products to be purchased during a one-year
               period is equal to or greater than [*] million pounds and less
               than [*] million pounds, the milling conversion shall be [*] per
               cwt for such one-year period; and

               (ii) if the quantity of Products to be purchased during a
               one-year period is equal to or greater than [*] million pounds
               and AIPC has complied with the requirements of Section 8(b)
               below, the milling conversion shall be [*] per cwt for such
               one-year period.


                                      2

          The milling conversion shall be determined at the commencement of each
          Fiscal Year during the term of the Supply Agreement in accordance with
          procedures established by the parties and set forth in the Supply
          Agreement. Notwithstanding the foregoing, the milling conversion shall
          be reduced to [*] per cwt following the three consecutive month period
          in which the amount of Products purchased by AIPC reaches a minimum of
          [*] pounds per month and shall remain at [*] thereafter for so long as
          the monthly purchase volume does not fall below the minimum amount
          necessary to satisfy the annual requirement of [*] million pounds set
          forth in paragraph (ii) above.

          For the third year of the term of the Supply Agreement and for each
          year of the term of the Supply Agreement thereafter (the "Remaining
          Term"), the mill operating costs component (which component totals [*]
          per 100 cwt and consists of the following costs: durum mill
          processing, operating supplies, maintenance, elevator operations,
          power and utility costs, durum laboratory and sampling, and specific
          durum administrative costs) of the milling conversions set forth in
          paragraphs (i) and (ii) of this subsection (c) shall be subject to
          yearly adjustment based on changes in the Producer Price Index for the
          industry in the SIC Code 2041 (Flour and other Grain Mill Products)
          (the "Producer Price Index"), which adjustment shall equal the lesser
          of (i) the actual percentage increase in the Producer Price Index for
          the previous Fiscal Year and (ii) [*]. For each Fiscal Year during the
          Remaining Term, the amount of the adjustment on the [*] mill operating
          costs component, as determined in accordance with the previous
          sentence, shall be added to the milling conversions set forth in
          paragraphs (i) and (ii) of this subsection (c) and the result shall be
          the applicable milling conversions for such Fiscal Year.

          In connection with the foregoing, AIPC shall have the right to review
          the books, records and other data relating solely to the operation of
          the Mill in order to accurately calculate appropriate adjustments.

          (d) The weight of the Products delivered to AIPC and used in the
          pricing calculation shall be determined at the time of delivery to
          AIPC at the Pasta Plant and agreed by the parties, taking into
          account, among other factors, moisture variances occurring in
          connection with delivery by pipeline as described below. AIPC shall
          provide Bay State access to the Pasta Plant to inspect the scaling
          equipment located at the Pasta Plant and deliver to Bay State such
          evidence of the accuracy of such equipment, including, but not limited
          to, copies of inspection certificates, as Bay State may reasonably
          request. Bay State anticipates moisture losses to be incurred in the
          delivery of the Products to AIPC by pipeline transfer, and to the
          extent that variances in the weight of the Products as determined by
          Bay State's transfer scales and AIPC's receiving scales can be
          attributed to losses in moisture, then the amount of such moisture
          loss will be included in the measurement of moisture gains and flour
          extraction rates set forth in Section 3(b) and the Schedule B pricing
          formula. AIPC shall provide Bay State with access to

                                       3

          AIPC's records for the Pasta Plant for the purpose of monitoring and
          coordinating delivery of and payment for the Products.

     4. Product Specifications. All flour purchased by AIPC pursuant to the
Supply Agreement shall be merchantable, fit for its intended use, meet all
applicable federal and state quality standards and will comply with the
specifications set forth on Schedule A (collectively, the "Product
Specifications"). AIPC and Bay State will cooperate and work together to
purchase the most appropriate wheat on the most economically desirable terms in
order to meet the Product Specification; provided, however, that in order to
meet the flour extraction rates and moisture gains set forth in Section 3(b) and
in the Schedule B pricing formulas, all wheat used by Bay State for purposes of
producing flour pursuant to the Supply Arrangement must comply with the wheat
specifications set forth in the Supply Agreement. The grain and flour
specifications set forth in the Supply Agreement may be modified from time to
time, upon receipt of written consent from AIPC, which consent shall not be
unreasonably withheld, based upon crop and market conditions. Bay State may
reject any incoming product used to produce the Products, from whatever source,
if such product does not meet, or would prevent Bay State from producing flour
that meets, the agreed Product Specifications, and any such rejection shall not
result in liability of Bay State or constitute, by itself, a failure by Bay
State to perform its obligations under the Supply Agreement.

     5. Payment. AIPC shall pay Bay State for purchased Products on a weekly
basis by wire transfer of immediately available funds. Payment pursuant to this
Section shall be made against receipt of invoices from Bay State.

     6. Flour Delivery.

          (a) Delivery by truck or railroad. Sale and delivery of any Product
          purchased by AIPC shall be FOB the Mill. If Bay State is required to
          deliver the Products to the Pasta Plant by any means other than a
          pipeline between the Mill and the Pasta Plant, and the inability to
          use the pipeline is not due to an act or omission of Bay State, Bay
          State shall arrange for delivery and AIPC shall pay all costs of such
          delivery.

          (b) Delivery by pipeline. If the Pasta Plant is located in close
          enough proximity to the Mill to permit the Products to be delivered to
          the Pasta Plant by a pipeline, Bay State will cooperate with engineers
          chosen by AIPC, and consented to in writing by Bay State, to design
          and construct such a pipeline. The costs of constructing the pipeline
          shall be paid by Bay State. In addition, Bay State shall purchase all
          equipment, and pay for the installation of such equipment, required to
          enable the delivery of the Products through the pipeline to the point
          of first receipt at the Pasta Plant. Bay State shall maintain the
          pipeline in good working condition during the term of the Supply
          Agreement. The cost incurred by Bay State to construct the pipeline
          shall be treated as a capital investment in the Mill and included in
          the calculation of the purchase price of the Mill in accordance

                                       4

          with the formula set forth on Schedule C hereto. If the Products are
          delivered by pipeline, the delivery shall be FOB the Pasta Plant.

          7. Right of First Refusal.


               (a) AIPC shall have the option to purchase the Mill (the "AIPC
               Option"), at a purchase price determined in accordance with the
               formula set forth on Schedule C hereto, upon the occurrence of
               any of the following events: (i) Bay State enters into an
               agreement with respect to the sale of the Mill with any third
               party, (ii) a sale of all, or substantially all of the assets of
               Bay State or the acquisition by a third party of more than 50% of
               the outstanding voting capital stock of Bay State, (iii) the
               entry by a court having jurisdiction in the premises of a decree
               or order for relief in respect of Bay State in an involuntary
               case under any bankruptcy laws and such decree or order shall
               remain unstayed and in effect for a period of 90 consecutive
               days, (iv) the commencement by Bay State of a voluntary
               proceeding under any bankruptcy laws and (v) Bay State's material
               and continuing failure to observe and perform certain production
               and operational covenants and requirements as set forth in the
               Supply Agreement. The Supply Agreement shall contain notice and
               procedure provisions governing the exercise of the AIPC Option,
               including provision for Bay State's right to remedy any failure
               to observe or perform the applicable production and operational
               covenants and requirements set forth in the Supply Agreement, or
               to make provision for complying with the pertinent provision,
               during the applicable time period set forth in the Supply
               Agreement. The Supply Agreement shall also provide that in
               connection with a sale of the Mill to AIPC, the instrument
               governing such sale shall contain a legal description of the
               Mill, including all expansions and additions made thereto, and
               shall require Bay State to obtain a title survey and provide all
               appropriate warranties of title with respect to the Mill.

               In the event that AIPC does not exercise the AIPC Option upon
               occurrence of the event specified in item (i) above, as a
               condition to the sale of the Mill to a third party, the purchaser
               shall be assigned and shall assume, expressly by written
               instrument, the obligations of Bay State under the Supply
               Agreement or, alternatively, execute a written flour supply
               agreement with AIPC on terms and conditions substantially similar
               to those set forth in the Supply Agreement and having a minimum
               term equivalent to the then remaining term of the Supply
               Agreement.

               (b) In the event that AIPC receives a bona fide offer from any
               third party to purchase the Pasta Plant, the purchaser of the
               Pasta Plant shall, as a condition to the sale of the Pasta Plant,
               be assigned and shall assume, expressly by written instrument,
               the obligations of AIPC under the Supply Agreement or,
               alternatively, execute a written flour supply agreement with Bay
               State on terms and conditions substantially similar to those set
               forth in the Supply Agreement and having a minimum term
               equivalent to the then remaining term of the Supply Agreement.

                                       5

               The Supply Agreement shall contain notice and procedure
               requirements governing this provision.

     8. Expansion.


          (a) Pasta Plant. The parties acknowledge and agree that AIPC may
          increase the production at the Pasta Plant during the term of the
          Supply Agreement and, provided all conditions precedent and covenants
          of AIPC are satisfied, Bay State agrees to increase its production
          capacity at the Mill in order to meet AIPC's flour requirements at the
          Pasta Plant in accordance with the provisions of Section 8(b) below.
          AIPC anticipates an expansion of the production at the Pasta Plant
          during the Initial Term that may result in an increase in AIPC's flour
          requirements at the Pasta Plant of up to [*] million pounds of flour
          annually. The parties acknowledge and agree that the production at the
          Pasta Plant may be further expanded such that AIPC's requirements
          during the term of the Supply Agreement may exceed [*] million pounds
          of flour annually.

          (b) Mill. In the event that AIPC increases its flour needs at the
          Pasta Plant as provided in Section 8(a) above, Bay State shall make,
          upon the consent of AIPC as to placement and land use, which consent
          shall not be unreasonable withheld or delayed, all improvements to the
          Mill that Bay State deems necessary to continue to meet AIPC's flour
          requirements at the Pasta Plant pursuant to the terms of the Supply
          Agreement; provided, however, that:

               (i) at such time as AIPC has increased the production
               capabilities of the Pasta Plant such that its product
               requirements are equal to or in excess of [*] million pounds
               annually, and Bay State has completed all necessary improvements
               to the Mill to accommodate AIPC's increased demand for Products,
               AIPC shall purchase at least [*] million pounds of Products
               annually; and

               (ii) if AIPC anticipates that its annual requirements for
               Products will increase above [*] million pounds annually, then
               AIPC shall provide Bay State with written notice of its
               additional flour requirements at least twelve (12) months prior
               to such increased need in order to allow Bay State sufficient
               time to complete any necessary milling expansion.

          If AIPC has failed to respond to a Bay State proposal for improvements
          to the Mill within ten (10) business days following receipt by AIPC of
          such proposal, such failure to respond shall be deemed to be consent
          by AIPC to the proposal.

          In connection with any improvements made to the Mill in accordance
          with this Section 8, the Initial Term shall be adjusted as provided in
          the proviso of the first sentence of Section 2 above.

                                       6

          In order to make improvements to meet AIPC's anticipated flour
          requirements at the Pasta Plant of up to [*] million pounds of flour
          annually, Bay State acknowledges that it has and will be capable of
          providing adequate land for all necessary improvements to the Mill and
          a grain elevator and truck pit with a capacity of at least one million
          bushels.

          If Bay State is not able to complete improvements made to the Mill in
          accordance with the provisions of paragraph (b) above in time to
          satisfy AIPC's additional flour requirements, Bay State shall,
          provided that AIPC has complied with the requirements of this Section
          8, arrange for the supply of additional Products sufficient to meet
          AIPC's flour requirements, at Bay State's expense, until such time as
          Bay State is capable of satisfying AIPC's flour requirements directly
          from the Mill.

          Additionally, the parties shall discuss and agree on the most
          appropriate means to accomplish the desired milling expansion,
          including, satisfying future flour requirements as such requirements
          are then known, and the capital needs to effect such growth. If,
          following these discussions, its is agreed that Bay State engages in
          and performs milling expansions that cause it to construct an
          additional durum milling unit, including buildings that necessitate an
          investment greater than [*] million, and if, following such expansion,
          AIPC's annual flour requirement falls below [*] of the then combined
          durum milling units' capacity, then the conversion price shall be
          increased by [*] per cwt in order to defray a portion of the financing
          costs of such expansion. This adjustment of the conversion price will
          end at the time AIPC's annual flour requirement exceeds [*] of the
          combined milling units' capacity; provided, however, that if AIPC's
          annual flour requirement remains below [*] of the combined durum
          milling units' capacity during any consecutive two years following
          completion of the milling expansions described above, then the
          conversion price will be increased by an additional [*] per cwt, for a
          total increase of [*] per cwt (the "Conversion Increase"), and the
          Conversion Increase shall remain in effect until such time as AIPC's
          annual flour requirement increases to at least the minimum monthly
          purchase volume necessary to satisfy the annual requirement of [*] of
          the combined durum milling units' capacity level for a period of three
          consecutive months.

     9. 99th Avenue Access. If AIPC purchases the "Borden" property (the
"Borden Parcel") which is contiguous to and immediately south of the Mill
property, Bay State agrees to allow AIPC perpetual access to, and egress from,
the Borden Parcel property by means of Bay State's entrance road from 99th
Avenue along the south perimeter of Bay State's Mill property via three access
driveway points along the northern perimeter of the Borden Property as shown on
the plan attached to Schedule D hereto. Such access shall be granted pursuant to
a separate license agreement (the "Access Agreement") between Bay State and AIPC
consistent with the terms of this Section 9 and otherwise reasonably acceptable
to Bay State and AIPC. Without limitation, the Access Agreement will: (a)
require AIPC to pay a license fee of [*] to Bay State on June 15, 2003, in
consideration of the license granted pursuant to the Access Agreement; (b)
require AIPC to pay all costs associated with the construction, including any
landscaping, signage and roadway changes as may be required or approved by Bay
State to accommodate

                                       7

both companies' access and egress needs; (c) require AIPC to pay one-half of all
future maintenance costs of the roadway between 99th Avenue eastward to the
third entry point (i.e., the entry point furthest to the east) on the Borden
Parcel and require Bay State to pay the remaining one-half of all such future
maintenance costs; (d) require AIPC to carry insurance acceptable to Bay State;
(e) require AIPC to indemnify Bay State and any related entities against all
loss, cost and liability arising from the use of the road by AIPC and/or its
employees, agents, invitees, customers, suppliers and visitors; and (f) include
appropriate restrictions on, and procedures governing, use and security to
safeguard each company's business and property interests.

     10. Mill and Pasta Plant Access.

          (a) Upon reasonable prior notice to Bay State, AIPC and its invitees
          shall be entitled to access the Mill property and structures for
          reasonable purposes, including: (i) marketing purposes; and (ii)
          inspections by AIPC representatives.

          (b) Upon reasonable prior notice to AIPC, Bay State and its invitees
          shall be entitled to access the Pasta Plant property and structures
          for reasonable purposes, including: (i) marketing purposes; and (ii)
          inspections by Bay State representatives.

     11. Non-Competition. In connection with the Supply Arrangement, AIPC will
agree not to compete with Bay State's baking flour milling business or its durum
milling business in the State of Arizona during the term of the Supply
Agreement; provided, that AIPC will be entitled to purchase baking flours, if
necessary, from the supplier of its choice. In addition, Bay State will agree
not to compete with AIPC's pasta business during the term of the Supply
Agreement; provided, that Bay State will not be prohibited from selling to a
third party any Products produced at the Mill in excess of AIPC's requirements.

     12. Performance Requirements. The Supply Agreement shall contain
performance criteria for the Mill and the Products, including, but not limited
to, requirements as to quality of the Products and sanitation of the Mill, on
such terms and subject to such conditions as may be agreed by the parties.

     13. Recall. If there are product specification problems or recalls directly
arising from Bay State's performance or nonperformance of its obligations in
connection with the Products supplied by Bay State, Bay State shall be
responsible for all costs associated with remedying the problem.

     14. Meetings. Designated AIPC and Bay State site personnel shall meet with
such frequency as may be agreed upon by the parties and set forth in the Supply
Agreement, to discuss cooperation, performance, and coordination with respect to
the obligations of the parties under the Supply Agreement and product quality
goals.

                                       8

     15. Inventory.


          (a) Wheat Purchasing. Bay State, upon receipt of written approval for
          each purchase from AIPC, will purchase the durum wheat used to
          manufacture the Products. The Supply Agreement shall set forth the
          terms and conditions for purchasing the wheat.

          (b) Wheat Inventory. Bay State shall maintain, at no additional cost
          to AIPC, an inventory of [*] bushels of durum wheat at the Mill for
          the exclusive use by AIPC. All durum wheat maintained for the
          exclusive use of AIPC shall be segregated from the remainder of Bay
          State's inventory and shall not be stored in the grain elevators
          currently used to store Bay State's inventory. Bay State shall charge
          AIPC, and AIPC shall pay, the storage and interest costs, at
          prevailing market rates, for any wheat inventory stored at the Mill
          for the use of AIPC in excess of such [*] bushels. The parties
          acknowledge that, as of the date of this letter, the market rate in
          the State of Arizona for storage of wheat is [*] per bushel per month
          Bay State shall construct a separate grain elevator and truck pit with
          a capacity of at least one million bushels for AIPC's use.
          Construction of the grain elevator shall be completed on or before
          November 1, 2002, provided that all conditions precedent and covenants
          of AIPC set forth in the Supply Agreement have been satisfied at the
          time construction commences. The parties will agree upon the site for
          the placement of the grain elevator. The grain elevator shall be
          connected to the Mill. The cost incurred by Bay State to construct the
          grain elevator shall be treated as a capital investment in the Mill
          and included in the calculation of the purchase price of the Mill in
          accordance with the formula set forth on Schedule C hereto.

          (c) Outside Storage. In the event that Bay State deems it necessary to
          store wheat committed to or owned by AIPC, in excess of the [*]
          bushels addressed in (b) above, in a third party storage facility, and
          AIPC consents to such third party storage, all costs of such third
          party storage, including financing costs, storage fees, loading fees
          and excess freight costs, shall be paid by AIPC.

     16. Confidentiality. Each party hereby agrees to hold, and use its best
efforts to cause its respective officers, directors, employees, consultants,
agents and representatives (collectively, "Representatives") to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the business of the other party furnished to such receiving party in
connection with the Supply Arrangement, except to the extent that such
information can be shown by such receiving party to have been (i) at the time of
disclosure or thereafter, generally available to or known by the public other
than as a result of a disclosure by the such receiving party or any of its
Representatives; (ii) available to such receiving party on a nonconfidential
basis from a source other than the disclosing party or any of its
Representatives, provided that such source is not bound by a confidentiality
agreement with, or other contractual, legal or

                                       9

fiduciary obligation to, the disclosing party; or (iii) later lawfully acquired
by such receiving party from sources other than the disclosing party; provided,
that the receiving party may disclose such information to its Representatives in
connection with the Supply Arrangement so long as such Representatives are
informed by the receiving party of the confidential nature of such information
and are directed by the receiving party to treat such information
confidentially. Notwithstanding the foregoing, the receiving party may disclose
such confidential information of the disclosing party to (i) a lender in
connection with a financing transaction undertaken by the receiving party; or
(ii) a prospective buyer of either Bay State's or AIPC's interests in connection
with the Mill, the Pasta Plant or the Supply Agreement; provided, that such
lender or prospective buyer agrees in writing, prior to the disclosure of such
confidential information, to keep such information confidential. The obligation
of the receiving party to hold any such information in confidence shall be
satisfied if such party exercises the same care with respect to such information
as it would take to preserve the confidentiality of its own similar information.
If this letter is terminated, the receiving party will, and will use its best
efforts to cause its Representatives to, deliver to the disclosing party, upon
request, all documents and other materials, and all copies thereof, obtained by
the receiving party or on its behalf from the disclosing party in connection
with the Supply Arrangement that are subject to such confidence.

     17. Definitive Agreement. It is intended that the parties will enter into
the Supply Agreement which shall contain, in addition to the terms and
conditions set forth in this letter, such representations, warranties,
indemnities and covenants as are customary for an arrangement of this type. The
Supply Agreement, when executed and delivered, shall govern the rights and
obligations of the parties with respect to the Supply Arrangement. The Supply
Agreement will contain a binding arbitration dispute resolution procedure, using
a panel of commercially experienced arbitrators, unaffiliated with either party.

     18. Quality Control. In connection with the manufacture and refining of
Products under the Supply Agreement, Bay State shall comply with the quality
standards and procedures set forth in the Supply Agreement. Bay State shall
conduct periodic ingredient and process tests as set forth in the Supply
Agreement and shall reject any ingredients or process which do not conform to
the standards set forth in the Supply Agreement. Bay State will ensure proper
sanitation, and will provide for annual AIB inspections, maintaining a
consistent minimum score of 800.

     19. HACCP. Bay State agrees to maintain an HACCP program and to provide
copies of the required HACCP documentation to AIPC upon reasonable request.

     20. Inspections. Each party and its representatives shall be permitted
reasonable access, upon written notice to the other party, to the Mill or the
Pasta Plant, as applicable, for the purpose of observing all aspects of the
other party's operations, including manufacturing techniques, quality control,
sanitation procedures and testing procedures. Each party shall maintain and make
available to the other party's representatives all relevant testing and
equipment records. AIPC's representatives shall also be permitted to inspect
Products after manufacture and prior to delivery to AIPC, provided that such
inspections shall not delay or in any manner interfere with Bay State's
production or delivery schedules.

                                       10

     21. Insurance. During the term of the Supply Agreement, Bay State shall
maintain liability insurance of at least $10,000,000, with a deductible not to
exceed $500,000, endorsed to cover the indemnifications contained in the Supply
Agreement. AIPC shall maintain liability insurance of at least $10,000,000 with
a deductible not to exceed $500,000 endorsed to cover the indemnifications
contained in the Supply Agreement. Bay State and AIPC shall also carry
contingent BI coverage. Upon the execution of the Supply Agreement, Bay State
and AIPC shall furnish each other with certificates of insurance evidencing such
coverages. Such certificates shall contain clauses for notification of both Bay
State and AIPC thirty days in advance of any cancellation, reduction or change
in coverage.

     22. General Cooperation. Bay State and AIPC 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: (i)
opportunities for business referrals from Bay State to AIPC for the purchase of
AIPC Products; (ii) short term and long term goals of AIPC and Bay State with
respect to the Mill and the Pasta Plant and how the goals impact both parties'
business; (iii) coordinating durum grain procurement processes, transportation
and shipment of raw materials and finished products, cost improvement and
optimization of resources for both parties; and (iv) sharing resources including
without limitation, grain market analyses. In addition, Bay States agrees to
evaluate new processes and technologies, as they become available, that may lead
to improvements in Mill operations and reductions in operating costs and
overhead. The parties agree to develop an approach for addressing new
technologies and innovations in the Supply Agreement.

     During an expansion, if any, the parties shall meet at least quarterly to
discuss the status and progress for completion of the expansion, estimated
completion dates and AIPC's Product needs upon the completion of the expansion.

     AIPC and Bay State also agree to coordinate and cooperate with respect to
maintenance and fumigation of the Mill and the Pasta Plant so as to protect the
health and safety of persons at both facilities and minimize interference with
each other's operations.

     Bay State will not enter into an agreement with, solicit, initiate or
encourage any other pasta company or other third party ("AIPC Competitor") to
construct a pasta production facility adjacent to or in the vicinity of another
Bay State facility for the purpose of entering into a long-term supply agreement
similar to the type and nature provided for in the Supply Agreement ("Similar
Relationship") until Bay State has first given AIPC the opportunity to enter
into the Similar Relationship with Bay State. AIPC shall have a period of thirty
(30) days from the date Bay State first offers in writing to AIPC to enter into
the Similar Relationship, to sign a letter of intent with Bay State to enter
into such relationship. The parties shall negotiate the terms of the letter of
intent or the terms of the amendment, as applicable, 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, Bay State shall have the right to enter into
a Similar Relationship with the AIPC Competitor.

     23. Marketing Payment. In recognition of the benefit to Bay State of the
immediate Product demand associated with access to pasta customers available due
to AIPC's strong market position and the start-up costs and efforts of AIPC
expended in purchasing and reopening the

                                       11

Borden facility, the Supply Agreement will provide that Bay State will make a
one-time payment to AIPC of [*] on August 1, 2002.

     24. Force Majeure. If either party is unable to perform any obligation
under the Supply Agreement by reason of any of the following events (each, a
"Force Majeure Event"): (i) fire, explosion, natural disaster or act of God;
(ii) epidemic; any nuclear, biological, chemical or similar attack; any other
public or safety emergency; any act of terrorism; and any action reasonably
taken in response to the foregoing; (iii) strike or other labor dispute or
action; (iv) any act of war or of a public enemy, or riot or civil insurrection;
any sabotage, whether industrial or governmental; (v) any disruption in
transportation, communications, electric power or other utilities, or other
vital infrastructure; or any means of disrupting or damaging internet or other
computer networks or facilities; (vi) any action taken in response to any of the
foregoing events by any civil or military authority; or (vii) any other cause
beyond the control of the party affected, then the party so affected shall, upon
giving written notice to the other party, be excused from such performance to
the limited extent of such inability to perform, provided that the party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of such inability, and shall resume performance under the Supply Agreement with
all reasonable dispatch whenever such causes are removed. Until such time as the
affected party resumes performance in accordance with the provisions of this
Section 24, the party entitled to the benefit of performance by such affected
party may secure performance of such affected party's obligations from third
parties. Each party shall use commercially reasonable efforts to obtain
insurance for the benefit of the other party related to these Force Majeure
Events.

     25. Termination of Supply Agreement. Notwithstanding anything contained
herein to the contrary, the Supply Agreement shall provide for the adjustment of
the term, or termination, of the Supply Agreement in the event the agreed upon
performance requirements of the parties, as set forth in the Supply Agreement,
are not achieved. Specifically, the Supply Agreement shall provide for
termination of the Supply Agreement by either party upon the occurrence of a
material default by the other party under the Supply Agreement. A material
default shall include AIPC's failure to make payment when due in accordance with
the terms of the Supply Agreement.

     26. Waiver. In connection with the consummation of the purchase by AIPC and
the sale by Borden, Inc. ("Borden") of the real property and plant facilities
located in Tolleson, Arizona and owned by Borden (the "Borden Plant") and in
consideration of the covenants by AIPC contained in this letter, Bay State
hereby agrees to waive the following rights of Bay State granted pursuant to
Section 10 of the Flour Purchase Agreement dated November 18, 1991 by and
between Borden and Bay State (the "Borden Agreement"): (i) Bay State's right of
first refusal relating to the purchase and sale of the Borden Plant and (ii) Bay
State's right to require the execution and delivery of a definitive flour supply
agreement prior to, and as a condition of, the sale of the Borden Plant to any
third party purchaser; provided, however, that if the sale of the Borden Plant
to AIPC is terminated prior to the consummation of such transaction, this waiver
shall be, without any further action by Bay State, null and void and of no
further force and effect and the terms of Section 10 of the Borden Agreement
shall continue to govern any potential sale of the Borden Plant.

                                       12

     27. Nature of Letter. It is understood and agreed that this letter is
intended to be and is a legally binding agreement between Bay State and AIPC.

     28. Termination of this Letter. This letter may be terminated at any time
prior to the execution of the Supply Agreement by mutual written agreement of
Bay State and AIPC and such termination shall be without liability of either
party to other party to this letter.

     29. Miscellaneous. This letter may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The rights and obligations set forth in this letter
may not be assigned by either party without the prior written consent of the
other party.

     30. Headings. The headings of the various sections of this letter are
inserted merely for the purpose of convenience and do not expressly or by
implication limit, define or extend the specific terms of the section so
designated.

     31. Severability. If any provision (or part thereof) of this letter shall
be adjudicated to be invalid or unenforceable in any action or proceeding then
such provision (or part thereof) shall be deemed amended, if possible, or
deleted, as the case may be, from this letter in order to render the remainder
of the letter both valid and enforceable.

     32. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of Missouri.

                  [Remainder of Page Intentionally Left Blank]


                                       13

     Please acknowledge your agreement to the above terms by signing where
indicated below and returning one signed original to me.

                                       Very truly yours,



                                      BAY STATE MILLING COMPANY




                                      By:        /s/ John I. Hillman
                                          -------------------------------------
                                          Name:     John I. Hillman
                                          Title:    Executive Vice President


Agreed to and accepted this
28th day of March, 2002.



AMERICAN ITALIAN PASTA COMPANY




By:       /s/ David B. Potter
     ---------------------------------------
     Name:     David B. Potter
     Title:    Executive Vice President




                                       14

                                   SCHEDULE A

                                    Products


1.   Semolina (fine grind) on the basis of attached AIPC specifications dated
     03/09/1999.

2.   A blend of 60% semolina and 40% durum 1st Clear flour, specifications to be
     set forth in the Supply Agreement.

3.   Durum flour 1st Clear on the basis of attached AIPC specifications dated
     08/20/2001.

4.   Other Durum flours and flour blends, the specifications for which are to be
     agreed from time to time.

5.   AIPC agrees to use its commercially reasonable efforts to "balance the
     mill" by purchasing the naturally occurring yields of semolina and durum
     flour 1st Clear products, whether separately or as blended products.


                                       15

                                   SCHEDULE B

                                Pricing Formulas

A.   The FOB mill price for semolina is equal to the computation of the
     following components:

     1.   100 lbs. of 100% U.S. hard amber durum wheat basis the attached
          specifications priced delivered to the Tolleson mill (as-is basis).

     2.   Deduct the grain value of the moisture gains percentage.

     3.   Deduct the sales value of Durum flour 1st Clear.

     4.   Deduct the sales value of Durum flour 2nd Clear.

     5.   Deduct the sales value of Durum red dog by-product.

     6.   Deduct the sales value of middlings by-product.

     The result is the net wheat grain cost for semolina.

     Invoiced pricing will be in 1-cwt (100 lb.) units and will have the
     following components added to the wheat grain costs for semolina:

     1.   Applicable enrichments and/or treatments required by the
          specifications.

     2.   Mill operating costs, overhead, and profit (the "milling conversion"
          cost).

Pricing Example

         [*]

     If the milling extractions are: 75% semolina, 2% 1st Clear, 3% 2nd Clear,
     4% red dog, and 16% middlings, then based upon these extractions, together
     with the above prices and costs, the selling price of semolina would
     compute as follows:

         [*]

B.   Durum Flour 1st Clear. If sold separately, selling price will be sold FOB
     the Mill at the same price per cwt. as it is credited in the formula
     pricing structure for semolina. i.e. in this example for [*] per cwt. AIPC
     will determine the pricing of the 1st Clear flour products and such pricing
     will be used to determine the credit for the 1st Clear by-product in the
     pricing of the semolina flour.

C.   Other durum flour, or durum blends not specifically identified here, will
     be mutually agreed to at the time of sale, and based upon actual costs in
     effect at the time of sale.

                                       16

The actual milling extractions and grain moisture gains will be measured and
analyzed on a quarterly basis, the results of which will determine the pricing
formula to be utilized during the next quarter as provided in Section 3(b).




                                       17

                                   SCHEDULE C

                               Mill Purchase Price


Computation of the purchase price of the Mill shall be as follows:

Current durum mill asset value                                                     [*]

Add           Applicable Capital Investments
              -- Flour conveying pipeline.
              -- Durum grain storage and unloading/receiving pit.
              -- Mutually agreed milling expansions.
              -- Other improvement/modification capital investment expenses

                                                                                ------------------------
Deduct        Accumulated depreciation expense on Applicable Capital Investments
                  Net Book Value of Total Assets                                ------------------------

              Future purchase price of the Mill Assets
                  (Net Book Value x.85)                                         $
                                                                                =========================

NOTE:

1.   Bay State and AIPC will agree and define the land area to be included in
     the purchase price of the Mill at the time of execution of the Supply
     Agreement.

2.   The current durum mill asset value will not be subject to depreciation,
     such that the Net Book Value will not fall below [*].

3.   Depreciation on Applicable Capital Investments will be calculated under the
     federal rules for grain and grain mill products, which is Section 20.1 of
     the Class Life Asset Depreciation Range System (CLADR).

4.   Bay State agrees to use its best efforts to maintain the Mill and any
     improvements in a proficient manner for efficient operations and in
     accordance with good manufacturing practices, replacing equipment as
     necessary.

5.   Bay State will make all appropriate and customary representations and
     warranties with respect to the Mill and the surrounding property pursuant
     to a customary purchase agreement.

6.   In connection with the determination of the Mill Purchase Price, AIPC shall
     be entitled to review Bay State's books and records with respect to any
     capital assets added to the Mill and included in the purchase price
     calculation set forth in this Schedule C.


                                       18

                                   SCHEDULE D


                             See attached site plan


                                       19